Long Term vs Short Term Investments
Disclaimer: I am not your financial advisor, and none of this is financial advice. These are only my thoughts and opinions, so please be responsible with your funds and think carefully before making decisions.
In this article, I will be talking about my thoughts on long, and short term investments, the pros and cons, and the type I prefer.
How Do You Determine a Long/Short Term Investment?
Usually, short-term investments are investments held for less than 1 year, while long-term investments are usually held for 3–10 years.
When making a long-term investment, you will probably be looking for an asset that you believe is undervalued or has a lot of potential for the future. Therefore, buying and holding this asset will probably bring you gains over the course of a couple of years.
When making a short-term investment, you will probably be looking for arbitrage opportunities or quick flips.
Long-Term Investment Pros and Cons
- Long-term investments are usually less risky than short-term investments
- You can buy and forget as you are looking at the long run, you don’t need to continuously monitor the market to profit
- Gives you the opportunity to take advantage of both short-term and long-term growth
- It’s the easiest way to grow wealth, with real examples (Warren Buffet, Charlie Munger and more)
- Your money stays invested for a longer time, giving you less liquidity to do other trades
Short-Term Investment Pros and Cons
- Your money is invested for less time, enabling you to do more trades and have more liquidity.
- If you are doing really quick trades, it is lower risk than long-term investments
- Doesn’t create much value to the economy
- High cost due to commission fees
- Requires a lot of time and energy to monitor the market
Overall if you ask me, I think I would prefer a medium-long term investment. First off, I’m not really a professional fulltime investor who has time to monitor the market 24/7, and personally I like to create more value for the economy and actually contribute and witness a company’s growth. I think long-term investments are way more stable than short-term investments, with less volatility in total.