Short-term vs Long-term Investment, Which is Better?

All investment options carry some kind of risk. One of the biggest sources of risk in the world of investments is uncertainty. A company that is a market leader in its industry today may struggle to survive 10 years from now. Companies that have not yet started operations may grow to become market leaders in the next few years.

In the age of rapid technological changes, an entire industry may disappear in the next decade and new industries (not present till now) may replace them. Thus, it can be very difficult to predict which long-term investments would consistently be successful over the next decade and which would fail.

Short-term investments allow us to reduce this uncertainty drastically. Although it may sound impossible to predict what would happen over the next decade, it is easier to understand what is likely to happen within the next 12 months. Thus, short-term investments are generally seen as less risky compared to long-term investments.

How can I invest on short-term period?

With NEBA’s structured products, investors not only can select the parameters for their investments and specify a risk-reward profile that suits their requirements, they can also decide to invest in either short- or long-term structured product. If you are a nervous investor who are afraid that the underlying assets you choose might not be able to withstand the market volatility over the next couple of years, then choosing a short-term (1 year for example) investment would fit the bill.

Here’s an example of NEBA’s short-term structured product.

SP Example

Are short-term investments better than long-term investments?

In the world of investments, there’s a simple rule about the relationship between risk and returns; the greater the amount of risk that an instrument carries, the higher would be the returns offered. Correspondingly, low risk instruments would offer lower returns.

For example, based on the table below, a two-years structured note investment with GURANTEED coupon offers higher returns compared to a note with a term of 5 years. This is because a structured note with a guaranteed coupon carries lower risk, hence the return of coupon issued each year will be gradually lowered.

SP Example 2

Sp 4

The Bottom Line

Both strategies, be it, short or long-term investing, has its benefits and drawbacks. So, before you start investing, you should have clear goals in mind because the strategies involved in short-term investing versus long-term investing can both end with different results.

The best thing about Structured Products is its customizability – including the option to choose the investment term. Investors should make use of this and decide on a tenor that is MOST suited to their needs.

If you need help deciding which structured products would suit your investors best, drop us an email at info@nebafinancialsolutions.com. Our representatives will be more than happy to help you out!

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