The risks of short term investing
Investing in shares is a long game, not a get-rich-quick scheme
Investing in shares is one of our favourite things to talk about at SOTM - what’s not to love about our cash compounding over time to make us even more money, without us really having to lift a finger?!
It really is amazing, but the bit we want you to take the most notice of is the “over time” part.
Investing in shares is generally not something we should be considering if we have the goal of buying a house in a couple of years, or if we need cash handy because we’re about to buy a car outright or need to finance a wedding.
Many of us have heard amazing things about investing and so want to get involved TODAY, but the truth is if you have other goals on the near horizon, then we need to think twice about why we’re investing.
Here are the things we want you to take into account before taking the investing plunge
1. If you invest short-term, the risk is higher
The sharemarket is a volatile thing; sometimes the price of our shares go up, other times they plummet, but the way we counter this volatility is by riding the wave.
By riding the wave, we of course mean sticking with your investments over the long term and not pulling them out the second they lose value - history shows us that the market always bounces back, but it doesn’t necessarily do that within one or two years, which is why investing short-term carries risk (disclaimer: past is not a reliable indicator of future performance).
Diversification is the other key here. If we invest solely in one company or just in one industry and then the value of that industry or company plummets, then we’re not going to be in a very financially prosperous position. By having shares in multiple companies across multiple industries our risk reduces dramatically, so pairing this strategy with long-term intention is how we can safe-guard our finances from any losses.
2. Emotional element
If we’re only planning on investing in the short-term, chances are we are going to be keeping a far closer eye on the upward and downward trends of the market than if we were in it for the long haul. This can be risky, because our emotions naturally come into play - if we see a stock performing poorly, we may feel compelled to sell it and cut our losses rather than waiting it out for the market to bounce back. We need to take ourselves out of the equation (difficult as it can be) and not view every tremble of the market as though it’s life-ruining - these trembles are normal in the sharemarket, but if you’re only planning on investing short-term then the reality is they are highly risky.
3. Better ideas
If you’re just wanting to save as much as you can in a short amount of time for something like a wedding or a house deposit, then it’s a smarter idea to get a handle on your budget and cashflow, cut back on non-essential spending to see those savings skyrocket and consider a term deposit or a high interest savings account.
Investing is amazing and at SOTM there’s nothing we’re more passionate about (other than your wellbeing and also oat lattes), but we want to make sure you’re investing when you have the time, the intention and importantly, the education.
Your time to invest will come and when it does, the SOTM community will be right here to help.
***Please remember our blogs aren’t intended as financial advice - they’re intended only as a starting point to give you a little extra info! For more in-depth advice catered to your personal financial position, please see a certified financial advisor.