Before we discuss further the types of investment and how to invest, please know that investment is the activity of placing funds in one or more types of assets over a certain period, with the aim of earning income or increasing value. In simple terms, investment is a tool to realize our financial goals.
Basically, everyone’s financial goals are different. Let’s just say, a 25 year old person certainly has different plans and aspirations than a 50 year old person.
Based on the objectives, investments are divided into long-term investments, medium-term investments and short-term investments. Different time periods of course have different investment strategies and instruments.
Types of Investment Based on Goals
1. Short Term Investment
Short-term investments last between less than one year and only three years.
For example, a 25 year old young man intends to get married in the next three years. So he needs fresh funds to organize a wedding which is not cheap.
Considering this need, young people are advised to invest in low-risk instruments in the sense that they have stable value fluctuations, high liquidity so they are easily converted into cash, and can generate steady income. Some of the instruments recommended for him are deposits, money market mutual funds, or short-term government bonds.
Is it possible for this young man to invest in shares for this financial goal? Yes, but of course it is not recommended. The reason is that shares are instruments that have high value fluctuations in the short term. Buying shares is the same as buying a business, and business growth certainly cannot be assessed only in the short term.
2. Medium Term Investment
If someone has financial goals between 3 and 10 years, then this can be called a medium-term investment.
Let’s just say, in the next five years Mr Budi must register his son at a well-known university in Jakarta. So Mr Budi needs quite a large amount of funds to pay the starting fee and the first semester.
Considering that his funding needs are more than five years, Mr Budi can choose instruments with slightly higher risk than deposits, money market mutual funds or government bonds, in the hope of getting higher returns.
The instruments in question are fixed income mutual funds (bonds), private bonds, mixed mutual funds.
3. Long Term Investment
When the investment objective is more than 10 years, then this investment is included in the long-term investment category.
Investment goals can include children’s education costs, costs for organizing children’s weddings, purchasing assets for children and grandchildren, and retirement funds.
The longer the investment period, the more flexible a person is in choosing the instrument. They can choose instruments with low, moderate, high risk, or instruments that cannot be converted quickly.
Several instruments that can be chosen for long-term investment include precious metals, stock mutual funds, shares and property.