Long-Term vs. Short-Term Investments: Finding Your Strategy

Sagar, a 22-year-old college student, wanted to buy a new laptop worth ₹50,000 in one year. He saved ₹4,000 every month in a short-term fixed deposit earning 6% interest. After 12 months, he had ₹48,000 plus ₹1,440 in interest – enough for his laptop! 

At the same time, Sagar also started investing ₹2,000 monthly in a mutual fund to finance his long-term dream of buying a car in 10 years. With an average annual return of 10%, his ₹2,40,000 investment could grow to around ₹4,00,000 by then. 

Sagar learned that balancing short-term and long-term savings helped him achieve different goals. But how does it work? Let’s explore in this blog!

What Is Long-Term Investing?

Long-term investing means putting your money into assets like stocks, bonds, or mutual funds and keeping them for many years, usually over 5 to 10 years. This approach helps your money grow through compounding, where you earn returns not just on your initial investment but also on the returns themselves. It also reduces the impact of short-term market ups and downs.

SIP Investment

Karan, at 25, invests ₹5,000 monthly in a mutual fund with an average return of 10% per year. By the time he is 65, his total investment of ₹24,00,000 grows to approximately ₹1,50,00,000. This shows how starting early and staying invested can lead to significant wealth accumulation.

Read More – Best Long-Term Stocks to Invest in – Safe & Profitable Picks

Long-term investing requires patience and discipline but can lead to substantial financial growth over time.

What Is Short-Term Investing?

Short-term investing means putting your money into safe and easily accessible options for a short period, usually less than 3 years. It helps you grow your money a little while keeping it safe and easy to access. People use short-term investments for goals like buying a car, paying for a vacation, or saving for emergencies.

Fixed Deposit (FD) Growth

Example: Paras's Savings Plan

Paras wants to buy a new phone in 6 months. He starts saving ₹5,000 each month in a recurring deposit that gives 5% annual interest. After 6 months, he has saved ₹30,000. With the interest added, his total becomes around ₹30,375. Now, Paras can buy his phone without taking a loan.

Short-term investing is a smart way to meet near-future goals while keeping your money safe and accessible.

Difference Between Long-Term and Short-Term Investing

Long-term investing involves putting money into assets like stocks or mutual funds for 5 years or more. It aims for higher returns over time but comes with more risk. Short-term investing means keeping money in safer options like fixed deposits or savings accounts for less than 3 years. It offers lower returns but more safety.

Investment Comparison

Example: Lakshay's Investment Choices

Lakshay, at 22, plans to buy a bike in 6 months and save for retirement. He saves ₹5,000 monthly in a recurring deposit at 5% annual interest. After 6 months, he has around ₹30,375, enough for his bike. Simultaneously, he invests ₹2,000 monthly in a mutual fund expecting 10% annual returns. After 30 years, this grows to approximately ₹45,00,000, supporting his retirement.

Also Read - How to Select Stocks for Intraday – Beginner to Pro Guide

Choosing between long-term and short-term investments depends on your financial goals and when you need the money.

Who Should Consider Long-Term Investment? 

Long-term investment is suitable for people who want to grow their money slowly and safely over time. It is good for students, young workers, and anyone planning for future goals like buying a house, paying for education, or retiring. By investing early, you can use the power of compounding, where your money earns more money over time.

Here is an example of a boy named Omkar:

This table shows how Omkar's money grows each year with a 10% return. By investing ₹10,000 every year, his savings increase over time. This is the benefit of long-term investment.

Who Should Consider Short-Term Investment?

Short-term investment is ideal for people who need to use their money soon, like within a few months or a year. It is good for students, young workers, or anyone saving for things like a phone, a trip, or an emergency. These investments are safe and easy to turn into cash quickly.

Here is an example of a boy named Surender:

This table shows how Surender's money grows each month with different short-term investments. By choosing safe options like fixed deposits, savings accounts, and treasury bills, he earns some interest while keeping his money accessible. This is the benefit of short-term investment.

Conclusion

Long-term investing helps grow money slowly but steadily for big goals like retirement. Short-term investing is for quick, safe savings for near-future needs. Choose based on when you need the money. Both need discipline, but starting early with long-term investments can create more wealth over time. Plan wisely for your goals.

FAQs

1. What is long-term investing?

Investing money for 5+ years to grow wealth slowly, like in stocks or mutual funds.

2. What is short-term investing?

Saving money for less than 3 years in safe options like FDs for quick goals.

3. Which is better for quick returns?

Short-term investments are safer for fast access, but long-term investments give higher growth.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?