Investing your money can be pretty exciting. In the age of the smartphone, you can have a stocks and shares app to hand that shows you, at any given moment, whether your investments are on the up or are struggling. You can also see, in real time, what is performing well and whose stock is falling and make an investment choice right away.
As long as you know what you’re doing and appreciate the risk involved, there’s something gripping about the world of finance.
Technology gives you the ability to make quick-wins. These short term stock market decisions might be dismissed as gambles but that’s only the case if you don’t know what you’re doing and the modern trader has all the tools they need at their fingertips to be fleet of foot. It also helps you to prevent ‘quick-losses’ – giving you the chance to spot a downward trend and remove your money from an asset or fund before it reaches its lowest point.
Not only that, but many people have important short term financial goals to meet. With the interest rates on savings accounts reaching rock bottom rates, people are increasingly turning to investments as a way to grow their finances as they look to get on the housing ladder or make a big ticket purchase, for example. If you need to see a return in one to three years, there’s no real debate to be had on whether a long term or short term investment option is best.
Yet, clearly the long-term approach – favoured by a great many seasoned investors – should not be ignored.
Short-termism might not be the negative that some argue it to be – but it can result in you making rash decisions based on one bad day or one factor that you’ve misread. Many funds or shares will go through a dip and then come back out the other side in a better shape.
The ability to be able to set your money aside into a fund or account for ten years or longer is likely to deliver the sort of returns that really make a big difference to your overall wealth. You can plan ahead and won’t necessarily need to take a ‘punt’ – with the chance to take a safer path that is less likely to end in tears. Long term traders also incur fewer fees as they hold on to assets for longer and aren’t changing their portfolio.
There hasn’t – as this article states – been a negative 20-year period since 1950, a fairly clear demonstration of the virtues of the long-term approach.
Yet, at the heart of every investment strategy should be diversity. Making investments of different time scales as well as different forms of investments is also a big part of that. A solely short-term approach misses out on the big returns of a long-term focus, but a purely long-term outlook misses out on the lucrative opportunities available if you can react to a trend in the short term, especially if you have a short-term financial goal that you need help with.