Today we are going to compare Short Term and Long Term Investing!
Individual financial goals have become the need for every individual nowadays. In order to maintain financial stability, people are offered with a variety of investment schemes by banks. Investments are the purchase of monetary assets for generating future income. Investment helps to expand, grow, or multiply funds. Investment is a future-oriented concept with the involvement of risk as the future is uncertain, but the hope of returns is higher.
Investments are of various types, but majorly, there are two types based on their risk involvement and tenure. The various investment schemes are categorized under short term and long term investments.
Difference between Long term investment vs Short term investment
Short Term Investment
Short term investments are temporary investments that give quicker decent returns. They generally inculcate a habit of saving money, growing it and converting them into immediate cash. You don’t have to lock up your lump some money for a longer tenure over here. These investments are generally flexible, with shorter tenure and can be started with any amount of money. The risk is low, so many people opt for it.
Long Term Investment
Long term investments are investments that have tenure for more than three years. You have to put in a good amount of money to start with any long term investment scheme. They provide you higher returns and good interest over it. But they cannot be redeemed before their maturity. The risk is high as compared to short term investments. It helps to accumulate funds for a longer period.
When deciding for opting for investments, you need to be clear about the purpose or reason behind such an investment scheme and how much money you will be expecting out of it, or you will require. Based on that, you will be able to know which type of investment will suit your situation better. Since risk is involved and the question is about monetary assets, such decisions should be made soundly.
Let’s take a look at the differences between short term and long term investments which will help you in making a decision for opting for which type of investment.
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Short Term Investments versus Long Term Investments
- Varied Expectations: Short term investment multiplies your money in a much faster way as compared to long term investments. Generally, short term investments are opted to generate near future expenditures where long term investments are made for major future events or financial requirements.
- Varied needs based on time: Short term investments are designed to encourage a habit of savings whereas long term investments are designed for meeting major financial requirements in the future like marriage, buying a car, home, etc.
- Varied Risks: Short term investments have lower involvement of risk, whereas long term investments have higher involvement of risks as you lockup the money for a longer time.
- Faster Liquidity: Short term investments can be converted into cash as and when required, whereas long term investments cannot be converted into cash before its maturity.
- Flexibility: Short Term investment schemes can be changed based on your requirements during its active tenure itself wherein case of long term investments you cannot easily alter the schemes as per your requirement.
- Varied objectives: Short term investments can fulfill your short term goals like funding a vacation or buying jewelry, etc. since its tenure is less a year. But long term investments are generally opted for securing your future by providing the financial backbone.
- Returns on investments: Short term investments have moderate or slightly higher returns on the invested amount, whereas, for long term investments, the returns are much higher than short term investments.
- Initial investment amount: For short term investments, any amount can be used to start it whereas, for the long term, a good amount of money is required to activate such long term schemes.
Investment decisions are the toughest ones, so, the first thing you should do is think about what are you investing the money for. Based on that, your next decision should be to decide whether a short term investment makes sense for your scenario or a long term would be the right option.
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Think about it thoroughly and then make a decision. So I hope using this guide you will be able to understand the difference between Long term investment vs Short term investment.