Sometimes, the stories we hear about the stock market make us believe that investing is so simple. We all have heard stories of how a ten thousand rupees investment in an XYZ share done nearly 40 years ago would have been worth fifty lakh rupees today. It sounds so simple – it sounds like the easiest way to multiply money. But is it so?
What does time period in the stock market mean?
There is no exact definition on the time horizon for short term investments, mid-term investments and long-term investments. But, an accepted belief in the stock market is that investing in short-term stocks is from 6 months to 3 years, and mid-term stocks range from 3 years to 10 years. Long-term stocks are generally believed to be those that have been held for over 10 years.
What factors affect a long-term investment?
When you look at the stock market history spanning more than 100 years, you will realise that the markets only keep rising. During shorter time frames of weeks, months or even years, in some cases, markets may underperform, but they always go up over a longer time frame. Money invested gets compounded as time passes, adding to returns.
How to choose long-term stocks?
One must select good long term investment stocks to invest in. To aid your decision making, consider the following factors:
- Experienced and skilled management
- Consistent history of good performance
- The prospects of the industry to which the company belongs
- The business moat possessed by the company setting it apart from the competition
What factors influence investing time periods?
Terms like short term investments, mid-term investments and long-term investments are very subjective. One month could be long term for an intraday trader, and a mid term for one person could be long term for another.
The time horizon depends upon the below mentioned factors:
- Your risk tolerance
- The goal of your investment
When to select short-term investment options?
Short term investing requires high-risk tolerance. While the aim is to earn huge profits quickly, it can also result in losses. Futures and options are short term investment options that give decent returns. If your goal is to save up for an immediate expense, consider traditional low-risk investments over more volatile options, like a savings account.
When to go with long-term investment stocks?
For a long-term goal, you should be able to take on higher risks. As the funds won’t be required shortly, they can undertake a considerable degree of volatility. Your return-earning potential increases when you undertake higher risks, and with consistent investments, you might be able to achieve your desired goal faster.
What are some mid-term investment options?
Several bonds, income funds, and growth funds have a maturity of 3 to 10 years – which is mid-term as per market convention. For your mid-term investments, maintain an ideal balance between risks and returns.
When checking for updates of the stock market today and searching for stocks to buy, your end goal should define your investment holding period, which in turn determines the strategy you undertake. In times of doubt and uncertainty, it is prudent to reach out to a financial expert to help you invest wisely.