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Difference Between Long Term & Short Term Investment

by Kate Williams - 28 Jul 2022, Thursday 214 Views Like (0)
Difference Between Long Term & Short Term Investment

In today's investment world, we have endless numbers of investments to choose from, whether you want to invest in gold or go with shares. Some of them are long-term, and some of them are short term investment options. 

However, most people doubt whether they should go with long term investments or choose short term investment options. Therefore, understanding these two options' differences is the most common thing here. To help you here, we have mentioned them in the below section. Please go through them and then decide according to your needs. 

What is Long Term Investment?

First, understand that long term investment is commonly related to long durations, such as 10 to 20 years or more. However, such investments are often taken for future safety. For example, suppose you have an existing house and want to buy a second home in a new city. So, the amount you invest will be used for that purpose only.

Also, long term investment is related to higher profit if you leave your money for ten or more years. Long-term investments do not allow you to withdraw the amount before the stated period. However, if you do so, you will have less return.

Features

  • Such investments can pay you higher returns.
  • Exchange-traded funds, real estates, stocks, and others are long term investments.
  • Higher chances of recovery.

Despite that, you can start investing in retirement funds to get a significant amount on the maturity date.

What is Short Term Investment?

The short-term investment comes with a time limitation starting from three or six months to three or five years. However, such investment plans are good if you need money soon. For example, you can start investing in short-term fixed deposits, mutual funds, bonds, money market funds, and much more.

Despite that, if you want some more options, you can start investing in Binary Options Trading. It can be included in short term investment as you have to invest the money and take it out once you reach your desired target. On top of that, you can take the help of available brokers, like Spectre.ai.

According to Spectre.ai reviews, it has a minimum deposit, educational knowledge, one-click trading, and much more. As a result, it is one of the best trading platforms for binary options trading. 

Features

  • Massive liquidity
  • Low and fixed returns
  • Low risk is involved
  • Exemptions from income tax 

After all, letís take a quick view before moving to the differences between short and long term investments below.

Quick table

This table will give you a quick view of several differences. So, let's look at them from the table below.  

Long Term Investment

Points

Short Term Investment

Long-term investments are those which are committed for more extended periods.

Meaning

Short term investments are those which are committed for shorter periods.

From five years to ten years or more

Duration

From three or six months to five years

Real Estates, Retirement Funds, Stocks, Equity, etc.

Examples

Treasury Bills, Bank FDs, Recurring Deposits, Mutual Funds, etc.

A long-term investment is related to high risks.

Risk

A short term investment is related to a low risk compared to a long term investment.

There are massive chances of recovery.

Recovery

The ongoing events can reduce the chances of recovery.

Investors need in-depth and complete research before investing.

Research

Investors need less research compared to long term investments.

Long-term investments are bound to a certain long period. Hence, it comes with less liquidity.

Liquidity

Short term investment comes with high liquidity due to lesser time duration.

Passive investors can invest for a long-term duration.

Type of Investors

Active investors can invest in short term investments.

In this table, we have understood the basic nature of both investments. Now, itís time to discuss them.

Differences between Long & Short term investment

First, letís discuss the long term investment.

Long-term investment starts from five years to ten years or more. However, it involves less liquidity, and your money gets locked for the stated period. Similarly, due to future uncertainties, you can expect high risk.

Furthermore, sometimes, due to government legislation, beginners cannot make long term investments. Also, long term investments are related to a specific goal. For example, long-term investment is suitable if you want to invest money for marriage. Here, marriage becomes the purpose of investing in long term investment choices.

Now, most people are scared about their future. Therefore, they started earning early and saved in the long term investment plan. So they can enjoy stable financial conditions after a specific period, say retirement.

On the other hand, the short term investment is a bit different from a long term investment. The short term investment starts from six months to five years. However, it involves less risk compared to long term investment. Also, the money invested in the short term can be withdrawn after a certain period, and you will get the returns.

Furthermore, short term investment comes with a predetermined purpose. The short term investment is used in two-wheeler purchasing, planning a vacation, car purchasing, etc. As a result, short-term investments do not involve huge returns.

Besides that, most people have short term investments to fulfill their day-to-day demands, such as car purchasing.

Conclusion

That's done for now!

Long-term and short term investments often need patience if you want returns. Therefore, in our opinion, suppose you have money that is of no use, or you don't need it for at least five to ten years. You can invest in long term investment options, and real estate is the best example to invest in for a long-term period.

Similarly, if you have sufficient amounts that you will need soon, invest in short term investments. Binary options, mutual funds, and fixed deposits are the best examples of investing in short term plans.

So, we hope you may have understood the difference between long term and short term investment. Don't forget to share the investment type you will choose in the comment section.???????