 |
| http://idkmen.com |
Investing varies from person to person. Some people want quick cash while others want a steady increase in profit. Both can help and both can hurt. Long term investing and short term investing are the most common options for investors. Depending on the amount of time he/she needs the money by, the choices for investments vary from slow growth over the course of several years, to quick profit that could be sold for a profit just a few days later. The choices are vast, and each have their own perks and risks.
To begin, we are going to skim over a term known as The Efficient Market Hypothesis. On one of the most credible economic websites on the internet; Investopedia, they define it by saying "it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information." In simpler terms it pretty much means that no matter what a stock will trade for its fair value and because of this an investor cannot purchase undervalued stocks or sell a stock for an inflated price. Now that we have covered The Efficient Market Hypothesis we can move onto the topic at hand.
On a website known as EdwardJones.com, the author Edward Jones, is the founder of Edward Jones Investments which is an investment company based in Missouri. In his article Jones writes about the short term vs the long term when investing. We are going to be starting with short term. To begin Jones writes "When you purchase a short-term vehicle, you are generally not expecting much in the way of a return or an increase in value. Typically, you purchase short-term investments for the relatively greater degree of principal protection they are designed to provide." Short term investments obviously will not lead to as great of a return as a longer term investment because there just isn't enough time to accumulate a huge profit. So why do it? There is a greater sense of security to buy a stock only to sell it a few days or even hours later. The chance of losing a ton of money is low so the risk is low. However, there are exceptions. Stocks known as penny stocks are the riskiest and highest reward short term stocks. A penny stock is any stock that trades under $1. These types of stocks are an investing class favorite because one can double their investment in an extremely short period of time. We're talking seconds because an increase in a stock that's value is less than a dollar by .01 cents can give a huge return depending on the amount initially invested. As expected this risk can also lead to that same amount of money disappearing and the potential loss is immense.
Now, onto the more common stock invested in by an average citizen; The long term investment. This stock is very common for people saving for retirement because of a steady growth over a long period. Jones states "When you purchase an investment that you intend to keep for many years, you may be expecting the investment to increase in value so that you can eventually sell it for a profit. In addition, you may be looking for the investment to provide income." These stocks tend to be less risky in the sense that one probably won't lose their entire investment in a minute like what can happen with penny stocks. However, there is a chance that one can lose more because typically the longer term stocks have more money invested in them to make a greater profit.
So, which is better? This answer really depends on the investor and when the money is needed. If money is needed fairly soon a short term investment would be better or if the money is being invested until retirement, a long term investment would prove more beneficial.
