Short-Term vs. Long-Term Investing: Which Strategy is Best for You?

When you think about your investment strategy, would you say that you are in it for the short term, or are you playing the long game? People invest with different goals: They are either looking to make money quickly by “playing the markets,” or they are in it for the long haul and invest as part of a wealth-building strategy. Which is right for you? We break down the benefits of short-term vs. long-term investments to help you find the best fit for your ultimate goal.

Long-Term Investment Strategy

If you are looking to build a comfortable retirement income or want to leave a legacy to the next generation, you likely have a long-term investment strategy. Long-term investors know the market fluctuates week to week (or even month to month), but they are less concerned with what the price will be next month as long as it is growing in value steadily over time. They understand that retirement may be years away, and that they can choose investments with a more conservative outlook because retirement savings will likely build year over year.

Long-term investment vehicles are things like a 401(k), IRAs and mutual funds. They are intended to support long-term goals, such as retirement. They generally have slower growth, but will grow steadily over time. With a diversified portfolio, you have a solid mix of investments that is balanced and contains investments with varying levels and types of risks to minimize overall impact if one aspect takes a sharp plunge.

Short-Term Investment Strategy

If you enjoy taking a few risks in order to gain bigger rewards, short-term investing might be right for you. Unlike long-term investments, you expect to hold short-term investments for three years or less. Referred to as day traders, people who invest for the short term are looking for stocks or bonds that they expect will have a high rate of return in a shorter amount of time. This can be great if you are investing to save for a down payment on a home or saving for a vacation. Buyer be warned: Not all short-term investments turn out to be winners. Short-term investments often follow the trends, and stocks that do well one day may not do well a week from now. Short-term investments may not pay out the way you want them to every time, and you should only invest in the market what you can afford to lose.

Examples of short-term investment vehicles include money market funds, certificates of deposit and short-term bonds.

Which Strategy Is Right for You?

When deciding between short-term and long-term investments, ask yourself these questions:

  • How do you view investing?
    • A slow and steady approach will likely pay off over time
    • A little excitement is a good thing
    • I’m in it for the big payout
  • What is your primary goal?
    • I am building my portfolio for the long term
    • I want to use my investments to supplement my lifestyle
    • I want my portfolio to gain value
  • What is your investing timeframe?
    • I’m pushing retirement
    • I have 25 years to reach my goals
    • I’m just starting out

Each strategy satisfies different goals; you may use short-term investing to save for larger purchases, like a car, a down payment on a home or a lavish vacation. While it may be worth it to buy short-term investments to purchase a larger expense, your retirement strategy shouldn’t depend on short-term investments that are subject to market volatility. When you are looking at your long-term needs, your motto should be, “slow and steady wins the race.” You should consider adding retirement vehicles that will grow at a slower rate, but provide steady growth over the course of 20 years or more as part of your long-term investment strategy.

Consult a Professional

Whether you are looking to develop a long-term investment strategy, or you just want to dip your toe in the investing waters, speaking with a professional might help you set expectations and maximize your opportunities. Your Farm Bureau advisor is here to answer your questions and help you make the most of your investing opportunities, whether you are in it for the short term or the long haul.

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