How to plan your investments to achieve your short-and long-term goals
Leane should consider the returns generated by a financial product to determine its suitability for a goal. The returns from some investments, such as those tied to equity, may exhibit significant short-term fluctuations, but offer favourable returns over extended holding periods. These investments entail uncertain returns, which may vary for different periods, making them unpredictable in advance. However, they are well suited to Leane’s long-term goal of wealth accumulation, offering the potential for favourable outcomes over time.
This time frame allows the balancing out of lower return periods with higher ones, enabling Leane to capitalise on superior returns generated over the longer holding period. However, if allocated to immediate goals, Leane may encounter diminished value due to potential fluctuations when funds are needed. Additionally, the volatility in returns makes these investments ill-suited to goals that require consistent and periodic returns.
The investments with fixed and predetermined returns, such as interest from fixed deposits in banks, offer a known, expected return. Such investments are suitable when Leane may need a defined payout, such as paying the education fees for her children. While their predictability is an advantage, it may also mean lower returns. If utilised for long-term goals, which require accumulation of funds over a longer period, it might be inefficient. However, if Leane prefers the lower risk associated with such investments for her long-term goals, she should ensure
