Introduction
Long-term investing (also known as buy and hold strategy) refers to holding financial assets such as real estates, mutual funds, stocks etc. for long period with aim to build wealth. On the contrary, short-term investing is a investment strategy of buying and selling assets to make quick returns within a short period. In this post we are going to discuss some major dissimilarities between these two investment options that helps to understand their advantages, drawbacks, risks and suitability that helps to make proper investment decision,
Key Differences Between Long-Term Investing And Short-Term Investing
1. Meaning
Long-Term Investing: It involves buying and holding assets for a long period of time (for 3 years or more)
Short-Term Investing: It involves buying and holding assets for short period of time (for few days to one year)
2, Advantages
Long-Term Investing: The main advantages are:
- It involves less risk
- Opportunity to reinvest earnings
- Lower transaction costs and taxes
- Less mental stress
Short- Term Investing: The main benefits are:
- Quick returns on investment
- Highly liquid and more flexible
- Eliminates long-term uncertainty
3. Disadvantages
Long-Term Investing: The major drawbacks are:
- Lower returns on investment
- Limited liquidity
- Risk of future uncertainty
- Capital is tied up for longer period
Short-Term Investing: The main disadvantages include:
- Higher transaction costs
-Higher tax rate
- High pressure and mental stress
4. Suitable For
Long-Term Investing: It is suitable for building wealth over the long term
Short-Term Investing: It is best to gain quick returns in the short period
5, Return Potential
Long-Term Investing: It has higher return potential because of compounding
Short-Term Investing: It has lower return potential than long-term strategy
6. Volatility
Long-Term Investing: It has less volatility than short-term investment
Short-Term Investing: Market volatility is very high in the investment option
Also Read
Pros And Cons Of Short-Term Investments
Pros And Cons Of Long-Term Investments
7. Risk Involved
Long-Term Investing: It involves less risk because of long period
Short-Term Investing: It involves higher level of risk
Long-Term Vs Short-Term Investing (Comparison Table)
|
Basis |
Long-Term Investing |
Short-Term Investing |
|
Time Horizon |
3 years or more |
1 year or less |
|
Risk Involved |
Moderate |
High |
|
Volatility |
Less |
High |
|
Return potential |
high |
low |
|
Flexibility |
Less |
High |
|
Liquidity |
Less |
High |
|
Goal |
To build wealth |
To earn quick profit |
|
Mental stress |
Low |
High |
-
Final Thought (Which Is Better Investment Strategy)
Both investing strategies can make substantial profits but if you can give enough time and want quick returns on investment then short-term investment may suit you. But if you cannot dedicate adequate time and looking for long-term capital growth then long-term investment may be ideal for you.
