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The Balancing Act: How To Manage Short Term And Long Term Investments Effectively

Oct-22-2019Blog by – Mr. Ashish AjmeraRead Time: 4 Min.Word Count: 814112The Balancing Act: How To Manage Short Term And Long Term Investments Effectively
For every investor, it is important to know that there are various types of investment. Investing is a not a get rich quick tactic but a systematic process which involves commitment and dedication apart from sound logic and analysis. It is preferable to have professional assistance in this regard and one should look for the best online advisor to help manage the long term and short term investment options.

Those looking to make a quick buck out of buying and selling securities can ensure heavy losses if their trades go wrong or if the broad markets turn lower sharply. It`s often a long-term process that requires patience, commitment, and keeping calm when the market enters in a volatile spell. However, volatility is a part and parcel of the investing journey and savvy investors can use it to their advantage via a careful selection of stocks which help in weathering the fluctuations. It does make sense to manage both the short term and long term investments in a judicious manner to create wealth over a period of time.

So what exactly do we mean by long-term investments and short-term investments and how exactly one deal with them? Understanding the long term and short term types of financial vehicles is extremely important to work out a combination of various investment strategies for you. A long-term investment usually offers a higher probability of maximizing your return over sizable period like 10-20 years. Long-term investment vehicles include equities and index mutual funds.

On the other hand, a short-term investment is an investment you expect to generally hold to 1 year or less before converting back to cash. Examples of short-term investments include money market funds, certificates of deposit, and short-term bonds. Likewise, short term trading in shares, which entails buying and selling them within a few days or weeks or few months also implies short term investment.  Intraday trading, however, is a fairly risky activity and one needs to do plenty of research before venturing into it.

Long-term investments are those which that you can expect to pay off after holding them for a period of several years. When investing long-term, there is a possibility to be more aggressive because you have a longer time horizon, so you could opt to invest in an aggressive mutual fund to get the highest rate of return. However, keep in mind that your personal attributes like age, income and risk taking ability would matter the most when it comes to choosing a judicial mix of various types of financial assets.

Also keep in mind that when you invest for the long-term you must not panic when the value of own investment falls due to short term market gyrations.  The financial markets are cyclical in nature and therefore when you are looking at building long term wealth, fluctuations lasing over a few weeks should not bother you much. Similarly, when you park funds for a short period, do not make the mistake of extending the duration of such an investment just because the market is not offering the expected kind of returns. Focus on the investment objectives and do not let emotions overcome your judgment. 

When you decide how much risk you can bear, keep in mind that the longer you have to invest your money the bigger the risks you can take. If you need the money in the next few years, take a more financially conservative approach to your investments and opt to invest in a more secure type of investment. Another factor in choosing the type of investment may be what you are planning on using the money for. This is likely to have a great bearing on how much risk you feel comfortable with while investing.

Meanwhile, when it comes to investing in stocks for long term, be careful of not placing a bulk of your funds into just one company or allocating it to just one or two sectors. Diversify your risk by spreading your stock investments over a variety of industries and types of companies. Also ensure that you engage into a regular review of these investments to check out their performance.

Conclusion:

Before deciding about the types of investments and how to strike a perfect balance between them, it is important to define your short term and long term goals. Short term goals and long term goals require a clear demarcation for every investor. There should not be any overlapping and it is important not to get swayed away by market moods and swings.  Also it makes sense to add a layer of safety to your overall portfolio by including some liquid assets like Gold and liquid debt funds. Keep in mind that juggling between the short term and long term spectrum of the horizon is a continuously evolving process. It is very much desirable to have one of the most efficient financial advisors.

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