What is difference between Long term vs Short term investment?
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- Updated On:26-May-2021
- Replies:2
Short Answer
Short term and long term investments are the two types of investments, allowing people to invest in assets which can help them to generate a profit in the future. Both are important in there own ways and it is important to diversify also. An investor needs to be mindful about investing in both.
Detailed Answer
Introduction:
Investment means any security or asset which are created with the aim to either appreciate/ increase its value of generate income. The sole purpose of investments is to generate profit, so it is important to study all the areas before purchasing or investing in any asset or investment. There are several ways to invest such as: buying and renting the buildings, investing their money in stock market, etc., which can help the individuals in the future.
Long term investments:
The investments are usually taken for duration usually more than 5 years and offer higher returns after some years. These investments are usually made by the individuals to meet some of the major goals or phases of their life. These have a lot of market speculations involved with it but also involves very high returns. Usually, such long-term investments cannot be liquidated, the investor needs to be quite patient and also monitor the market scenario depending upon their long-term investment.
There is no hurry to decide what is to be done with the investments, in case of stocks, there is no hurry to sell anything as there is ample time to decide. These investments are made as per compound interest and there is no stress because it will always be a very compact and contract based. These enable you to take advantage of favorable tax treatment and lower operating costs because these expenses will only be realized if you adjust your investments. Your costs will stay low if you quit your investments alone.
Short term investments:
These investments are usually taken for a duration less than 5 years. It involves less market risks and also can be liquated whenever needed. These investments are usually made by the individuals to meet their short-term goals and has high flexibility. It is quite a good option for individuals if they want to save their money.
These are very unpredictable and also can be tough to make judgements regarding it. Such investments usually give irregular returns as in more or less than what was expected. They allow you to take advantage of the economic data and news cycles. Specifically, in stock market, it is very difficult to determine anything in such short duration.
Some examples of short-term investments are money market accounts, certificate of deposits, treasury bills.
Difference between short- term investments and long-term investments:
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Discussion (1)
Fixed Deposit (FD) are saving tools offered by banks to deposit lump sum amount for a fixed period of time on a higher interest rate than saving accounts. Mutual funds are investment products which pool money from numerous small investors to create a fund.
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There are various terms that play a huge role in determining how to choose stocks for long term investment such as P/E ratio, dividend consistency, etc. For a more elaborative information head below and read the explanation given for better understanding.
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Harshil Patel
Short term investments are great considering the fact that it helps in swing trading and trend trading. Long-term investments are those where you conduct fundamental analysis and then invest in the company. It's where you tend to buy for a small price and then make considerable profits over the long term of 10+ years.