![]() Bonds, for example, are long-term investments that help you build steady returns stocks are more volatile but may generate larger returns than bonds. You don’t have to pick one or the other: long- and short-term investments usually work in tandem with one another. The Importance of Long- and Short-Term Investments Keeping too much money in stocks at 55 years old could mean you’re flirting with major losses if the market dives. That’s why most short-term horizon investing means being conservative: think bonds, funds, and certain alternative assets.Ī short-term horizon investing strategy is also the right fit for most investors close to retirement. If you pursue a stock-heavy portfolio as your main short-horizon investment goal, you may run a significant risk of assets losing value if the market takes a turn. Saving for a car or home are two common short-term horizon investments. ![]() A short-term horizon means you’re looking to pull money from your investments sooner. Short-term horizon investments are on the opposite end of the spectrum in terms of risk and time. Thus, you’d likely be better positioned to take a more aggressive stance earlier on since you have more time for volatility to smooth out. If you began investing for retirement in your 20s or 30s, you’d have more time for assets to appreciate as you got closer to retiring. Most tend to be stock-heavy earlier on since stock gains can be higher than more conservative funds or bonds. ![]() ![]() These investments have years to appreciate before you’ll need to pull out your money, meaning they should be able to better weather financial volatility that tends to balance out the longer you hold your assetsĪ long-term horizon investing strategy may start off more aggressive in terms of its asset allocation. For example, a long-term horizon investment strategy works best for retirement or college savings. Long-term horizon investments are designed, much like long-term investments, to appreciate over the long haul. This will help lock in gains made earlier on. Then, as you get closer to your time goal, you can taper your investment mix to be more conservative. If you don’t need to pull your money out of the markets for a while, you can likely afford to be more aggressive in the early years in order to maximize opportunities. The general premise is that most sound investments should appreciate over time. In your 50s, however, your investment period would be considered short-term, since you’re much closer to retirement In your 30s, your retirement investing would be considered long-term, since you’re not going to retire any time soon. An investment horizon deals with how long you, as an investor, plan to continue investing. Investment horizons are different from long- and short-term investments, even though they may sound similar. If you’re working with a long-term investing horizon, however, you have a little more time to weather out market volatility. If your investing horizon is short, you have less time to make back what you’ve lost on a high-risk investment. Short horizon periods call for investments that are less risky, such as bonds, mutual funds (or investments with even longer hold periods, such as farmland investing). Time horizons help you determine how risky, or aggressive, your portfolio can be. You’re probably familiar with long- versus short-term investments, but might be less clear on what an investment horizon entails.Īn investment horizon period measures how long you plan to invest in something-be it a series of portfolio holdings or a life event, such as buying a house or saving for retirement. long-term horizons, provide examples of each, and demonstrate how they can impact your approach to investing and portfolio diversification. In this piece, we will break down short- vs. This is the key differentiator between long-term and short-term horizons, although there’s much more to the story. Some investors can tolerate short-term risk for long-term rewards, while others may need more stability even if it comes with the potential for lower returns. How you distribute your money between these two investments depends on many factors, one of which is your investing horizon. Every well-balanced portfolio should include a mix of short- and long-term investing opportunities.
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