Short or long term in mutual funds? Which is better?
Posted: Thu Dec 12, 2024 3:19 am
Time is a key element when investing in mutual funds. Investing in an asset for less than 1 year is not the same as investing in an asset for more than 10 years. In other words, investing in long-term mutual funds is different from investing in short-term funds.
But which is better? Short-term or long-term? Below, we will explain the advantages and disadvantages of each option.
Short-term investing
Short-term investment has a time horizon of up to one year. It is a type of investment in which market volatility and the difficulty in anticipating asset price trends are its main characteristics.
Short-term investment is usually made in instruments and investment funds that have a high liquidity and also guarantee a large part or all of the capital, such as fixed-income funds or money market funds.
However, the short term is not recommended for equity gambling data brazil investment funds or for stock market investment, given the difficulty of estimating market trends over short periods, or for public debt securities , which also have high volatility.
Investing in the long term
Long-term investment in mutual funds, on the other hand, is a type of strategy with a time horizon of more than 10 years . Normally, and especially in the case of small assets, it is associated with periodic contributions to mutual funds, almost always monthly.
This model has the advantage that, in the long term, markets are much more predictable . In addition, if you invest little by little, you can take advantage of downward market trends to buy cheaper and thus soften their negative effects.
Finally, on a tax level, the long term allows you to take full advantage of tax deferral , so that you do not have to pay until you repay the capital.
However, long-term investment in mutual funds usually means giving up part of your liquidity. That is why experts recommend investing with money that will not be needed in the short term.
Index Funds Investment Guide
So, what is better? Investing in long-term or short-term mutual funds?
Although each investment strategy depends on the liquidity needs and risk profile of each investment, most experts recommend investing in the long term , thanks to the possibility of predicting market developments in a much more precise way.
In fact, numerous studies claim that, over ten years, the annualized return becomes positive , regardless of when the investment is made. The best known and most important is, possibly, a study by Bloomerg for the MSCI ACWI for different periods between 1987 and 2019. According to it, the returns obtained in different periods were as follows:
investing in long-term mutual funds
The interpretation of this table, as we have already mentioned, is the following: in the short term, markets are unpredictable.
It is true that a return of more than 50% could have been achieved, but there is also the risk of suffering losses of up to almost 50%. However, as the term increases, the minimum annual returns become increasingly higher, and after ten years, no investor who had invested in the MSCI ACWI would have lost money .
In general, long-term investment is recommended, especially in equity investment funds. That is why at inbestMe we are specialists in long-term investment and automated management. With the inbestMe Index Fund portfolios you will achieve all your financial goals with a plan tailored to you and at very low costs.
But which is better? Short-term or long-term? Below, we will explain the advantages and disadvantages of each option.
Short-term investing
Short-term investment has a time horizon of up to one year. It is a type of investment in which market volatility and the difficulty in anticipating asset price trends are its main characteristics.
Short-term investment is usually made in instruments and investment funds that have a high liquidity and also guarantee a large part or all of the capital, such as fixed-income funds or money market funds.
However, the short term is not recommended for equity gambling data brazil investment funds or for stock market investment, given the difficulty of estimating market trends over short periods, or for public debt securities , which also have high volatility.
Investing in the long term
Long-term investment in mutual funds, on the other hand, is a type of strategy with a time horizon of more than 10 years . Normally, and especially in the case of small assets, it is associated with periodic contributions to mutual funds, almost always monthly.
This model has the advantage that, in the long term, markets are much more predictable . In addition, if you invest little by little, you can take advantage of downward market trends to buy cheaper and thus soften their negative effects.
Finally, on a tax level, the long term allows you to take full advantage of tax deferral , so that you do not have to pay until you repay the capital.
However, long-term investment in mutual funds usually means giving up part of your liquidity. That is why experts recommend investing with money that will not be needed in the short term.
Index Funds Investment Guide
So, what is better? Investing in long-term or short-term mutual funds?
Although each investment strategy depends on the liquidity needs and risk profile of each investment, most experts recommend investing in the long term , thanks to the possibility of predicting market developments in a much more precise way.
In fact, numerous studies claim that, over ten years, the annualized return becomes positive , regardless of when the investment is made. The best known and most important is, possibly, a study by Bloomerg for the MSCI ACWI for different periods between 1987 and 2019. According to it, the returns obtained in different periods were as follows:
investing in long-term mutual funds
The interpretation of this table, as we have already mentioned, is the following: in the short term, markets are unpredictable.
It is true that a return of more than 50% could have been achieved, but there is also the risk of suffering losses of up to almost 50%. However, as the term increases, the minimum annual returns become increasingly higher, and after ten years, no investor who had invested in the MSCI ACWI would have lost money .
In general, long-term investment is recommended, especially in equity investment funds. That is why at inbestMe we are specialists in long-term investment and automated management. With the inbestMe Index Fund portfolios you will achieve all your financial goals with a plan tailored to you and at very low costs.