Long-term vs. Short-term Investments

There’s a huge debate online regarding this issue and most of the people do not manage to decide which is better for them: long-term or short-term investments. Because of that, we want to put this into a broader perspective today and hopefully, you will manage to understand which suits you the best.

Long-term investments

If we talk about long-term investments, it generally suits those of you who already have a full-time job and a family, which makes it impossible to track the financial markets on a day-to-day basis. Also called passive investing, it basically means buying financial assets like stocks, bonds, commodities etc. for long periods of time.

If we talk about long-term investments, you need to understand that you can manage to achieve relatively-low returns (a few percentage points per year), but still, that will help you to protect yourself against the weakening power purchasing of money. As Ray Dalio, the famous investor and founder of Bridgewater Associates once said: “Asset classes on average will outperform cash” in the long run and that had been proven by the performance of the financial markets.

Although it does not require too much time, we believe that tracking the performance of your holdings on a constant basis is important, given that markets are more volatile than usual nowadays.

Short-term investments

Also called trading, or speculation, in this case, you will be profiting from short-term market movements. Currency trading is one of the most popular, but people also trade stocks or commodities in the same way.

In this case, you will need much more than to track the markets and monitor your positions. A greater degree of risk is also involved since most of the traders use leverage, which acts as a double-edged sword: it can amply your profits or your losses.

Trading requires you to understand concepts like price action, order flow, and the forces that drive prices up and down in the short run. Also, one of the most important aspects ignored by beginners is the influence of emotional regulation.

You will need to have a greater control over your emotions since you will be dealing with risk on a constant basis and you will need to manage objectively losing trades sometimes.

Returns can be higher in the case of short-term investments, but there are greater challenges involved as well. However, if you are fully committed and you want to do this full time, there are people out there which managed to be successful and you could do it yourself if you are willing to do all the hard work.

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