Creating Your Investment Strategy: Short-term or Long Run?

The thought of investing can be daunting to some, especially if you’re just starting out. This is why planning goes a long way in helping you prepare for the ups and downs of your investing journey.

A sound investment strategy considers both long-term and short-term goals. Finding a balance for both is an important part of putting together a portfolio that works for you.

Short-term vs Long-term investments

Short-term investments are those you plan to utilise to meet financial goals within a shorter span of time. These include bonds, cash, and low-risk unit trusts.

In contrast, long-term investments are those that allow you to grow your portfolio and meet goals several years—or even decades—into the future, especially retirement.

Stocks, real estate, ETFs and REITS and annuities are some options to explore.

Ideally, you should have a mix of both long and short-term investments in your portfolio.

Read more: A 5-Step Plan to Investing for Retirement in Singapore

5 questions to ask to build the right investment strategy

Now that you have a clearer idea of the two types of investment goals, you can begin planning your customised investment strategy. Here are 5 key questions you need to ask yourself before investing:

1. How much time do you have to invest?

Having a clear understanding of when you want to access your money could help you determine what type of investment is right for you. For instance, if you’re saving for a short-term goal, like a holiday, you may not want your money tied up in an investment which can fluctuate dramatically.

For longer-term goals, you may be able to take on more risk as you have more time to allow for potential losses to be recouped.

In general, the longer your investment time frame, the more risk you can accept in your investment portfolio because you have more time to recover from a mistake.

2. Do you have sufficient liquidity?

A common misconception is that investing requires a lot of capital. You don’t have to dip into your emergency funds or sell off family heirlooms to scrape together a large sum of money to start investing in Singapore.

In short, it’s okay to start small and invest in a sum that you are comfortable with. As you gain a better understanding of the investment landscape, you’ll gain confidence, and over time, you may decide to increase what you invest.

Alternatively, you can do a simple calculation with our emergency fund calculator.

3. How much risk can you take?

Understanding your risk tolerance is crucial before you start investing. Essentially, the risk spectrum is broken down into three categories: conservative, moderate, and aggressive.

This also translates to the things one generally invests in from their cash and savings, like government bonds, corporate bonds, high-yield corporate bonds, developed market shares, and emerging market shares. The higher on the spectrum, the greater the risk.

4. What are your goals?

Ask yourself: “What am I trying to accomplish?” Your investments will differ vastly if, for example, you are trying to save money for retirement versus trying to save money for a downpayment on a house.

If you’re decades away from retirement, you still have a considerable amount of time before you stop working. And, since long-term investments like stocks need time to potentially grow, they’re a viable option to build wealth over time.

Of course, everyone’s retirement expectations differ and it’s always better to have a figure in mind and work towards it.

Protip: You can calculate the amount you need with the Planner Bee retirement calculator.

5. What should you invest in?

Every investor should have a diversified portfolio. There are a lot of products to invest in: stocks, bonds, unit trusts, exchange-traded funds (ETFs), real estate investment trusts (REITs), endowment plans, and crowdfunding projects.

You can make it as simple as owning total-market stock, bond index funds (or a mix of the two), or you can own multiple funds in every asset class and category.

We recommend that you diversify your portfolio. For example, buying ten different high-technology companies does not constitute diversification. Diversifying your investments means buying different types of investments, potentially across different countries and/or asset classes.

Diversification doesn’t guarantee you won’t lose money but it can help to balance portfolio returns when a certain investment underperforms.

Your investment checklist

Aside from these 5 questions, there are many other questions that you should ask yourself before diving head first into the world of investing. We’ve prepared a simple 6-step checklist for you to remember:

1. Set your goals
2. Know your investing personality
3. Create your plan
4. Choose your asset mix
5. Choose your investments
6. Track your progress

We got you: Want to try the checklist out? Head over to Planner Bee’s investment marketplace and put this plan into action.

Conclusion

There are no right or wrong choices here because it all depends on your individual circumstances.

For some, the focus can be more short-term investments to get their first pot of gold before working towards more longer-term goals. Others might just decide to focus long-term and invest in incremental amounts while diversifying their portfolio.

“Set realistic expectations”

Most of this boils down to having a comprehensive investment plan in place to guide your actions and set realistic expectations.

The act of creating an investment strategy is only the easy part. The hard part is implementing it during periods of heightened stress in the financial markets or unforeseen circumstances in your personal life. Market volatility is completely out of your hands, which is why the most important reason for creating a sound investment strategy is to enable you to focus on what you can control, and give you the power to decide how to pivot between short-term and long-term investments.

 

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