Before investing in the stock market, it’s important to determine your investing goals and match them with the appropriate investing style. In this episode we chat about the differences between short-term and long-term investing, so you can determine your investing preferences, if you’re a short-term investor or long-term investor. This episode is part of a four-part investing series sponsored by Motley Fool Stock Advisor. If you missed the first episode, I encourage you to go back and listen to Episode 96 where I share ways investing in the stock market can improve your financial outlook.
Welcome to the Thought Card, a podcast about traveling and money where planning saving and creativity leads to affording travel, building wealth and paying off debt. We are the financially savvy travelers.
Hey, financially savvy travelers and financially savvy investors. Welcome back to another episode of the Thought Card Podcast. You see what I did there? I usually just say financial savvy travelers, but I wanted to switch it up a little bit. But welcome guys. I'm super thrilled that you're here. We are going to be moving along to part two of this four part investing series.
Now before investing in the stock market, it's really important to determine your investing goals and match those goals with the appropriate investing style. What does that mean? Well, we're going to talk about it in this episode, we're going to be chatting all about the differences between short term stock investing and also long term investing. What's the difference? And I'm going to be helping you figure out which one you're leaning more towards short term And long term investors have different areas of focus and also expectations. So the approach growing their portfolios in very unique ways, Some of the things for you to consider. Again, if you're considering short term investing versus long term investing is how active you want to be buying and selling stocks. If you have the time to commit to doing that, your risk tolerance as well as your willingness to monitor the news and market trends and even your age, maybe something to consider as well. So we're going to be talking all about these different factors. So again, this is episode two in the four part investing series that's sponsored by motley Fool Stock Advisor. And if you missed episode one in this series, I encourage you to go back and listen to episode 96 where I share ways that investing in the stock market can improve your financial outlook. I make the case for why investing and learning how to invest is a good investment of your time. Now, before we jump into today's topic, here's a quick word from our sponsor.
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Alrighty. So what is short term investing and who is a short term investor? So a short term investor plans to buy and sell their investments within a year or less. They're actively looking for new opportunities to capitalize on gains, a take profits. And short term investors are typically day traders and swing traders and they are looking to invest in companies that they expect to perform well in the near short term Shortz investors are usually keeping a close eye on the news. They're spotting trends. They're reading charts so that they know when to buy and also when to exit their position ak to sell off their holdings. Some of the investment types that these short term investors are most interested in include individual stocks options, ETF a.k.a. exchange traded funds and usually these are the go to for short term investors. So these are very liquid assets that they can go ahead and buy and sell very, very quickly. So, here are some scenarios where perhaps short term investing may be the right fit for you. So perhaps you want to supplement or replace your monthly income. So you're like, you know what, I want to make extra money on the side every single month. So I'm going to be doing these quick trades at the same time, of course, with the pros being able to make a quick profit from small price fluctuations, there are cons okay, so if you are doing short term investing, you are at greater risk due to the market fluctuating, going up and down. You may lose a significant portion of your investment portfolio very quickly as a result. And you know, you really have to be there monitoring your portfolio and actively placing trades. So there's a time commitment. And also, again, the risk factor is a lot greater again, because you're in the moment and you're making in the moment decisions. Now, on the opposite side, you have long term investors. Long term investors really focused on a slow and steady approach to building wealth. A lot of times these investors are not considered the sexy investing type because they're not necessarily riding these huge waves. Okay, so long term investors are really buying and holding. So this is a very common term that you'll hear in the personal finance and investing spaces. You buy and hold investor and these are buying and holding investments for more than one year. So short term is less than a year and then long term is more than one year. So most actually long term investors are looking to hold their assets anywhere from 5 to 30 years. Okay, so as a long term investor, you can weather the dips, you can weather the market corrections. You can even survive a recession or even a depression maybe because you are not selling and you're not looking to sell right away or very quickly and you're allowing your money to grow and you're allowing to rebound and grow in the future Compared to short term investing, you don't have enough time, sometimes two rebounds really quickly. But if you're investing in the stock and you're going to be there 10 and 20 years, who cares about what's happening today? Who cares about this little inflation or who cares about some of the things that are happening in the market When you're going to be looking to take profits 10, 20 years from now. So the mindset is a lot different and long term investors are looking for long term, just steady growth over time. In addition to purchasing stocks, long term investors are also looking at retirement accounts. Therefore, 01 Ks are looking at their iras they're looking at index funds and also mutual funds as well. So again, the focus is a bit different. Some of the benefits of long term investing is you don't have to be placing trades, you don't have to be buying and selling very frequently. Also, you do not have to follow the news as closely because you know, you know what, I'm not going to be touching this money for the next 10 years, five years. So I don't necessarily have to worry about what's happening today. I have to be worrying about the long term growth of this company, the long term growth of the stock and that's a different, different focus now, some of the cons, some of the not so great things about long term investing is that you may miss out on opportunities to grow your portfolio in the short term, right? With short term investing, there's a lot of fluctuations in the market and you can ride the waves and this could be like very big waves and you can cash out and make lots of money. But the risk factor is there. So you do miss out on these opportunities to grow your portfolio, your short term. And it's also, like I said, it's not typically seen as sexy investing. It's kind of like boring because you're not following the trend, you may not be following the news, You're kind of letting your money, you know, you're investing it and letting it sit there for a long period of time. So here are some scenarios where long term investing maybe actually right decision for you and your investing style leans more towards to that. For example, if you're looking to retire comfortably in the future. So maybe you are in your 30s like me And your long-term investing portfolio, you're not looking to tap it until you're 65 or 55. So, you know what I'm not stressing about certain things that are happening today because I know I'm going to need that money 30 years from now. And as I approached closer to retirement, I may decide, okay, you know what, I'm going to keep a closer eye on this investment because I need to take it out sooner rather than later. So, again, the focus is a bit different and your concerns are a bit different. All right.
