Different goals require different strategies, of course: some targets require a great deal of planning and time to achieve. Saving for your retirement, a home, or for your kids’ education for example, is a long game.
Other goals are comparatively smaller, be it a new car, or now that New Zealand’s borders are open to easier travel, an overseas holiday.
Settling on the best strategy to reach your goals requires careful thought and planning. Should your investments have a long-term focus, or will a short-term time scale best fit your needs? And what do you do if your circumstances change in what is an ever-changing world?
Long-term and short-term investments:
Long-term and short-term investments seek to deliver returns for investors, but differ in a number of areas, such as the liquidity of the investment (how easily an investment can be divested in other words), and the ‘risk profile’ associated with each.
Your risk profile is a combination of three factors: the risk required to achieve the return on investment you desire; your capacity to take that risk (namely, the losses that you can afford); and your tolerance to take the required risk. You can read more about risk profiles here.
A long-term investment, as the name suggests, is one you’re planning to keep for more than five years, if not longer. If retirement is some way off – more than twenty years, for example – employing a longer view of what you’re investing in is a smart strategy.
There are many benefits to long-term investing, with property, shares and bonds amongst the most popular options. Longer investments offer greater opportunity to accrue gains, while exposure to investments where the market dips can also be ‘smoothed out’ over time.
The downsides of long-term investment include your capital having less liquidity, with lengthy minimum investment terms in some cases. Significant returns also often take more time to accrue.
On the other side of the coin, short-term investments are best employed when investors’ financial goals require a shorter time frame. A short-term investment is normally held for 12 to 18 months, but offers flexibility to alter investing strategy to capitalise on market trends.
There’s also the benefit of increased liquidity if circumstances change, with investments often being able to be divested in a matter of months, or sometimes days. With the shorter time span though, selling before gains have been able to compound may lead to lower returns.
Finally, market volatility is also an issue to be aware of, as is keeping on top of market trends. For example, short-term investments in the stock market can leave investors exposed to fluctuations in the market.
The sharp drop that global stock exchanges experienced at the beginning of the Covid-19 Pandemic in 2020, and more recently when geopolitical hostilities in Ukraine unfolded, are proof of this.
Can I diversify?
An important consideration to keep in mind when working through any investment strategy is the need to be able to diversify if circumstances change.
For most investors, finding a balance between investments that generate good returns and provide stability is the sweet spot to aim for. This involves weighing up the risk and reward associated with a potential investment before committing.
An example of an investment which offers solid potential returns for short-term investors is Classic Capital’s Land & Build Fund, which supports the development of housing projects around New Zealand.
Ray Gatfield, Corporate Investor Manager for Classic Capital, says the Land & Build Fund is an example of a flexible short-term investment that is secure and offers a competitive return.
Land in the Land & Build Fund is ready to be built on. The fund aims to recycle capital through as much as we can, with a fixed return of 7.5% per annum, that pays out every three months.
“You sign up for 12 months, and then you can roll over every three months after that, or extend your investment for another 12 months if you want to,” says Ray. “We offer a sweet spot in the risk profile for investors.”
No matter what your financial goals are though, choosing an investment strategy that meets your time requirements, expected return on investment, and appetite for risk will set you on the path to achieving your short-term and long-term goals, big and small.
Phone Raymond Gatfield at 029 222 0420 to have a chat about the Land & Build Fund opportunity and whether it might be a good fit for your investment portfolio.