Investing in the stock market is a great financial strategy to earn profits, both in the short and long term.  Whether you choose to stay in the market for ten days or ten years, each strategy has its own set of risks and rewards.

Long-term investment growth

There are no guarantees in the stock market.  Even if the market is booming today, it does not mean that the market will continue to grow for the life of your investment. 

However, if you review 20 year portfolios, none have lost money on the stock market.  If you have the time to wait for your returns, long-term investing is a consistently profitable strategy.  If the market dips in the interim, you have a significant amount of time for the stock to rebound.  However, the more cautious approach of having a slow-growing, diversified portfolio may also mean that you miss out on big growth opportunities.

The risks of short-term profits

Investing in the short-term market can be a risky venture.  The market fluctuates rapidly, and therefore, you must have enough financial prowesses to buy and sell at the appropriate price points.  This can mean huge profits if you choose and manage your trades correctly; however, if you will need to gain your investment funds back in a short period, then the stock market is not necessarily an ideal financial instrument although it is better than a casino.

If you miss a selling point, it may take the stock years to rebound back to the value of your initial investment.  The single most cause of losing money with short term trading is not having a plan going into the trade and if you do have a plan, not sticking to it. You need to identify when you will pull the trigger to buy or short a stock as well as when to bail out of a trade gone bad. In the case of a profitable trade, you can move your exit point up as the stock goes up, so that you don’t watch a great trade go back down to a not so great, or bad one.

Comparing the short and long of it

Short-term investments refer to stocks that you hold for one year or less.  Longer term investments extend beyond one year, and some long-term financial instruments, such as bonds, can take 10 or 20 years to fully mature.  In order to choose the best timeline investment tool for you, it is critical to understand when you will need to utilize your investment funds. 

Short-term investments typically often offer higher returns.  They also offer higher risk, and therefore, there is no guarantee that you will garner a profit if the market goes south.  On the other hand, long term investments may offer lower returns, but often contain less risk.  If you can afford to keep your money in the investment long term, there is a better chance you will earn a profit.  The core of this decisions stems from the risk-to-reward ratio and how quickly you need your funds. 

The historical average for market downturns last approximately one year.  If you are a long term investor, you will have time for the market to turn back around before it is time to cash out your money.  However, if you are a short term investor, there may not be enough time for the market to turn back, and you can end up losing money. If you want to invest in short term investment options, they you will need to look for ones that have a minimal amount of risk in order to build the “safest” investment strategy.

Some investors, such as Warren Buffet, only subscribe to the long-term investment strategy.  Other investors, such as day traders, do not carry any investments over to the next trading day.  In order to determine which trading strategy is ideal for you, it is critical to understand your specific financial needs and risk tolerance levels.