Achieve Short Term and Long Term Goals with Strategic Investing

While considering investment plans, short-term vs long-term investments is a constant debate among newbie investors. Saving for retirement is not the only purpose for investing, everyone has short and long-term financial goals. Before you start learning about varied investment offerings, the first step is deciding the specific tenure you have ahead to achieve a particular goal. 

Money that you need for a short term within 6 months to 3 years should not be invested in the stock market. And the money that you decide to invest long-term for retirement should not be kept in long-term savings accounts. Despite the rate hikes by the Federal Reserve in 2022 and 2023, the average return rate is collectively low compared to the stock market or other long-term saving investment alternatives. 

Before you hog onto your decision for short term vs long term investments, consider the time you are investing for, and how liquid or accessible you need cash during this tenure. If you are looking for a secure and stable investing option, then you should consider high-yield saving options offered by banks like investment saving accounts or cash or deposits. And if you are looking to invest for 10 years or more, then you have a good time to explore and take risks to invest a small part of your income in the stock market and related alternatives. 

Don’t worry, irrespective of your financial goal, this guide is dedicated to walking you through varied investment options and helping you decide your ideal short term and long term investing. 

• First, consider an investment savings plan
• Short term vs long term investments
• Compared to a short-term investment, what is the general return of a long-term investment? 
• Investments options on tenure and perks
• Match your goals with investment offerings 

First, Consider an Investment Savings Plan

As we know, every investment savings plan comes with dedicated risk levels so it is important to have a detailed understanding of risk with the perks of any investing option. 

The portfolios with liquid savings, tend to identify the plan as low-risk and offer high-rate return investment. Hence, when you look out for short-term investing savings accounts have a different approach than a long-term savings option.

For instance, if you decide to retire in the next 10-15 years, then your investment advisor would recommend keeping a diversified portfolio with at least 60% of stocks. When you have a large window of time to explore and invest, your portfolio has enough time to bounce back again. 

And, if you are not looking for long-term investments then you should step away from high-rated risk options like stocks. One dip in the stock market can take away all your savings, and 3-5 years won’t be enough to recover your loss from a downturn. This means you would have to say goodbye to the dream of buying a new home, lavish car, international trip, or more in the future. 

You may have heard, low-risk investment options are considered stable and one kind of heaven to sit back and wait for your returns. However, the estimated monthly returns of a stable investment savings account may fluctuate. It is suggested, short-term investors can put their money in the market with low risk where comparatively high interest rates are set by the Federal Reserve Rate Policy. 

Short Term vs Long Term Investments

If you are confused about how to determine an investment savings plan? The first thing you need to consider is whether you want to save for a trip, a special event, as an emergency fund or do retirement or other goals that need money after 5-10 years. Why does that matter? 

Investment offerings and strategies differ on how much time you are willing to wait or invest to achieve your goal. 

Saving for short-term goals

Whether you want to save for your child’s education, buying a car, or a family trip, experts suggest that you must keep your money in a low-risk rate account like an investment savings account. Since you would want money in a few years make sure it retains great value with a significant interest rate. 

Saving for a long-term goal

Individuals who are looking for an opportunity to grow their money are often suggested to consider long-term saving.  When you have more time until you need your money back, you get ample time to buy financial products and invest with higher risk rates and great potential return rewards. Once you are closer to your financial goal you can lower your risk. 

In short, think of a savings account when you need money to use in a short time and get easy accessibility. You would be happy with a savings account when you plan for a short-term investment, even a low-interest investment would fulfill your purpose. Whereas, when you have years to let your money grow, it is worth investing with a high-risk rate and great potential return. 

Let’s have a closer look at investment strategy with short term vs long term investments

Types of funds	Investment strategy
Current Saving	Low-risk InvestmentInterest-bearing account
Short-term saving	Low-medium risk rate
Long-term saving	It is a combination of low, medium, and high-risk rates with the option of varied financial investments

Compared to a short-term investment, what is the general return of a long-term investment? 

