There’s a great difference between investing for the next ten months or the next ten years. In this article, we’re going to talk about the differences between short term and long term investing.
If you want to succeed in forex trading, you must get a grasp first about its basic concepts. Having a deep understanding about what the market is and how it works can help you make better trades, especially if you intend to move on to more complex activities like binary options trading and cryptocurrencies.
The Simple Definitions
A short-term investment is basically any kind of asset that is held for a short period of time—anytime from a few hours up to just short of a year. In comparison, long-term investments are those that are held for more than a year or even longer.
The Long & Complex Definitions
Investments are considered short-term or long-term by how you use them and for how long. For instance, a particular stock will be considered as a short-term investment if it is handled by a day trader who intends to sell it within the day. On the other hand, that same stock would be considered a long-term investment if it is held for several years in a 401(k).
Short-Term Investment Profile
As discussed above, a short-term investment is any type of financial instrument that is held for less than a year. Any asset can be considered as such provided they fulfill the length of term requirement. If you look closely, however, most assets that are traded in the short term often boast a few common features. For one, many of them will typically be volatile assets, in which the price changes quickly enough for investors to gain profits within a short amount of time.
Because these investments usually have small price movements and are highly liquid, investors can easily sell them relatively quickly.
Long-Term Investment Profile
Most long-term investments are held for at least a year, at the minimum, and several years or decades, at most. Many traders hold these investments and build them up over the years into complex portfolios such as long-term savings accounts, college funds, and 401(k)s.
Any assets can be considered long-term investments, provided they can be held for over several years. In short, for an asset to be deemed a long-term investment, it must be able to gain value slowly and steadily over the years. The most common example of such an investment is real estate, as houses are generally considered illiquid assets that cannot be sold or exchanged easily and readily without suffering a substantial loss in value.
Many people buy homes as investments that they hold for several years, sometimes even decades. They then wait for the properties to accrue value, and when the time comes, they sell them at a profit. This complicated and illiquid process of buying and selling houses makes real estate a difficult short-term investment but perfect as a long-term one.
