Based on the purpose, investments are divided into long-term, medium-term, and short-term investments. Different time frames, of course, different investment strategies and instruments.
Types of Investment Based on Purpose
- Short-Term Investment
Short-term investments last less than one year to three years. For example, a 25-year-old youth intends to get married in three years. So he needs fresh funds to organize a wedding that is not cheap.
Given this need, the youth are advised to invest in low-risk instruments in the sense that they have stable fluctuations in value, and high liquidity so that they are easily converted into cash, and can generate a steady income. Some of the suggested instruments for him are deposits, money market mutual funds, or short-term government bonds.
Can this young man invest in stocks for this financial purpose? You can, but of course, it’s not recommended. The reason is that stocks are instruments that have high fluctuations in value in the short term. Buying stock is buying a business, and business growth cannot be known only in a short time.
- Medium-Term Investment
When someone has financial goals between 3 to 10 years, then this can be called a medium-term investment. For example, in the next five years, X must enroll his son at a well-known university in Jakarta. So X needs a sizable fund to pay the entrance fee and the first semester.
Given that his funding needs are more than five years, X can choose instruments with a slightly higher risk than deposits, money market mutual funds, or government bonds, in the hope of obtaining higher yields. The instruments in question are fixed-income mutual funds (bonds), private bonds, and mixed mutual funds.
- Long-Term Investment
When the investment goal is over 10 years, this investment is included in the long-term investment category. The investment aims to be able to increase the cost of education for children, increase the cost of children’s weddings, buy assets for posterity, and prepare retirement funds.
The longer the investment period, it will be more flexible a person choosing the instrument. They can choose instruments with low, moderate, and high risk, or instruments that cannot be converted quickly. Some of the instruments that can be chosen for long-term investment include precious metals, stock mutual funds, stocks, and property.
The importance of investing in the present is to prepare for a better future. Before understanding the importance of investing, it’s a good idea to have a picture of the future you want. This description can start from investment goals, such as buying a house, planning recreation, wedding capital, and so on. After the goal has been formed, then you can start investing.
Why You Should Invest? Here’s The 5 Reasons
Let’s understand about the reasons why you should invest!
1. Future Profitable Yield
One of the reasons for investing is of course to make a profit. This advantage is often referred to as yield. The amount of return you get also varies, depending on the investment product and the period of the investment product. There is one product that you can use to start investing in mutual funds.
2. Make Life Calmer
The importance of investment also makes life calmer. Planning for future financial needs will certainly make you better prepared to meet those needs. Some investment products can also be measured based on the period you want. The time frame is divided into short, medium, and long-term investments. This time frame measurement is based on goals and financial needs in the future.
3. Affordable Capital
Apart from that, one of the reasons for the importance of investing is that you can start with affordable capital. Some investment products with affordable capital are mutual funds and gold. Mutual funds themselves are investment instruments to accommodate capital for a group of investors so they can invest in the capital market.
The capital to use this product is really low so you can invest early, while gold is an investment in precious metal assets which can be in the form of physical gold or digital gold. You can start to invest in these products as soon as possible.
4. Get Passive Income
By investing, you can get passive income according to a certain period. Passive income itself is income that you don’t get directly, meaning you can still earn income when you are not actively working. Meanwhile, active income is that you have to work every day to then receive a salary every month.
5. Achieve Financial Freedom
Another reason for the importance of investing is the attainment of financial freedom. Financial freedom is a condition where you no longer need to work hard to earn money because you already have enough assets to meet all of life’s needs, both now and in the future. By investing, you can allocate assets to various products so that you can use them according to the financial goals that you have planned.
After understanding the importance of investing, you will be better prepared to face future financial needs to meet your financial goals.