What Happens If I’m Not Investing For The Long Term?

When it comes to investment management, there are two main schools of thought: those who think short-term and those who think long-term. The people who think short-term typically invest based on trends or by chasing hot stocks. They are looking for a quick return on their investment. Those who think long-term typically invest with a goal in mind, such as saving for retirement or buying a house. They are more likely to do their research on individual companies and are not as concerned with whether or not they make money in the short term. While short-term investments can be a part of your portfolio, focusing solely on them can lead to problems.

You Could Experience Worse Losses

People who invest for the short term are more likely to experience worse losses than those who invest with the long-term health of their portfolio in mind. Because the goal of long-term investing is stability, those investments tend to perform better (even if they grow more slowly). With short-term investments, one runs the risk of dealing with market volatility that can erase gains seemingly in an instant. While some short-term investments are a great idea, the potential for loss tends to be higher.

You Could Experience Unnecessary Levels Of Stress

Investing can be stressful, even when you have your money in proven, reliable parts of the market. Short-term investments are especially stressful because the ups and downs that come with any sort of investment are much more pronounced day today. When we step back and look at any investment over years, the rises and falls usually don’t look too extreme. But if you zoom in, the results look a lot different. Watching an investment in the short term creates a lot of stress. And stress is not good for making reasonable choices.

Short-Term Investments Can Cost More

With transaction costs and short-term gains sometimes being taxed at higher rates than longer-term investments, you could see significant portions of your gains wiped away. Investments that you hold for years at a time come with tax advantages and may even cost less to sell.  

You Might Not Be Prepared For The Future

Investing for the short term can be an excellent way to make money now but if those gains aren’t invested properly, any progress can be wiped out quickly. If you want to ensure that you have enough money to pay your bills now and well into the future (including during your retirement), investing with the long-term in mind is much more likely to yield better results than hoping enough short-term investments will pay out enough to make saving and retirement planning unnecessary.

There are pros and cons to both investment strategies, but if you want to see reliable growth that will translate to a secure future, long-term investing is the best way to go. At Lighthouse Financial in Brea, our investment management team can help you plan for your future. Get in touch with us to learn more.