So, the question I really want to take away from this episode for everyone who's listening is which investing style is better for you, right? I can't tell you what the answer is. The answer is. It depends, it really depends on you and what I've realized again, I'm nowhere near experts. We've had experts on the show to talk about different investing opportunities, so I'm not an expert. But what I realized as I grow in my knowledge when it comes to investing is that you realize that you end up leaning heavily towards one approach or another. There's something about the short term investing or the long term investing that attracts you. And with that being said, I realized that I am more of a long term investor. I don't necessarily have the time to be looking up market trends to be looking at charts on a daily basis. I don't have the time to really devote to that. And I don't necessarily mind if my investment style is unsexy or it's not like super thrilling. Like it doesn't really matter to me compared to other people, they are really into day trading and swing trading and they are really involved in market trends and being in the know in the short term. So everyone's style is different, but I definitely have leaned more towards being a long term investor. All right, so now that we have a good foundation, episode one of this series, we talked about making the case as to why investing and learning how to invest can improve our finances. And then this episode, the goal was to really help you to figure out which one you lean more towards because again, it will really determine your focus and the kind of strategies and approaches that you implement. So I invite you to join me in the next episode. This will be episode number three of this series where I'll be sharing tips for picking the right companies to invest in. So as always, definitely stay tuned. And if you're enjoying this investing series, please let me know by taking a screenshot of you listening to the episode and tagging me on instagram, I am at the Danielle Desir on instagram or you can also let me know what other types of investing topics you'd like for us to discuss in the future by leaving me a review on apple podcast Spotify, by the way, That's brand new. So you could definitely leave reviews for podcasters on Spotify. So I encourage you to do that and I'm always taking a look at what reviews come in and what kind of topics you're interested in hearing from next. So I look forward to really continuing on this investing series and I will be waiting for your reviews to come in. Alright, so that is all for this episode. But do let me know which investing style is more for you, short term or long term. I cannot wait to hear from you and let's continue the discussion. So I'll see you all in the next episode.
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The Difference Between Short-Term and Long-term Investing
Short-term and long-term investors have different areas of focus and expectations, so they approach growing their portfolios in unique ways.
Some factors to consider include:
- How actively you want to buy and sell stocks or manage your portfolio
- Risk tolerance
- Your willingness to monitor the news and market trends
- Your age
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What is a short-term investor?
A short-term investor plans to buy and sell investments within a year or less. Actively looking for new opportunities to capitalize on gains (a.k.a. take profits), short-term investors like day traders, active investors, and swing traders invest in companies they expect to perform well in the near-term.
Short-term investors keep a close eye on the news, spot trends, and read charts, so they know when to buy and when to exit their position (a.k.a. sell). Individual stocks, options, and ETFs (exchange-traded funds) are usually the go-to investments for short-term investors.
Here are some scenarios where investing for the short-term can be advantageous:
- You want to supplement or replace your monthly income.
- You want to pay off debt quickly.
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What is a long-term investor?
A long-term investor focuses on a slow and steady approach to building wealth. Long-term investors buy-and-hold investments for more than one year. Most long-term investors hold onto their assets anywhere from 5 years to 30+ years.
As a long-term investor, you can weather the dips, market corrections, and even recessions because you know you plan to sell (and hopefully realize gains) years from now. Even if your portfolio takes a beating, based on the market’s past performance, it will inevitably rebound and grow in the future. In addition to purchasing stocks, long-term investors typically invest in retirement accounts (401(k) and IRAs), index funds, and mutual funds.
Here are a few scenarios where long-term investing can be advantageous:
- You want to retire comfortably in the future.
- You are building wealth to pursue financial independence.
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Benefits of long-term investing
- Less frequent trading.
- You do not have to follow the news closely.
Cons of long-term investing
- May miss out on opportunities to grow your portfolio in the near-term.
- Less exciting since you’re not following trends.
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