As an investor, your investment strategy will usually depend on your goals & aspirations and risk tolerance. But there’s another important factor – your investment timeline; which is broadly broken down into the short-term and long-term.
In the short-term, you would typically invest in defensive investments such as cash and fixed interest assets. These investments are used to diversify a portfolio and provide steady returns while protecting your capital. While they may not match the returns of long-term investments, short-term investments are especially useful for individuals that need to access money within a specific period of time.
The assets that you invest in over the long-term carry more risk, but provide the opportunity to earn great returns, primarily through capital growth. In the long-term, you will invest in growth investments such as property, stocks and other alternative investments. Given that these asset classes are prone to the risk of capital loss, holding them over the long-term will allow investors to reduce their exposure to market volatility. In addition to the capital gains, long-term investments can also provide passive income in the form of dividends (shares) and rent (property). If you haven’t yet read our article on investing over the long-term, you can access it here.
Whether you decide to invest in the short-term or long-term may depend on which stage of your life you are in. For example, if you are younger, you may want to have a mix of both short-term and long-term investments. Short-term investments such as fixed interest assets will help you to pay off monthly commitments and save for those big expenses. On the other hand, long-term investments provide higher returns over time, and will play an important role in building your nest egg leading up to your retirement. Once you retire, you can then choose to relook at your investment horizons depending on your financial goals.
As an investor, it is important to find the right mix of both short-term and long-term investments to achieve your financial goals. A combination of short-term and long-term investments will provide you with security and liquidity, and allow you to benefit from the upside of your growth investments. If you’re unsure about how to get started on this journey, speak to a financial planner that can guide you on the way forward.