There are as many investment horizons as there are investors. Even the same investor can have both short-term and long-term investments in their portfolio. Every investor should have an investment strategy. The investment strategy determines your own investment horizon, as it determines what is worth investing in and is closely related to risk. The investment strategy answers the questions:
- What is the goal of investing?
- What is an investment budget?
- What is risk tolerance?
- What kind of rules are set for investing?
- What is your investment style?
What is your investment horizon?
When considering your investment horizon, you should take into account various factors, such as:
- How long do you plan to invest for?
- Will the money be needed in a year, for example, or only when you retire?
- Situations are always changing, and even if the market or an investment seems certain to rise, you can’t rely on it completely. However, stock market indices have always risen in the long term.
- It’s worth leaving money in a savings account if you’re sure you’ll need it in the near future.
- A novice investor should not take the risk of having to sell their investments at a loss when the market falls if the expenses can be predicted.
Funds are suitable for short-term investment
If you only intend to invest in the short term, such as for less than a year, then a good option is mutual funds. In mutual funds, the risk is lower and so is the expected return. The best online casino bonuses in Finland can also yield a lot in the short term, even though they are not an investment.
Cyclical fluctuations are smoothed out by regular fund savings and over time. Funds also offer the opportunity to get more fund shares for the same amount saved when prices are low. Equity funds offer higher returns, but investing in them requires a longer investment period and more risk-taking capacity that can withstand stock market fluctuations.
When an investment portfolio is structured sensibly, it is diversified across different asset classes so that the portfolio’s contents balance each other. The risks of an investment portfolio can be effectively managed by diversifying risks.
In funds, the assets are spread across several different companies, which makes the risk of losing all the assets very small. It is also easy to save a smaller amount into the funds each month. This also greatly reduces the risk of timing investments. The value of investments may fluctuate within a short period of time, so holdings increase their value best with an investment horizon of 5–10 years.
Cryptocurrencies
Cryptocurrencies have grown in popularity as an investment in recent years. Cryptocurrency is a virtual currency, the name comes from the combination of encryption and currency. Cryptocurrencies are digital currencies built using blockchain technology.
The volatility of cryptocurrency prices has been extreme in recent years. This has increased investor interest in them, both as a long-term investment and among day-to-day investors. Although cryptocurrency prices closely follow the development of Bitcoin, they are also dependent on the development and usability of their own technology.
Investing in cryptocurrencies carries a higher risk than investing in stocks or mutual funds, for example. The reason for this is that cryptocurrencies do not generate value in the form of dividends, but only if their value increases. The risk is also somewhat affected by time, so the risk can be significantly reduced by time diversification.
Most often, beginners first invest in the most well-known cryptocurrencies, such as Bitcoin and Ethereum. So you don’t have to choose just one cryptocurrency, you can invest in several if you want.
The price of cryptocurrencies is determined mainly by the balance of supply and demand, meaning that cryptocurrency prices depend on buyers and sellers. The value of cryptocurrency prices is influenced by many different factors, such as the state of the economy, market movements and news. In addition, they are also influenced by technical factors, such as the market capitalization of the cryptocurrency.
However, these are just factors to consider. In reality, the price of a cryptocurrency exchange at a given moment is simply determined by the balance of supply and demand.
Unlike mutual funds or stocks, the value of cryptocurrencies is determined solely by appreciation, not by the generation of value through dividends. Time diversification reduces the risk of cryptocurrencies by averaging out the investment.
Trading
Trading, or day trading, is a form of investment where the investment horizon for shares is very short. The trader’s goal is to take advantage of price fluctuations in the short term, while an investor who purchases shares for long-term ownership often holds onto their shares for up to several years. In addition to shares, trading is also possible with other securities, cryptocurrencies and other investment instruments.
The goal of a day trader is to profit from rapid changes in stock prices. Stocks with high volatility and liquidity are often chosen as trading targets. The book Trading and Investing through Study will help you get started.
A trader should make a clear investment plan in advance, which is implemented slavishly, whether the day is good or bad. However, novice traders often burn their fingers when the market goes down. This makes them scared and they may give up trading for a while or even completely. However, there is no point in being afraid of individual bad days, especially if the winning days cover the losses of the worse days.