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Definition of Short, Medium, and Long Term Investment – In the investment world, apart from the risk profile, you must also understand the investment period. The duration or duration of investment activities that affect results or profits. The longer the money is invested, the greater the profits will be.
No wonder true investors prefer long-term investments. A successful example is Lo Kheng Hong. The Warren Buffett of Indonesia once told the story of gaining 5,900 percent of the shares of PT United Tractor Tbk (UNTR).
The shares of a subsidiary of PT Astra International Tbk, he bought in 1998 when the price was Rp 250 per share. Then he kept it and let it ‘sleep’ for six years. Then sell it at a price of Rp. 15,000 per share. Types of Investment Based on Time The investment period is divided into three types, namely short-term, medium-term and long-term investments.
Here’s the explanation,
1. Short-term investment
As the name suggests, this investment is done in a short period of time, less than one year. Usually short-term investment goals, including marriage, vacation, or emergency funds. For short-term investments, you should put your money in instruments with lower risks, such as time deposits, money market mutual funds, Retail State Bonds (ORI), Retail Savings Bonds (SBR), and peer to peer lending. But keep in mind, investing in low-risk instruments is worth the small level of risk. For example, the average profit for money market mutual funds is around four to six percent per year. Meanwhile, time deposits offer interest rates ranging from two to six percent per year, depending on the tenor and value of the deposit.
2. Medium-term investment
Medium-term investment is the investment period from one year to five years. The investment objectives are generally to continue education, prepare a down payment for a house, and others. The right investment instruments for this time period, such as ORI, retail sukuk (sukri), fixed income mutual funds, and mixed mutual funds. Medium-term investment is perfect for those of you with a conservative and moderate risk profile. The profit or rate of return for fixed income and mixed-income mutual funds is higher than for money market mutual funds. Meanwhile, ORI and sukri coupons usually exceed bank deposit interest.
3. Long-term investment
Long-term investment has a longer time, which is more than five years. It is suitable for those of you who have future financial goals, such as buying a house, children’s education costs, retirement funds, and others. You can place your funds in the right investment instruments to achieve these goals with greater profits, such as stocks, stock mutual funds, or gold.
The rate of return on stock investment instruments, for example, ranges from 12 to 15 percent per year, even more than that. Gold investment in the long term has the potential to reap a profit of up to 12 percent a year. However, the longer the investment period, the greater the risk, such as stocks which are known as high risk investments, high returns because they follow highly volatile market movements.
How to Determine the Investment Period After understanding the type of investment period, the next step is to make a choice. You can choose taking into account the following:
• Set investment goals.
If you want to invest, you must first know what the goal is. So don’t just invest, put money, done. Set your investment goals. For example, investment to continue education, down payment on a house, the cost of getting married, going to hajj, or going on vacation in the near future. This is because the investment objective will affect the instrument and the time period to be taken.
• Determine the target or investment period
The next step is to determine the investment target. For example, your investment goal is to collect a down payment of 30 percent of the house price of Rp. 500 million, which is Rp. 150 million. The target for the preparation of the DP is five years (60 months). That means you have to set aside IDR 2.5 million per month or IDR 84 thousand per day.
• Choose an investment instrument that fits your risk profile
After determining your goals and targets or timeframe, then select an investment instrument that fits your risk profile. Are you the conservative type aka looking for safe, moderate, or aggressive aka dare to take risks. If you are an aggressive type, you should choose a mixed mutual fund investment. Stocks or stock mutual funds can also be in order to achieve goals with large funds. But if you are someone who wants to be safe, investing in gold, deposits, or government bonds is not a problem.
• Allocate investment funds
Having prepared an investment plan carefully is useless if you are not disciplined in setting aside money from your income. Every month ideally the budget allocation for the investment budget is 10 percent of income. However, if you want maximum results with larger capital, you have to look for additional income.
Whether it’s selling expertise, opening a business, selling online, or something else. Long-Term Investment is More Suggested Even if you already have an investment goal, for example in the short or medium term, the long term is recommended. Why? Because, long-term investment will provide maximum profit. For example, stocks only have one or two digits because they are short-term investments. Meanwhile, if left in the long term, more than five years, the profits can be hundreds to thousands of percent.