This is the third post in our five-part series on investing. In Step 1, we discussed why you should make investments. The second post deals with when you should start investing. If you’re new to investing, check those two out as well. Today, we’ll consider the question of how long you need to remain invested. Regardless of what type of investment you choose to make, the answer will depend on what you need from them.
With investments, there’s no one-size-fits-all rule. Every decision depends upon you. Your financial goals, stability, lifestyle and unique needs are primary considerations for selecting the right investment vehicles, as well as the term for each one.
Fortunately, today’s market offers an endless range of choices for everyone, so you can pick and choose exactly what works for you. With a short-term mutual fund portfolio, for instance, you can enjoy stable returns over as little as 1-3 years. If you’re investing towards a financial goal that’s just around the corner, like a new car or your kid’s college expenses, this could be the perfect option for you. If your goal is further away, such as setting up a business or saving for a comfortable retirement, a diversified long-term portfolio ranging over 3 years is better.
Time and compounding mitigate risks in the long haul, giving you higher returns down the line. It may be tempting to opt for short-term investments just so your money isn’t ‘tied up’ for very long, but unless you really foresee a need for liquidity any time soon, leave it invested as long as possible.
PLANT THE SEED OF FINANCIAL SECURITY TODAY
Investments grow over time the same way that plants do. Ever planted flowers? You put seeds in the ground and soon enough, a few pretty blooms emerge. Now, you could cut off the stems and put the flowers in a vase, but they won’t last more than a few days. If you leave the plant to grow, the plant will bloom for weeks or months, and even yield new seeds that can be replanted. Treat your money the same way. Think about what it has the potential to become, not just the immediate value you have assigned to it. But everyone’s different, and so are their investing needs.
Maybe a vase with flowers is what you need right now. Or maybe you already have a garden, but don’t want to dig it up for that one time you may need to fill a vase. Figure out what you need from the ‘seed’ you’re planting. Pinpointing your requirements is the first step to smart investing. Knowing how different options work over different time frames comes next. When you’re armed with this information, choosing how long to remain invested becomes almost a no-brainer, we swear!
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