On average, long-term investments have a great return as it involves high risk. A short-term investment is preferred when you want to buy certain assets or services that can be achieved in a few months or years. Whereas, long-term investment alternatives hold a time frame of 10 years or more and offer a good potential reward to investors. 

Capital Market is one of the suitable examples for long-term investment and it includes stock, bonds, and more. On average, the return for long-term investing is 7-10%. Remember, the return can vary on the type of investment, risk, and other factors. 

Investments Options on Tenure and Perks

As we discussed above, every financial goal can be achieved through different investment savings plan, their offerings, and selecting the right plan. Let’s dig in deeper to understand short term vs long term investments.

Investment Type	Offerings	Investment Return
Short term Investment - less than 3 years
Online Savings / Money Market Account	Known for Emergency Funds FDIC Insured Liquid	3.5 -4.75%
Intermediate term Investment - 3 to 10 years
Certificate of Deposit	FDIC InsuredNo LiquidKnown for a hard deadline	4.5 - 5%
Short-term bond funds ( ETFs or index)	Can offer investment minimum includes a certain amount of risk no Liquid	1.5 -2.25% for US Government bond funds
Long term Investment - More than 10 years
Equity Stock or Index Funds	Can charge Management fees provide portfolio management investment minimum	On an average 7 - 10%
Equity ETF	Higher risk rate offers long-term growthDiversification in portfolio trades like a stock	On an average 7 - 10%
Robo-advisors	Can charge Management fees provide portfolio management has investment minimum	Return varies from profile

Investment options for short-term plan ( up to 3 years)

Online Savings / Money Market Account

Annual return: 3.5 -4.75%

Advantages: FDIC Insurance, Access to liquidity

Drawback: Comparatively offers low-interest rate

If you invest your money in an online banking account, then you can earn a potential return of 4%. This can be considered a stable and secured savings account rather than an investing alternative. 

You should not expect a big return with this saving account, as liquidity is a big game changer and your money is accessed to FDIC against your loss. A banking account doesn’t mean you cannot enjoy the perk of any other bank account, you can get a few services like 

• Deposit checks by scanning your phone
• Transferring money within your accounts
• Coordinate with online customer service

A money market account is like a savings account but offers higher interest rates, higher requirements for deposits, and offers debit cards and checks. Note that Federal regulations have restricted the number of withdrawals or transfers that an account holder can make per month. 

Investment for Intermediate-term (3 - 10 years)

CD Bank

Annual return: 4.5 -5%

Advantage: FDIC Insured, and offers higher interest rates than a savings account

Drawback: Liquidity is not offered and has a minimum deposit requirement

When you want to secure your money and do not need it back for a certain time then CD is a good option as it offers a good interest rate with little to no risk. You can find a suitable CD option from 3 months to 6 years of tenure. In short, the longer the period the higher the chances of getting a high return. 

When you explore CD for your investment savings plan, note that it is not an ideal option when the rates are in a rising environment, as it can lock your money with a fixed rate, and a penalty of between 3-6 months of interest if you withdraw your money early.

If you are wondering about putting your money in a CD where the interest rate takes a sudden hike, you can explore different options as well. 

Laddered CD Strategy:

It combines different CD types with varied options for investing in savings plans. For instance, if you have $10,000 in hand right now, you can put one-third of your money in the first year, another one-third in the second year, and the remaining one-third in the third year. 

if interest rates rise after a year, You can remove your money invested in CD, and invest somewhere else.

Bump-up CD:

This type allows investors to request an increase in the interest rate during their tenure of the CD term plan. However, you can only request once to an increase in interest and there may be drawbacks included. 

For instance, This Cd type may have lower than an average interest rate and ask investors for higher deposit requirements compared to other Cds. 

Step-up CD: The rate in this CD type is automatically increased at the determined intervals of the CD term, you can be relaxed and don't have to take any action. Though, the initial interest rate is more likely to be low. 

Short-Term Bond Funds

• Annual return:  1.5 -2.25% for US Government bond funds
• Advantage: offers liquidity
• Drawback: Has some risk factors and the funds charge exchange ratios. 

