Short-Term vs. Long-Term Investments

A deep dive comparison of short and long-term investing—what’s the difference?

Investing can be tricky, and there are plenty of different philosophies for approaching it best.

Most investors and financial professionals swear by the long game, touting the benefits of a slow and steady approach. Some folks like prefer short-term opportunities, taking advantage of market fluctuations to maximize gains. Most financial professionals prefer an approach with a diversified balance of long-term growth and short-term gains. Let’s explore the pros and cons of short- and long-term strategies.

Long-term investing

Long-term investments are appealing for their lean toward more sustainability, reliability, decreased volatility, consistency, a track record of excellence, transparency, and simplicity.

Basically, long-term positions aren’t those that are here today and gone tomorrow but are established mainstays that can carry a portfolio for decades. They should be easy to understand, provide solid returns, and be less volatile. A long term investor thinks about holding their positions for a while, despite what they hear in the financial news. And many short-term investors try to time the market, trying to call when the best time to get in and out of the market or positions may be. And a strategy that attempts to time the market is nearly impossible.

Advantages of a long-term strategy

Less-Stress

The main advantage of choosing a long-term strategy over a short game is the lack of excitement. For some, this may seem dull, but for most investors, that mundaneness is highly welcome and often indicative of financial stability.

Drawbacks of long-term investments

FOMO

Short-term trades often provide us with an allure of upside that rarely comes to fruition in reality. Yes, refraining from short-term investing will cause you to miss out on some big runners that benefit from investor speculation, but this is rare for most of us. Nevertheless, sticking purely to the long game may create a fear of missing out on some investors.

Time needed

One of the requirements of long-term investing is that you invest for a long time. The tenure of your portfolio is what gives this mundane strategy its valiant returns, and years of compound interest are required for it to all be worth it.

Short-term investing—a risky undertaking

Short-term investments tend to be unsustainable and unreliable, bringing higher volatility and erratic, unpredictable returns.

Short-term investments can be here today and gone tomorrow, and it’s precisely that volatility that can lead to a lucrative upside for those who dare take the risk to pursue.

The appeals of short-term investments

The allure of short-term trading is purely in its potential for a more significant profit compared to a more long-term asset. But remember: with high reward comes high risk.

Another interesting aspect of short-term investing is learning the tricks of the trade—literally. Active trading forces you to learn about how markets and investor psychology work.

The drawbacks of short-term investments can outweigh their upside

Risks

Simply put, short-term investments are risky, and it's tough for an individual investor to get these "right." A stock that has the potential to run up 50% in a day has a higher likelihood of dropping by a similar amount in the near future.

While there’s no singular correct route to investing, most financial professionals will lean heavily on strategic and intentional long-term investing. Even the best short-term traders acknowledge the importance of a long-term portfolio. The long-term road is safer, and if you’re diligent in your practice, it can provide enough returns to secure a fulfilling retirement.

What to consider when building your investment strategy

Priorities

Before jumping into trading within the capital markets, ensure you've built a cash reserve, have a plan for your debt, that you are consistently saving for retirement, and planning and saving for the future.

Goals

Once you’ve checked off the basics, move on to what other things you’d like to accomplish with your investing. If one of those goals is to become proficient and profitable at trading and you’re financially secure elsewhere, it might make sense to give it a shot, but do so with intentionality... slow and steady.

Your situation

Done responsibly, your finances can and should dictate how you can invest. If you’ve only got enough extra income to max out your retirement account this year, it’s probably best to stick to the long-term game. In contrast, if you’ve got disposable income, you can diversify into other areas with a more active strategy.

Risk tolerance

Your risk appetite will also help determine what works best for you and if short-term investing fits your preferences. Investing actively and holding single stocks makes your portfolio more prone to volatile movements and mayhem than those broader holdings often associated with more passive methods.

Conclusion

There’s no right way to invest, and everyone’s exact approach is unique to their situation and needs. However, we're here to share the guidelines that will shape your finances for the better over the long run.

Keep your discipline going. Your Pocketnest app is a great place to start. Don’t forget to log in, update your goals, and keep your to-do list checked off as you continue your journey to financial freedom.