While there isn’t a definite definition of what is medium term, many financial experts say that this is a time period of 3 to 10 years. If you’ll need to have your money by then, you’ll be investing for a medium-term goal.
When you do this, keep these 3 things in mind:
Be ready to invest
This doesn’t just mean that you want to invest and that you have the money for it (although these things are absolutely necessary). Before investing, you need to know your risk profile, or how much risk you are comfortable taking. Can you sleep well or will you worry with the ups and downs of the market?
You should also have a concrete goal, because knowing how much money to aiming for will provide direction for your investments. Your time horizon, or when you need the money, is another important consideration.
Knowing all these will help you determine which investments fit your situation and needs. You may even find that your goal isn’t really feasible and so you might have to make necessary adjustments to achieve it.
Check your options
Look at the investment options available to you and shortlist the ones that match the amount of risk you’re OK with taking. You’ll also need to look at the rates of return to see which of these options is most likely to help you reach your goal.
Your time horizon is very important here. Investing in products that will take longer than 10 years to give the best returns isn’t recommended, because you wouldn’t be able to take advantage of their full potential to earn money.
On the other hand, choosing to invest in debt instruments that mature in less than your time horizon means that you could reinvest your money (both the principal and the interest earned) afterwards. This compounding strategy may help speed up the rate at which you achieve your goal.
Remember though, that you don’t have to put all your money in just one investment product. Also, the longer you keep your investment, the more likely you’ll be able to ride out the typical ups and downs of the market.
Once you’ve started, there are still things you can do. If your budget permits it, you can keep add a fixed amount to your investment at regular intervals. This will allow you to achieve peso-cost averaging, which can be more efficient for earning profit than just putting in a large amount once.
You may even find that you have enough money for an additional investment. In that case, you can choose a type that is different from the one you have from among your shortlisted options.
Called diversification, this will allow you to reduce the risk of your portfolio being severely impacted by something that negatively affects a particular investment type. You can also diversify by choosing another type from a different industry.