Long-Term or Short-Term Investments – Which is Better for You?

There is always a sense of uncertainty and risk in trying out new things, especially for those who have only begun considering investing, since there are different types of long-term or short-term Investments available on the market.

How should I invest? What are the investment options that I should get into? Where do I even start? Are just some of the questions that you may have as an investor. 

As a budding retail investor looking to make your first investment, the whole process of learning and understanding the different types of investment products offered by various financial institutions can certainly be very confusing.

Definition of Long-Term or Short-Term Investments

In general, there are two types of investments: short- and long-term investments. Short-term investments refer to investments that are highly liquid and typically held and sold within one year. They also tend to offer lower rates of return. However, there are some exceptions to the norm such as Ethis that offer a high ROI on their platforms. 

On the other hand, long-term investments are investments that are held for more than 1 year and are difficult to liquidate and typically offer higher rates of return.

Factors to consider when investing in Long-Term or Short-Term Investments

There are a few factors to consider when choosing whether to invest in long-term or short-term assets, mainly:

1) Goals and objectives

Ask yourself this: why are you investing? Always make sure to have a clear goal in sight. Then ask yourself what is your objective? Do you want to gain a steady flow of income? Do you want to achieve long-term capital growth? A combination of both? Visualise it clearly and formulate a plan to build up your portfolio.

It is very important to know and remember why you are investing. For example: when considering purchasing your first home, what are the goals that you wish to achieve? Maybe you want to own a semi-detached house in the city in the next 10 years, in that case, it would be wise to set objectives that are tailored to your circumstances, such as personal debt, total income, cost of living etc to accumulate money consistently for your investments to mature in the expected timeline. The portfolio that you will have for this goal would be different compared to say, planning for your retirement.

2) Do your research

There are many different instruments or asset classes available. Make sure to research and understand the differences, such as the stated returns percentage, minimum term that affects the liquidity, level of commitment required and so on. For beginner investors, it is recommended for you to invest in something that is low in risk and with low level of commitment, such as unit trust funds or fixed deposit.

3) Shariah-compliant investment

Is the investment that you are looking at shariah-compliant? Muslim investors should be on the lookout for shariah-compliant products because the investment needs to be free from activities prohibited by Islam including usury (riba), gambling (maisir) and ambiguity (gharar). The investment also cannot be involved in non-compliant activities such as gambling and non-halal beverages and food products.

4) Determine your risk profile

All types of investments come with its own risk. Hence, it is important to understand the inherent risk and to understand how to protect yourself. When choosing an asset to invest in it is important to understand your risk tolerance. 

In other words, how much money are you prepared to lose for that investment? Do you have other sources of income which can help to mitigate such risks?

When initially starting out in investing, it is best to be cautious and start small, while also closely observing the changes of your portfolio.

5) Level of commitment

How much time do you have on your hands working on your investments? Some investments require a more active role from its investors, while some do not. This is due to the volatility of certain investments such as stocks with prices that can change sharply from one day to another. These types of investment require close monitoring and understanding of the market.

6) Compare and contrast

Now, it is best to start researching and make comparisons between the different types of investment available, as there are pros and cons to different types of short- and long-term investment. 

It is best to start ranking your priorities when choosing investments. Maybe you want a high return in a short period of time with a reasonable amount of risk, so it will help to list the different types of investment that can help you achieve your goal and then further narrowing down your options.

Where can I start investing?

The types of short-term investment in Malaysia include: stock trading, savings account, short-term forex trading, P2P lending, cryptocurrency and more.

The types of long-term investment in Malaysia include: stock trading, unit trust fund (equity funds, bonds, balanced funds, Islamic unit trust funds, real estate investment trusts, exchange traded funds etc), fixed deposit, real estate renting, equity crowdfunding and more.

When choosing where to invest your money, it is important to make sure that you do it through licensed commercial banks, Islamic banks, investment banks, and international Islamic banks and other licensed brokers. Learn more about your responsibilities as an investor here.

For equity crowdfunding (ECF), it is important to invest with registered recognised market operators as they are licensed and under the purview of the Securities Commission of that country. You can check the list of regulated platforms in Malaysia here, of which includes Ethis Malaysia (Ethis Ventures Sdn Bhd).

Interested in ECF? Check out our previous article on ECF strategy to help you further understand the ECF market in Malaysia.

Find the right combination of short- and long-term investments for your portfolio

In conclusion, it is important to firstly understand your goals when making an investment; your risk profile; level of commitment; do your research about the types of investment, associated risks, maturity, shariah compliance etc and compare and contrast the different investments accordingly. 

There is no one-size fits all approach when it comes to investments.