In your journey to financial freedom, it is important to be knowledgeable about short and long-term investments and how to use them effectively to build wealth. By considering the pros and cons of each type of investment and how they affect your needs, you’ll be able to make the best decision.
Long-term investments are assets that you intend to hold for over a year. Stocks and Real estate are great examples. These types of investments require patience because the dividends are higher when they are kept for a long period of time. For instance, 20 years ago, landed property in Lekki which cost less than 1 million naira is now valued at over 100 Million Naira.
Short term investments on the other hand are investments that you consider when you want to grow your money in a short period of time. A good short-term investment option is Hyperfund by Crowdyvest which allows you to earn good returns for any period between 4 and 12 months.
Long term investments are best for...
Retirement Plan: Your 20’s and 30’s are the best time to invest long term because you have at least 20 years before retirement. This is also the period of our lives where we make mistakes because we still have time to bounce back. For instance, If you invest in stocks, sometimes they take a downturn but eventually recover and grow with time. The ultimate goal is to be financially stable even after retirement.
Future Financial Commitment: When you have a major financial commitment in the future such as your children’s school fees, long-term investment is the best way to go. Most parents already have an idea of the schools they want their children to attend even before they are born. Long-term investments will ensure that your plan for that child’s education is fulfilled.
Protection Against Inflation: Long-term investments are perfect for protecting your finances against inflation. The dividends from your investments cover up for any potential losses due to inflation.
The major disadvantage of long-term investments is that your funds will be inaccessible when you need them for a financial emergency, and this could be very frustrating.
Short-term investments are best for…
Achieving Financial Goals: You should consider short-term investments when you need to grow your money to achieve financial goals that are closer at hand. Examples of such goals are traveling or making a big purchase.
Regular income: Short-term investments pay you returns after short periods of time, therefore they can be a source of regular passive income. In fact, your investment can be considered as a side hustle since your money is literally working for you.
The major disadvantage of short-term investments is lower returns. In the world of investment, the shorter the tenure, the smaller the returns.