We often hear the word ‘short-term’ and ‘long-term’ when it comes to investments. An investor’s primary goal is to get a good return from their money, but why does time play such a crucial role?

To answer this question, let’s take a look at the priorities of investors. Investors who put money for the short term have different priorities than those who do so for the long run.

When you put your money in a financial instrument for less than 12 months, you are entering a short-term investment. On the other hand, if your investment period stretches more than a year, it is called a long-term investment.

To paint a clearer picture, here are the characteristics of the two types of investors.

Short-term investors:

• Don’t like to tie up money for more than a year.
• More protective of their principal investment amount.
• Use returns to pay off their mortgage instalments or as a way to get some quick passive income.
• Usually young people or those who have less cash to leverage on for a longer time.
• Accept the risk of purchasing power, meaning that they risk the chance that their return may not keep up with the current inflation rate.

Long-term investors:

• Have savings or extra money they can put away for investment for the long term.
• Plan for their retirement using long-term investments as a source of additional income to get good returns in the future.
• Mid-level or experienced people with more cash at hand.
• More accustomed to the risk and market fluctuation of the investment in the long run.

Types of popular short-term investments

Now that you are familiar with the characteristics of the two different types of investors, here are the three most popular short-term investments in Malaysia:

• Forex

Forex, or foreign exchange market, is a good investment for youngsters with little cash who want an immediate return.

It is very time-sensitive, so if you have good knowledge of the global economy and know fundamental and technical analysis to study currency exchange patterns, you can double your investment in forex in a matter of days – sometimes in just one day!

Of course, the risk of forex is very high because you are predicting a currency to go up or down. So, if your prediction is wrong, then you can suffer heavy losses.

• Cryptocurrency

Similar to forex, cryptocurrency also has the same risk and return nature. The only difference in cryptocurrency is that it does not depend on fiat currency. It relies on demand.

The more demand for a specific cryptocurrency, the more it increases in value. If you can rightly predict the cryptocurrency price, you can get awe-inspiring returns in a very short time.

• Future contracts

Future contracts are just like investing in commodities or stock but involves investing using the hedging technique.

With this type of investment, the transactions occur at a future date and the time frame is between three to 12 months.

So, if you can rightly position a future contract by predicting the future price of the underlying asset, you can earn a profitable return in the future.

Types of popular long-term investments

As for long-term investments, here is a breakdown of three of the most common types of long-term investments in Malaysia:

• Stocks

Stocks are most commonly associated with investments. If a company is doing good and has a great potential for growth in the future, you would want to invest in it.

That being said, data shows that Malaysia’s average stock market return is above 10%, which is quite impressive.

However, stocks are also high-risk investments as your money needs to be tied up for a longer-term to allow the stock price to grow.

Apart from that, stocks are also affected by the market fluctuation, inflation and internal performance of the company you choose to invest in.

• Bonds

Bonds are more secure than stocks in that they often come with a fixed return.

The only risk is that your money will be tied up for a long time such as 10 years or more sometimes.

However, since the risk of bonds is low, the return is also lower than that of stocks. For example, the current value of a 10-year Malaysian Government bond is 2.72%.

• Real estate

In Malaysia, properties are also a ripe long-term investment. If you buy a property in a strategic location with high demand, then your rental property growth will be 7%-10% per year.

On the other hand, if you sell it after a few years, then your property value will give you a good sales profit.

These are just a few examples of the investments available in Malaysia, as there are also other types you can invest in just by downloading an app.

So, set your priorities right and choose the investment that best serves your needs and capabilities to get the best out of it!

This article was contributed by PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.