Short term Investment or Long-Term Investment, Which one is More Profitable?
Short term Investment or Long-Term Investment? Investors will always be confused and dilemma in choosing the investment period. For some investors, short-term investments are chosen because they have the potential to provide faster returns. Meanwhile, long-term investments are chosen to take advantage of the compounding effect, minimize risk, and to realize various financial goals in the long run. If you are faced with two choices of investment period, which period do you prefer? Certainly must be based on the needs or objectives behind the investment itself.
- The maximum time period is one year, even less than a year.
- The risk tends to be greater
- Get profits faster
- Suitable to meet short-term needs
- The compounding effect is not very significant
- Able to meet the needs with a high degree of urgency
- Vulnerable to inflation because its valuation may not be able to rival the annual inflation rate.
- Usually more than a year or even decades.
- Consistent Advantage
- Enabling investors continue to earn income in the long run
- Investment funds withheld longer
- The profit potential is much higher because the compounding effect
- Suitable to meet long-term sustainable needs
- The compounding effect in the long run can make its valuations overcome inflation
Which one do you choose? Short-term Investment or Long-Term Investment?
For most investors, if they have to choose, of course this is a difficult choice. However, there are many investors who combine the two investment periods in their investment activities. The considerations are as follows:
Considerations on choosing short-term investments
Many investors who prefer to accelerate the velocity of money then, they prefer short-term investments so that the return in the form of the principal investment and interest can be obtained more quickly. After that they reinvest principally in other investment instruments, or trade in financial markets, and so on.
Meeting short-term needs
For the majority of young professionals, where monthly income is still not sufficient to invest every month (routine investing), short-term investment is considered the most appropriate choice.
Because, in the future, there are only short-term needs that must be met, while emergency funds cannot be routinely set aside from relatively small monthly income.
Considerations on choosing long-term investment
Maximizes the compounding effect
Many investors tend to choose long-term investments because in fact the benefits of the compounding effect in boosting the valuation of funds from time to time. The compounding effect is actually very common in the investment and credit world. It's just that, many investors have not maximized the benefits.
Minimize potential risks
Short-term investments are actually vulnerable to risk, mainly because of the high level of fluctuation, and investors who choose long-term investments tend to aim to minimize such risks.
Although take a long time, long-term investments can gradually increase the value of money invested consistently. Although slower, the stable rate of long-term investment allows for a much greater level of stability and a much lower risk than short-term investment.
Meet a variety of long-term needs
Various long-term needs such as marriage costs, children's education costs, to pension funds can be met with long-term investment yields. Investors only need to be patient because the time required is longer.