A bond is a loan that an investor grants to the US Government or corporation and in return gains a certain amount of interest rate against it. The borrower could get into default, that’s less likely to occur with an investment-grade corporate or municipal bond, unlike US government bonds. 

Investment grade is the quality grade for municipal or corporate bonds that usually indicates a low risk of default to investors. US Government bonds don't have an investment grade system but are considered the safest option. 

One of the major drawbacks of this investment savings plan is when the interest rises, the value of bonds declines. Why? Because the bond’s interest rate can be below the market value, investors can get potential returns from other investment vehicles. 

That is the reason short-term bonds are a safe play to fulfill your financial goals. Additionally, you can sell a bond anytime, but if you sell just to get out of the interest rate then you can face a huge loss with long-term bonds rather than short-term. 

Through an online brokerage account, you can also buy a low-rate index fund or exchange-traded fund that holds municipal bonds, corporate bonds, US government bonds, or a combination of all. This strategy can help you diversify your portfolio, as the funds will often have a huge number of bonds, in thousands. These types of funds can have minimum criteria of $1,000 or more. 

Since you don't opt to invest in a retirement account, you can choose a municipal bond as it is exempted from tax. That can make it a good solution for a taxation account. 

Investment for long-term goals ( more than 10 years)

Equity Index Funds

Annual return: On an average 7-10%

Advantage: Diversification in the portfolio, long-term growth

Drawback: Fund fees, minimum fund requirement, high-risk rates. 

Experts say, you only enter into the world of the stock market, only when you want to stay there or invest for the long term. Even when your deadline to take your money back is flexible, ensure that you come to the terms that as you take on more risk in the coming tenure you may lose your money. 

Whether the market goes up or down, investing a specific portion of your savings is considered healthy as you have enough period when you invest in the stocks for long-term goals. And, of course, you can always come back to your original tolerance of risk factors anytime. For example, moving towards your bond funds as your approach towards your goal. 

How can I build a diversified portfolio? One of the best methods remains to begin with purchasing low-cost equity index funds. These funds track an index like S&P 500, and track refers to keeping pace with the funds, nothing more or less. This is also termed as a departure from an actively managed mutual fund, which is employed with an ability to keep track and beat the market. 

Equity exchange-traded funds

Annual return: 7-10% for long term

Advantages: Low minimums, tax efficiency, long-term growth, and portfolio diversification

Drawback: Charges fund fees and has high risk. 

ETFs are one of the forms of index funds that trade like a stock which means you will buy a stock for market price rather than the minimum fund requirement. If you are a newbie and want to start with smaller investments, ETFs are one of the ideal options. It is easy and diversifies your portfolio because you can buy multiple funds at a lower cost. 

On top, you get all the perks of index funds like passive management tracking the funds, and low expense ratios, allowing you to buy the basket of funds altogether. 

Robo-Advisors

Annual return: Depends on the investment combination

Advantage: Portfolio management, tax efficiency, diversification, and rebalancing portfolio

Drawbacks:  Management fees minimums for account 

Robo-advisors are not an investment option, but it is a way that helps you invest for the long term. These services manage your portfolio by mentioning the total time horizon, and risk tolerance, and you get a portfolio to match as well. Often the matched portfolio is built with ETFs, IRA, or taxable brokerage accounts. 

The portfolio is rebalanced as per your needs, if your account is taxable then it performs tax loss harvesting to lower the tax bill. The fees are reasonable compared to other advisors, 0.25-0.50% of assets, and exchange ratios for funds are used. In short, you get complete portfolio management with correct advice based on your time frame and risk tolerance. 

Match your Goals with Investment Offerings 

Every individual has varied financial goals ranging from monthly bills, yearly vacations, or a retirement plan. You can achieve all your goals with the right strategy and correct selection of short term vs long term investments. 

Whether you work with an advisor or invest by yourself, the rule remains the same, think of the specific time you need to approach your goal, your risk tolerance, and the amount you are capable of investing.

Frequently Asked Questions