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Which is better, long term or short term investment?
During this time, of course, we often hear the term long-term and short-term investment. So which one is better of the two types of investment?
When asked which one is better, each investor has a different answer, depending on the investment. For example, for investors whose investment goal is to buy new gadgets or vehicles, the short term is certainly better.
However, for investors who want to meet the needs of old age when retiring, long-term investment is certainly the right choice.
As the name implies, long-term investment is an investment that has a long period of time. Usually more than a year, even up to tens of years. This investment allows investors to continue to earn income in the long term, with profits that tend to be consistent.
As stated above, long-term investment is very suitable to meet long-term needs as well. Although investment funds are held for longer, the potential profit is also much higher thanks to the compounding effect.
At least, there are several popular types of long-term investments. Among them are investments in :
Property (land and buildings)
The risks also vary, depending on what investment instrument is being carried out.
For long-term investors, there are several things that are often considered in choosing the long-term. Usually they want to maximize the compounding effect to increase the value of their funds over time.
In addition, they also want to meet long-term needs, such as pension funds, children's education costs, or wedding expenses. On the other hand, the short-term investment risk is quite large.
That's because the fluctuations are quite high. The reason other investors choose the long term is because they want to minimize risk.
Short term investment While short-term investment is an investment with a maximum period of one year or even less. In this investment, the profits are obtained relatively quickly, but the risks tend to be large.
Short-term investments are also vulnerable to inflation, as their valuations may not be able to keep up with the prevailing annual inflation rate. Not only that, the benefits of this investment are also not that significant because the compounding effect is not felt.
Some of the short-term investments to choose from include:
money market mutual funds.
There are a number of reasons an investor chooses short-term investments. One of them is that they want to speed up the circulation of their money.
That way, they can easily reinvest their funds into other investment instruments. Meanwhile, short-term investments are also often chosen by novice investors who have just entered the world of work. Usually, their income is still not enough to invest regularly every month.
The reason that often arises is that there are still many short-term needs that must be met, so that long-term investments are still unthinkable.
So all types of investments must have the goals of each of the investors. And from some types of investment, there will always be risks, therefore do research and learn first from experienced people or mentors.