Long Term vs. Short Term Investing
Long Term vs. Short Term Investing – Understanding the Difference
Investing your money can be a complicated and confusing endeavor. There are so many schools of thought and so much conflicting advice on the matter. It is no wonder so many ordinary workers have trouble figuring it all out. In The Wealthy Investor program, I encourage my students to keep it simple when it comes to trading and investing. Simplicity is why my average student earns between $2,000 to $5,000 per month in the stock market.*
Whether you are just starting out in life or already dreaming about retirement, the distinction between short-term and long-term goals is one of the most important concepts you need to understand. Many investors get in trouble when they use long-term investing vehicles for short-term goals. While some people get lucky and invest at just the right time, using investment vehicles designed for long-term use can be very dangerous when your time frame is a short one.
Short-Term vs. Long-Term
While everyone has a different definition of short term, in the investing world, short term is generally defined as the next 3-5 years. If that is your time frame, you should not invest your money in stocks or similar vehicles.
While the stock market has historically provided superior returns compared to other types of investments, it is subject to sharp corrections and occasional sharp declines. The last thing you want to do is have stocks go into a bear market just as you need to pull the money out.
If you are saving for a short-term goal like a down payment on a home or the purchase of a new car, you cannot afford to take any risk with the money you set aside. These are not the only short-term goals, of course. If you are getting ready to send a child to college, you will want to have the tuition for the first few years stashed away in a safe place. Money market funds, short-term CDs and government bond funds are all good choices.
You can afford to take more risk if your goals are long-term in nature. If you will not need the money for at least 5 years, chances are the stock market will provide a better return over those years. While the stock market is subject to frightening declines over the short term, a longer time frame should give it time to recover and allow you to make more money.
Of course it is important to identify the long-term goals you are saving for in order to separate your money into short-term and long-term buckets. Saving for retirement is obviously a long-term goal, but so is saving for the college education of a grade school child. The longer the time frame the easier it will be to ride out the ups and downs of the stock market.
As the time you will need the money gets closer, you can start dialing back the risk level and moving money from one bucket to another. If your stock market investments are riding high, taking some of that money and adding it to your money market account can give you peace of mind. At the same time, the transfer will help replenish the short-term money you are spending.
Keeping your short-term and long-term goals separate is not always easy, but it is important. No matter what you are saving for, identifying your time frame should be the first step. Once you know that, you will also know where to put the money and how much risk you can afford to take, in exchange for a potentially higher return. This is what The Wealthy Investor Program is all about.
It’s time to get the financial education you need to become financially free.
In the Wealthy Investor program I teach three major strategies:
Covered Call Writing
Selling a call option means that you would be selling the right, not the obligation, to someone in the marketplace to buy that stock away from you at a later date.
Dividend Capturing Institutional investors collect millions of dollars per quarter collecting dividends on Dow components like McDonalds, NIKE and AT&T. So can you.
Volatility Trading Volatility allows you to purchase a stock and program a sell order in your online trading account which will sell the stock once the price rises a specified amount. As stock prices change throughout the day, you’re making money while you are out enjoying your life.*
So what is your next step?
Order The Wealthy Investors Guide to Stock Market Success or sign up for my FREE Stock Trading and Investing E-Mail List on this page.
In The Wealthy Investors Guide to Stock Market Success, I’ll explain in easy to understand language everything you need to know to get started.
In this original five CD audio series, you will learn the basics of covered call writing and volatility trading and how to use these powerful trading tools in your portfolio.
Yes, you can be a wealthy investor if you get started right now.
* DISCLAIMER: Stocks and options trading involves risk and is not suitable for every investor. The stocks and options prices vary and, as a result, clients may lose or gain from their original investment. Stock illustrations posted on TheWealthlyInvestor.net web site are for illustration purposes only. Your personal results as a trader/investor may vary from the WI students listed above.
