Most of us look forward to the day when we no longer have to go to work every day and have the freedom to pursue our dreams, even if that dream is sleeping in every morning and binge-watching television programmes all day! The best way to ensure that you have the resources that will give you the emotional and financial security necessary for a stress-free retirement is investing during the time that you are working.
Too many people fail to come up with an investment plan and just hope that their jumbled-up savings or winning the lottery will help them through retirement. Retirement planning and investment planning are tasks that many people put off simply because they sound vaguely complex and boring.
In reality many of us are likely to have had a lot of experience with financial planning. Saving in order to make a purchase, purchasing mortgage insurance or making sure that your dream holiday is protected by travel insurance are all types of financial planning.
When it comes to investing it is simply necessary to make a realistic set of goals and then develop a strategy to reach them.
One of the easiest ways to meet your goals is one that is readily available to all workers, the Kiwi-Saver scheme. Make sure you do your research to find the best kiwisaver scheme and take full advantage of any investments you are able to make.
The next step is also easy; develop the habit of paying yourself first. Set up standing order so that each month a fixed amount of your wages goes directly to your savings account. Choose and amount that will not affect your day to day life as this will make it easier to keep the system working.
After taking care of these things, it is time to look at investing. Find a good financial consultant, or business consultants if you are self-employed or a small business owner and work with them to develop an investment plan that will help active your short- and long-term goals.
When it comes to investing, there are basically two types of investments to consider; short term and long term. Deciding which is best depends on a wide variety of things including your investment capital, goals, the amount of time you wish to devote to research and your risk/reward tolerance.
Here are some pros and cons of both types of investments:
Short term investments are those which you intend to hold for a period of just a few days to a few months.
They are well suited to take advantage of news events, trends and personal research. However, the fear of missing out is often a driver of short term investing and is not a good reason for investing. Also, when developing a strategy for short term investing, make sure you include all of the brokerage fees that will be paid in order to have an accurate estimate of profit.
Pros of Short-Term Investments
- Faster profit – Short term profits can be seen in as little as a day.
- Working Capital – If you make short term investments, the odds are that you will have the capital for future opportunities, as you don’t have to make a multi-year commitment.
- Risk is short term – When a short-term investment seems to be heading in the wrong direction, you can cash out and look for another opportunity.
Cons of Short-Term Investments
- Market volatility – Naturally, short term investments are often very volatile. It is possible to suffer significant losses.
- Time Investment – Short term investments require a great deal of time. It is necessary to do a great deal of research in order to pick the right investment. It is also important to constantly monitor the market in order to make the best buy and sell decisions.
- Stress – Due to the above two factors, short term investing can be very stressful.
Long term Investments
Long term investments are those which you plan to hold for several months to several years. Long term investments are well suited to those who are more comfortable investing in established, stable businesses and sectors. Historically, time has been one of the long-term investors’ greatest allies and markets have recovered from slumps and even severe downturns.
Pros of Long-Term Investments
- Compounding – Many long-term investments pay dividends. In most cases these dividends are re-invested in more of the company’s shares or in other stocks. This compounding contributes significantly to the value of a portfolio over the long term.
- Stress – Long term investors are not looking for ideal sell points nor overly worried about day-to-day market fluctuations. This lessens the amount of stress.
- Time Investment – Long term investors typically make fewer trades per year than short term investors. While research and study are still very important, most do not feel the need to look for new investment opportunities constantly.
Cons of Long-Term Investing
- Missed opportunities – In general, long-term investments are neither volatile nor trendy. Long term investors may miss out on short term trends.
- Product knowledge – In order to be a successful long-term investor, it is best to spend time researching and understanding the company or the sector that you are interested in. This enables you to get a picture of where you think the company will be in one, two, or even ten years time.
- Patience – The share market moves up and down on a daily basis. New companies are launched which show sudden rises. It is easy to compare one’s long term holdings to these products and to feel the need to react to unpredictability. For long term investments, to work the investor needs to have confidence in the investment decision and a great deal of patience.
Both short and long-term investing offer positive returns. Choosing which strategy is best for you depends on your investment goals and your personal style. The best strategy is a hybrid approach which includes both shot and long-term investments which should be weighted to favour your particular style.