Difference Between Long Term Investments and Short Term Investments

There are a variety of different types of investments available today – there are short-term investments, long-term investments, and as many different investment strategies as there are investors. Having to choose between this wide arena can at times, prove to be very difficult, as it is a question of finding a compromise between how much risk one is willing to take and how fast they want their investment to grow.

This compromise between safety and risk and the comparative rates of growth is what differentiates short-term and long-term investments. Short-term investments are designed to be made only for a little while, and hopefully show a significant yield, whereas long-term investments are designed to last for years, showing a slow but steady increase so that there is a significant yield at the end of the term.

Short term investments tend to carry a little more risk with them, showing far higher rates of fluctuation than their long term counterparts. While there is a good chance that you’ll make money with a short-term investment, there is also a chance that you’ll lose money. Investing in stocks and bonds is a good example of a short term investment precise timing in purchasing and sale of stocks could make you a millionaire overnight. The downside being you might end up losing every last penny making a bad bet on an investment.

In contrast, long-term investments have the ability to gain small amounts of money over a longer period of time. The slow-but-steady pace of long-term investments allow for a much greater degree of stability and a much lower risk than short-term investments. Long term investments are usually chosen as an investment option when there is a lot of time on hand, as is the case with say, a retirement fund, which continue to grow over the years, maturing just as you need them.

But the very same thing that makes long term investment so appealing – the lack of risk, means that one needs to show a lot of patience in making a long term investment. Additionally, with many of the long-term investments that you’ll find, you tend to have much less control over your money until the investment matures. There are usually penalties or fines associated with early withdrawal or selling stocks and bonds through long-term investment programs.

Hence, while making an investment, it is prudent to compare the benefits and drawbacks of both short-term and long-term investments and choosing the one that best fits your current financial needs.

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