The Pros and Cons of Short-term Investing
Investing comes in different kinds. By definition, it is an act of allocating funds to make a profit whether it’s property or stocks. Many people find it appealing to invest because we all know that even though it is risky, the ROI is mostly worth it—if done the right way. A lot of people find that investing long-term is not possible because of all the risks involved, plus all the requirements that are needed to accomplish. It takes up a lot of one’s time, which is why some people are more tempted to go for the short-term route or short-term investment.
What is short-term investing? This is the type of investment that has a low risk with small returns or ROI. However, what makes short-term investing very appealing is the fact that even if the returns are small, they are usually considered reliable. The major difference between short and long-term investment has to do with the goals you have. For instance, your goal is to save enough for a down payment for a house you want to buy or a vacation you have always wanted, short-term investment should cover it. Long-term investments are for goals that have to do with retirement or those that are meant to be achieved not anytime soon.
We have previously talked about the pros and cons of investing long-term, but what about the short-term? What are the perks and the possible consequences of it?
Unlike long-term investing, short-term investing does not require a huge amount of money, which is why there are low risks involved. At the same time, the funds are most likely readily available, in short, there is high liquidity.
Small but Reliable Returns
Short-term investments have a bigger growth potential in a short span of time—it could be days, weeks, or months. Unlike in long-term investment, you get instant results and you don’t have to wait for years to see where your investment is at. This way, you have more control over the money that you have.
Easy to Start
Just like I have mentioned, it’s relatively easy to start because you don’t need to spend as much as you would if you decide to invest long-term. You can easily get money from your bank account to invest in something. Because you are not entirely bound by a specific amount of money, you can use what is available and what you are willing to spend.
Although technically, short-term investments are low risk, you can’t avoid expenses that may come with it. Short-term investments and capital gains are taxed differently compared to long-term ones. It may seem like you’re paying a reasonable amount in the beginning, but that might not be the case in the long run.
Not Enough Preparation
Most of the time, short-term investments are decided out of a specific goal in mind. This means that not a lot of time is invested in planning this out. Anytime that you jump into a venture, you should always set a planned destination and a backup plan. Most short-term investors forget the importance of that because of the mindset that the particular venture may not be around in the next 10 years.
Short-term investments are not necessarily known to have growth because most of the time it happens long-term. So you shouldn’t expect that there will be a steady growth. Making better predictions in the financial market mostly happen in the long-term as well.
Regardless of your choice, you should always keep in mind that planning, research, and strategy are all needed to make it work. It’s important that you know what you’re getting into as opposed to just winging it because it’s just going to end badly.