Difference between saving for short, medium and long term?
In most of the countries, the state of public finance and the national economy are fundamental issues. However, this is not the case with savings as very few individuals save daily.
But saving without goals does not work. Goal could be saving for short, medium and long term objectives:
Your goal is short-term when it is less than or equal to one year. Here you can invest money for a vacation, buy a car, a postgraduate degree, or even your wedding.
To invest for these purpose, you must consider the security of your money, as you plan to use it soon. An unforeseen event could seriously affect the target of your savings goal. Therefore, you should look for instruments or investments with little volatility.
Another important factor is liquidity. Meaning you can get your funds quickly. Above all, if your emergency fund were suddenly exhausted, you could use these savings for an unforeseen event without having to wait for days to collect your money.
Depending on your particular situation, your advisor will recommend specific instruments or funds. Remember that the same investment solution cannot be applied to everyone.
You talk about the medium term when your goal is between one and five years. That is, you don’t plan to use that money until then. Unlike short term, it is important that you do not touch the funds until the end of the defined period of time. These investments also require more planning.
Although security is something that must always be present in savings. For these objectives, products with more volatility and less liquidity can be accepted in exchange of getting higher investment returns. If you are looking for the medium term, it is usually because you plan to use a significant sum of money for a specific purpose in your life, such as starting a business or buying your first home.
If your savings are for goals you plan to achieve in more than five years, you are already talking about the long term. Here, saving for your retirement or paying for your children’s college is usually considered.
For this term, a correct diversification of assets and a detailed and constant planning are key. This is because things may change drastically in the markets. That’s why this type of investment requires guidance from financial institutions and skilled professionals specialized in the industry.
What is the best term for you?
That depends entirely on the investors – profile, goals and savings possibilities. And it is recommended to take professional advice, and not sacrifice the long term by focusing 100% on your short-term objectives.
Under good guidance, you can also save for the short, medium and long terms, and still have money left to have fun.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.