Introduction to Investing for Short-Term and Long-Term
It is important to know whether you’re Investing for Short-Term and Long-Term. These two are two different goals. the three things you need to know before investing are the time duration of investing, risk tolerance, and goals that you want to meet.
The money that is needed in a short time should not be invested in high-risk assets like stocks. Because stocks can drop in value in large amounts in a short duration of time. And if you invest for a short time then without proper planning you will end up making big losses.
The money that is not going to be needed for a long time then you can invest in the stocks. Money for the retirement plan. The market can give very good returns than many other asset classes.
Short-term investment includes investments that are done for less than 3 years of period. It is the money you are recently saving for some good purchase. You need this money within this time. So you need to invest this money in a less risky asset class like a fixed deposit.
Long-term investments include investments that are done for more than 10 years of duration. The duration is such huge that you can easily invest in the risky asset class. You can see multiple ups and downs of the market in such a long period. Despite how many ups or downs the market has in the short time, in the long time horizon market is always going up so no need to worry.
Short-term goals can be fulfilled without getting wiped of your capital
High-yield saving accounts
this savings account can provide much higher interest rates than normal savings accounts. These savings accounts can help you to grow your money without any risk.
Fixed deposits
For short-term goals fixed deposit for the confined tenure is also a very good option. putting your money in a fixed deposit helps your money grow without any risk.
Bond funds
It is an investment instrument that is backed up by many government bonds like municipal, corporate, convertible, and mortgage-backed. It will provide monthly income to the investors for short-term money.
Long term Goals
Stocks
Stocks can help you to meet long-term goals. You have to be growth oriented for the long term not profit oriented. If you are profit-oriented then in the meantime if you see profit in your portfolio you will sell the investment and make up your mind to take profit. Historically proven that in the long term stock market has given a good return. Dividend given by the company from their profit is also a stimulating factor for adding wealth in the long term. Some companies pay cash dividends and some pay stocks as dividends. This will help in compounding the wealth in the long term.
Mutual funds
Mutual funds are also a great way of investing money for long-term goals. It is managed by the fund manager. You need not worry about anything, all the things are managed by the manager. You just need to give money to the manager. Manager will take care of your money and helps in growing your capital.
Different types of funds are available like
Income fund
Stock fund
Balance funds
Index funds are like mutual funds which invest only in a certain stock market index. If the index goes up in the long term then your money will also grow with the index. Thinking in the broad view index is formed by the basket of the companies. Indirectly if the companies perform well in the long term then the index goes up and our money grows.