How to Invest Your Savings for Short-Term and Long-Term Goals
If you want to “get rich quick,” investment is not a vehicle for you, but if you want to rid yourself of your financial worries, you must make prudent investments for a defined period.
What Are Short-term, Medium-term, and Long-term Investments?
Time plays a key role in your investment decision. Based on the amount of time you allow your money to grow, your investment can either be a short-term (up to 1 year), medium-term (1-5 years), or long-term (5+ years). However, some experts suggest that only those investments that are made for 10+ years are indeed “long-term.”
For How Long Should I Invest?
The duration of your investment solely depends on your future goal, and as investments, goals are also short-term, medium-term, and long-term. You should always keep your future goals in sight when making an investment decision. The more your investment is aligned with your goal, the less you will worry about your financial stability.
- Short-term goals and investments
Funds needed to square off your monthly utility bills and fixed expenses should be parked in your savings account—this should not be invested anywhere. However, funds required to pay quarterly, half-yearly, and yearly bills (e.g., children’s tuition fee, premium toward insurance policies, and property tax) should be invested either in short-term fixed deposits or mutual fund debt schemes. These instruments will protect your funds while ensuring that you get decent interest on your money.
- Medium-term goals and investments
The expenses you may incur for your medium-term goals might include your children’s education, a holiday abroad, property purchase, among others. As these expenses are a little far in the future, you should invest your savings in some secure instruments such as fixed deposits, mutual fund debt schemes, national savings certificate, Kisan Vikas Patra—instead of leaving it in a savings account, where you are exposing it to devaluation given the rising inflation.
- Long-term goals and investments
Long-term goals such as children’s education, their marriage, or your retirement need better planning. Wisely investing your money in instruments like stocks, equity mutual funds, real estate, fixed deposit, and retirement funds will help you meet these far-off goals. Although people invest in fixed deposits to meet their long-term goals, it is essential also to consider investing in a handful of good-quality equity mutual funds if the time-horizon is more than 5-10 years, because the returns from the latter are relatively high.
When making an investment decision, you should keep in mind that you need to factor your risk appetite before choosing a particular investment vehicle.