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Comparing Short-Term and Long-Term Investments

by John Mussi

There are a variety of different types of investments available today... there are short-term investments, long-term investments, and as many different investment strategies as there are investors. If you find yourself a bit overwhelmed by the prospect of investing and are unsure of whether you should invest in short-term or long-term plans, don't let yourself get bent out of shape.

By simply taking the time to compare the benefits and drawbacks of both short-term and long-term investments, you can determine which type is best for you and your current financial needs.

In addition to providing you with the drawbacks and advantages of short- and long-term investments, below you'll find other pertinent information that can assist you in making decisions about your finances... both for now, and in the future.

Short-Term vs. Long-Term: a Comparison

Obviously, there are differences between short-term and long-term investments. Short-term investments are designed to be made only for a little while, and hopefully show a significant yield, whereas long-term investments are designed to last for years, showing a slow but steady increase so that there is a significant yield at the end of the term.

Advantages of Short-Term Investments

The main advantages to short-term investments are the potential for fast growth and the fact that the term may only last a few weeks to a few months. Though there tends to be more fluctuation in many forms of short-term loans, these loans allow more control over your money and it usually isn't out of your possession for very long.

Disadvantages of Short-Term Investments

As mentioned above, short-term investments tend to be a bit riskier and show a much higher rate of fluctuation than their long-term counterparts. While there is a good chance that you'll make money with a short-term investment, there is also a chance that you'll lose money.

This is especially the case when dealing with the stock market, since many of the short-term investments made with stocks and bonds involve precision timing to sell when the stocks or bonds are at their peak just before they begin to drop.

Advantages of Long-Term Investments

Just the opposite of short-term investments, long-term investments have the ability to gain small amounts of money over a longer period of time. The slow-but-steady pace of long-term investments allow for a much greater degree of stability and a much lower risk than short-term investments.

They also are ideal for making your savings or retirement fund grow... the investments usually continue to grow over the years, maturing just as you need them.

Disadvantages of Long-Term Investments

Of course, the main disadvantage of long-term investments is that they increase in value slowly and can take years to mature.

For those individuals who need a high yield in a short period of time, long-term investments are definitely not the way to go... between the fees that are associated with some types of investment and the small fluctuations that any investment will experience, many long-term investments might actually go down in value before they begin to climb over time.

Additionally, with many of the long-term investments that you'll find, you tend to have much less control over your money until the investment matures... there are usually penalties or fines for early withdrawal or selling stocks and bonds through long-term investment programs.