Understanding whether you’re investing for the long-term future or the short term can also help determine your strategy – and whether you should be investing at all. Sometimes short-term investors can have unrealistic expectations about growing their money. And research shows that most short-term investors, such as day traders, lose money. You’re competing against high-powered investors and well-programmed computers that may better understand the market.
New investors need to be aware that buying and selling stocks frequently can get expensive. It can create taxes and other fees, even if a broker’s headline trading commission is zero.
If you’re investing for the short term, you risk not having your money when you need it.
“When I’m advising clients … anything under a couple of years, even sometimes three years out, I’m hesitant to take too much market risk with those dollars,” Madsen says.
Depending on your financial goals, a savings account, money market account or a short-term CD may be better options for short-term money. Experts often advise investors that they should invest in the stock market only if they can keep the money invested for at least three to five years. Money that you need for a specific purpose in the next couple years should probably be invested in low-risk investments, such as a high-yield savings account or a high-yield CD.