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The price of financial instruments like stocks may steadily rise or deepen. This oscillation quickly tempts you to profit from the price changes. As a trader, you buy the shares at its lowest price and cash out at its highest price.
But there’s also the long-term perspective. Look at Facebook, for example, whose initial public offer (IPO) price was $38, but today it costs slightly above $500. So, if you bought 100 shares on May 18, 2012, your $3,800 investment would now be worth more than $49,000.
Now, the big question is; would you prefer to constantly jump in and out, trying to chase those quick wins, or go long-term? Hold that thought because we look at both perspectives.
In This Guide
What is Long-term Investments?
A long-term investment is a financial security you buy intending to keep for a significantly long period, at least five years. The goal is to profit from the market appreciation, dividends, and interest over time.
No ifs and or buts about it long-term investments don’t guarantee profits. In some cases, you get less value than what you put in, as the investment value can decrease, too.
Long-term Investment Opportunities
Long-term isn’t limited to just stocks. You have many opportunities, some risky while others are fairly safe.
The following long-term investment options have the potential to reward you well.
IPOs
Our Facebook example above is an example of an IPO when a company first allows the public to buy its stake. IPOs are highly rewarding if the company grows over time. But not all companies succeed. Some collapse causing losses.
Bonds
Bonds allow you to lend a company or government money for a specified period. You earn interest in return until the maturity date when they pay you back. Other than interest, you can sell the bond as well.
Cryptocurrencies
Cryptos are digital currencies that circulate and trade peer-to-peer without a central bank. They are very volatile but have the potential for long-term growth. Examples include Bitcoin and Ethereum.
Stocks
Individual stocks are shares of a company, making you a partial owner. You hope to earn a portion of their profits regularly. In the long-term, you hope the company grows for your investment to multiply.
Venture capital
The highly rich often invest in startups with high growth potential. It can be very lucrative if the company succeeds, but it’s also risky because many new businesses fail.
Hedge funds
Hedge funds are pooled funds available to accredited investors and managed by experts. These experts use various strategies to earn active returns for their investors.
Hedge funds have a higher profit potential but are equally risky and require large initial investments.
Real estate
Real estate is land and anything on it, like buildings and natural resources. The security can appreciate over time and provide steady cash flow through rent.
Others
There are lots of other options. Some include:
- Index and mutual funds
- Real estate investment trusts
- Certificates of deposit
- Derivatives market
- Land banking
Short-term Trades Meaning
Short-term trade is buying and selling a financial product for profit within a short time.
Short-term traders are constantly on the lookout. The traders look for fleeting moments to jump in and ride as the price surges until the very peak and jump off to cash in. They analyse the news, data, and market buzz for price moves.
Short-term trade requires quick decisions on which securities to buy or sell. This constant haste makes it thrilling and fun.
Short-term Trades
Day Trading
You buy securities capitalize on small price movements to sell them at a higher price. You may have to execute multiple trades daily, so you are engaged full-time. Success here requires significant market knowledge, discipline, and decisiveness to identify the perfect moment to buy in or sell out.
Swing Trading
Swing trading is very similar to day trading, except that in swing you hold onto the asset longer, usually for several days or weeks. A swing trader benefits from short- to medium-term price movements.
Scalping
Scalping is a day-trading strategy that involves quickly buying and selling high volumes multiple times daily. Here, traders make dozens or hundreds of trades daily to profit from small price changes. They only hold positions for seconds or minutes.
Given the intensity, scalping demands advanced trading platforms with low transaction costs. The trader must also have a deep understanding of market mechanics.
Momentum Trading
In trading, momentum refers to a price trend. It can either be falling or rising.
If a stock shows an upward trend, momentum traders buy it and sell it when they think the upward trend is slowing down. But timing is the key, as they have to jump into the trend early enough to make a profit and get out before the trend reverses.
Risks and Challenges
Investing, whether short or long-term, comes with unique risks and challenges.
Short-term investments are highly susceptible to market volatility and require precise timing. You run the risk of poor decisions due to pressure to act fast, and constant involvement can lead to substantial transaction costs.
Long-term investing is less volatile but demands patience to endure market cycles. Economic changes, company-specific risks, and inflation can impact long-term performance. Investors should stay informed and disciplined to resist the urge to react to short-term fluctuations. Liquidity concerns can also emerge, complicating the quick sale of investments during market downturns.
Conclusion
Short-term trades involve buying and selling securities for profit. On the other hand, long-term investment is buying and holding onto investments for more than a year.
The long-term investment opportunities vs. short-term trades is a debate that only results in a pyrrhic victory, as none wins. Short-term trading promises quick money but equally courts several risks. Long-term investments are typically less risky, but they ignore short-term opportunities.
While a strict “buy and hold” may be highly rewarding in the long run, the strategy overlooks the small gains that can accumulate over time. The key to financial success is blending long-term investing with strategic short-term adjustments.