Short Term Investments V/S Long Term Investments

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.