Savings Patterns.

Short-term and Long-term Investments:

Any investment plans you make should ideally be based on certain pre-determined goals. These goals should be specific in terms of what you are saving for, how much money you require and when you require this money. There are generally two kinds of investments you are likely to make, short-term investments and long-term investments.

Short-term investments

Short-term investment is an investment that fetches you returns on your money in a short time frame such as a few months or even a couple of years. If you choose the right short-term investment, it will generally have a high interest rate and allow you to earn a substantial sum of money.

People generally make short-term investments if they foresee an urgent requirement for money in the near future. For instance if need to make a down payment on an apartment or for a second car in a few months, you can consider a short-term investment. You can decide on how much you will need to meet your requirement and plan on how much you should invest accordingly.

Some good examples of short term investments are money market funds. They generally have higher interest rates compared with traditional savings accounts and restrict your access to the money for a specific period of time. The good news is that the money you have placed in the fund will be earning accrued interest.

Gold investments also make great short-term investments. You can invest in gold when the price is low and then sell it when the price is high. Mutual funds are also another short-term investment option you can consider.

There are certain advantages and disadvantages to making short-term investments. Keep in mind that short-term investments with high interest rates are more often than not high risk investments. So there is a chance that you may lose your money. If you want to mitigate your risk you will probably need to choose something with a lower interest rate. Another disadvantage is that some short term investments have penalty options if you decide to withdraw your money before the maturity period.

The advantages of short-term investments are that they allow you to make money for those expenses that you have right away. Short term investments also help protect your long-term investments. Since they satisfy your need for immediate expenses you do not need to break into your retirement fund or other long-term accounts.

Long-term investments

Long-term investments fetch you returns after several years. People generally make long-term investments for their retirement or their kids' college funds. Long-term investments are very important. For example the quality of your life after retirement will probably depend on the kind of long-term investments you have made. As with any kind of investment, it is good to set a goal for the investment. Ask yourself why you are making the investment. If it is for say a retirement fund then ask yourself how much you would need to live comfortably after you retire. Factor in a percentage for inflation when you arrive at this figure.

Now decide what percentage of your income you would like to invest to fulfill your long-term goals. Generally people prefer to put aside 10 to 15% of their income toward this. There are a variety of options available when you are making long-term investments. Make sure that you choose the right kind of investment options. Consider getting the help of a financial advisor if necessary to guide you in making good investment choices.

Ensure that you diversify your portfolio and choose a mix of different kinds of investments. If your investment portfolio has just one or two kinds of investments, you could lose everything, if those investments do not work out.

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