Investors usually invest their hard-earned money in various short-term and long-term plans depending on their risk appetite and financial goals. While these two types of investment options come with their own set of merits and drawbacks, there is also a range of differences between the two and the type of returns that they offer.
In the case of long-term investment options, people tend to invest a lump sum amount or deposit small amounts regularly for a longer period in exchange for higher returns. On the other hand, in short-term investment plans, money is invested for a shorter tenure to meet their immediate financial needs.
If you are also looking forward to choosing between long-term and short-term investment options, check this section to know the differences between them, in line with which asset type will suit your needs.
Long-Term Investments
Plans that allow people to put in their funds for a longer period, say 10 or 20 years, can be considered as long-term investment plans. These options not only come with a higher rate of interest and returns but also help achieve major financial goals in the future.
Some types of long-term investment options are life insurance plans, stocks, bonds and real estate.
Short-Term Investments
Investments made over a short period of time are called short-term plans. Also, called temporary investments, these come with shorter maturity periods, sometimes even less than a year. Short-term plans also provide the option for premature withdrawal and are to be less risky.
Some major types of short-term investment options are savings accounts, money market accounts, fixed deposits, recurring deposits, and national savings certificates, among others.
Long-Term Investment vs Short-Term Investment: Key Differences
Some of the key differences between the long-term and short-term investments are as follows:
Financial goals: Long-term investments are better to build wealth for long-term future goals like retirement, marriage, education and medical expenses. On the other hand, short-term investments are chosen for recent expenses like purchasing a car, or going on a vacation.
Risks: Long-term investments often come with more risks and volatility. On the other hand, short-term investments are known for bearing lower risks with more liquidity options.
Tenure: A long-term plan is usually chosen for 10 years or more, while a short-term plan is selected for 3 months, one year, or at least three years.
Investors should make the right choice on the basis of their future goals and affordability. Also, one should determine the type of investment based on their age. While young people can go for longer plans, elderly investors may opt for short-term plans.
