Don’t we all want our money to grow? But then again, we also need money to meet our expenses. So here comes the question, should I invest long term and block the money, or should I invest for a short term?
Both short term and long-term investments are important for growing your wealth, hence its crucial for you to know why and when you need the funds.
Short term investments
Short term investment can be anything that is invested for a few months or up to 3-4 years. People choose to go for this option when they know they will need the money soon or they want a regular source of income.
We all have short term goals like a fancy vacation or a new big new T.V. And while we save for it, we know that we will need the money soon too. For such needs and scenarios, short term investment is your go-to option. You can go for bank deposits, FD’s / recurring deposits or Debt mutual funds. You need a more liquid investment option so that it’s easy to liquidate it and earn from it at the same time. Hence volatile investment options like equity or shares would not be preferred as there chances of losing money in the short term. You also need to read and know about the withdrawal rules and penalties if any in case you plan to take the money earlier than planned. Banks and financial instruments like MF do charge a penalty for early withdrawals.
Short term investment is also done for the need of regular income. For example, senior citizens who need regular inflow of money to meet their household demands. While the returns on short term investment may not be high but you do have income, you can rely on.
Long term investments
You can choose long term investments when you have time in hand and in no urgent need of the money. It’s also known as buy and hold strategy and can provide you the opportunity to grow your portfolio as you know you are in it for the long run. The best options for long term investments are equity and real estates.
When you are young and working and have your regular income coming and there is still a decade or two for you to retire, investment in stocks is the best option to go for as they take time to grow. Long term investments also give a chance to beat the inflation as stocks though riskier, give you good returns in long term which can help you attain your long term financial goals.
The best way to invest is always to keep a mix of both. Young and earning people with some time to their retirement can invest 80% of your money in long term and remaining 20% in short term to meet near future expenses or plans. But if you are in need of regular income, park 80% in short term investments and the rest in long term. Age and time both play a major factor, so you have to know your financial goals, future plans and requirements before you put your money to work.
In my next blog, I will talk about reasons why you need to maintain emergency funds. So stay tuned and if you like what you are reading, don’t forget to drop a comment below.
This blog is a part of Blogchatter’s #blogchatterA2Z challenge.
21 replies on “Short Term Investments V/S Long Term Investments”
I prefer both short term and long term investments. Who doesn’t wang their money to grow right! Loved the way you’ve explained Hansa.
What I understand from your post is that there’s no one-size-fits-all approach to investing one’s money. Correct?
Absolutely. Investing is like first understanding your needs and acting upon them financially.
Hey ur blog is superp.. Clearly explaining the requirement to invest in short term or long term..
Seems like I would like to go for a long term investment anyday. But these are good tips to think about other ways of investing too.
Understanding investment is really required. Both long and short term. I actually do prefer both and I do invest a lot. And you have explained the pros and cons really well!
Investing is important and I liked your suggestion of 80% investments in long term and 20% in short term. Your explanation of both short and long term is clear and easy to understand.
I prefer both short term and long term investments. Currently, I am investing in PPF and crypto currencies.
Oh that’s wonderful
It is always financially prudent to hedge short-term investments with long-term ones. A diversified portfolio is also a good thing as you are not putting all eggs in the same basket.
I usually prefer long terms investments but these days I have been thinking about some short term investments too. I still need to find out ways and invest so my money is not locked in and is easily available.
Investments are the need of the hour … especially in the wake of the pandemic which has ripped off families everywhere of their valuable savings for treatments related to hospitalization. Your post is the step in the right direction.
Thanks a lot Rahul 🙏
Very well explained.. I too segregte my saving always into long term and short term savings.. mostly on short. Although msot of the schemes these days offer zero charges before time closing option too.
I am always long term investment person, this makes me feel secure and we can always withdraw at an hour of need though with few cons. Hansa, I am loving your series that makes a person financial sound.
Thanks a lot 🙏🙏
That was a real comprehensive guide! I need both of them for the separate goals of my life.
Perfect way to go. Hold a mix of both