When you become an investor, you’re probably eager to start seeing returns and could be tempted by short-term investments. However, having a little patience and investing over a longer-term could be the best way to maximise your returns without needing to up the risk. Here’s everything you need to know about investing for the long and short term, including the merits and drawbacks of each strategy.
What is a short-term investment?
According to Investopedia, short-term investments are broadly defined as those that you intend to hold onto for a year or less. You may hear them referred to as ‘liquid’ investments, which means they can be converted into cash quickly and easily. They’re attractive to investors who are comfortable with more risk and who are seeking speedy returns.
There are drawbacks to investing over a shorter time frame. Generally, they’ll require you to have more knowledge about the investment world, as they tend to be riskier. You (or your investment manager) will need to play a more active role in managing them, which can be time-consuming or costly.
What is a long-term investment?
A long-term investment is defined as one that you’re intending to hold for at least three years. There’s no upper limit, though, and if you’re investing for a long-term goal, such as retirement or your children's education, you could keep your funds invested for decades.
While no investment is completely risk-free, longer-term investments tend to be lower risk. That’s because the longer time frame cushions the impact of market dips and crashes, as your investments have plenty of time to potentially recover in value. They’re also better suited to investors who would prefer not to constantly monitor their investments or pay fees for an advisor to do so.
Which is better - long or short-term investments?
Both long and short-term investments have their merits. If you’re not able to or don’t want to tie your funds up for years, but would like to give them a chance to increase in value, investing with a shorter-term focus could suit you. However, as they’ll have little time to grow, they can be inherently riskier, as they are geared towards producing high returns in a short amount of time.
On the other hand, if you have the patience to tie your money up in a longer-term investment, you can access potentially good returns without needing to dial up the risk. You won’t be able to access your funds without financial penalty (if at all) before the end of your agreed investment term, so it’s important you can afford to spare the money you’re choosing to invest.
Why are long-term investments important?
Long-term investments are less volatile and more likely to generate returns as they have the time to ride out dips in the market. It can also be advantageous from a tax point of view, as you’ll receive a good amount of income gradually, rather than having a sudden influx of cash. You may also save money on fees if you’re happy to hold your investments for a number of years, as you won’t need to actively trade to make the most of your money.
Are there investments that offer short and long-term rewards?
There aren’t many ways to enjoy short-term returns from a long-term investment, but real estate is one of the most notable exceptions. To maximise your potential returns, it’s best to hold your property for at least a few years before selling it on, to give its value a chance to rise.
Of course, its value is never guaranteed to increase and could also go down, but property is considered one of the safest ways to invest. But while you’re waiting to enjoy significant returns, you could choose to rent out the property and enjoy income from your tenants in the meantime.
One of the main things that stops people investing in property is the cost. In the most desirable markets, it can cost hundreds of thousands of dollars to purchase even a small property. However, with a crowdfunding platform like Bricksave, you can enjoy the benefits of property investment without the hassle or prohibitive cost of purchasing and managing a whole property.
From as little as $1,000, you could purchase a share of a house in some of the world’s most desirable cities and regions. And Bricksave will handle everything, from filling the property with tenants to handling its sale a few years down the line.
If you’d like to find out more about starting your real estate investment journey with Bricksave, discover how it works right here.
November 01, 2021
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