Question

Answer one of the two questions please

1. Investments can be long-term or short-term. If you are investing for the long term, how much do you think general news stories, news about the economy, and company-specific news stories should affect your investment choices? Explain your answer.
2. Investors are often grouped into two categories, those investors who invest based on specific company information, known as “fundamental investors,” and those who pay more attention to market movements and factors based on general market psychology, known as “technical investors.” Which method do you feel is more likely to serve your needs best? Why?

Answer 1

A short-term investment is an investment you expect to hold for 3 years or less, then sell and/or convert to cash. While many people like to play the market or speculate with day trading, it's a risky business and you should educate yourself and do plenty of research before you try short-term investing. For most people, it is easier and safer to plan on long-term investments.

Long-Term Investments

Long-term investments are Stocks that you can expect to pay off after holding them for a period of several years. When investing long-term, you can be more aggressive because you have a longer time horizon, so you could opt to invest in an aggressive Companies by making fundamental analysis to get the highest rate of return.

You can approach long-term investing by determining the rate of return you want, then looking for a stock that averages that rate of return over a five to 10-year period. When you invest for the long-term you must not panic when a stock's value drops and avoid selling just because the market looks bad.

The market is cyclical and always recovers from drops, although it may take time to do so. However, if you pull out when prices are low, you may lose a portion of the money you initially invested. It helps if you avoid watching your portfolio often, and if there's a dip in the market, sit tight and don't pull out your money. Let the stock prices recover over time.  

When you decide how much risk you can bear, keep in mind that the longer you have to invest your money the bigger the risks you can take. If you need the money in the next few years, take a more financially conservative approach to your investments and opt to invest in a more secure type of investment. Another factor in choosing the type of investment may be what you are planning on using the money for. This may determine how much risk you feel comfortable with while investing.

Long-term investments are more suitable for investors looking to save for a long-term goal, such as retirement or a college fund. You won't earn much of a return if you put money into a long-term investment that you plan to sell in three years, or if you want to use the funds for a more short-term goal, like a vacation.

Short-Term Investments

As the name implies, short-term investments are usually sold after holding them for three years or less. Sometimes it may be Intra day or even a very few days. Examples of investment Stocks that lend themselves to a shorter investment period include stocks, mutual funds, and some bonds and bond mutual funds.

You may also hear of short-term investors being referred to as day traders. Before getting into this type of investing, work to understand the basics of the stock market, be careful of single-stock purchases, and be mindful that it's very, very difficult to gain higher returns than the average rate of return of the stock market by trading short-term.

Additionally, be careful to not place all of your investment into just one company. If that company were to go under, you would lose everything. Diversify your risk by spreading your stock investments over a variety of industries and types of companies.

It is often easier to choose a few good mutual funds that already spread the risk for you by purchasing several different types of stock. And finally, only invest money that you can afford to lose, not money that needs to pay the mortgage next month.

• Fundamental analysis is based on a long-term approach to evaluate the stock and suggests the analysis of data for a number of years. This type of approach helps the investors select those stocks for investment whose value is expected to increase in the future. Technical analysis is based on a short-term approach to evaluate the stocks and it is for this reason that it is more relevant for day traders as the purpose of the analysis is to select those stocks which can be purchased now to be sold at higher prices in a shorter period of time.
• Fundamental analysis takes into account the intrinsic value of a stock for identifying opportunities for long-term investment. The technical analysis evaluates the past price movements of a stock and predicts how a stock will perform in the future i.e. whether its price is expected to increase or decrease over a shorter period of time.
• The objective of fundamental analysis is investing since it is a long-term approach. However, technical analysis is concerned with trading objectives.
• Decisions are arrived at in fundamental analysis based on available data and financial statements. On the other hand, decisions are based on charts and price movement trends in technical analysis.
• Fundamental analysis considers both past and presents data about a stock, whereas technical analysis considers only past data.
• Fundamental analysis is useful for long term investors while technical analysis is useful for day traders and short-term traders who wish to earn profits by selling the stock over a shorter period of time.
• No assumptions are involved in fundamental analysis, while in technical analysis many assumptions are to be taken, one being that price will continue to follow the past trend in the future.
• Fundamental analysis can help one decide whether a stock is undervalued or overvalued based on its intrinsic value. On the contrary, technical analysis helps one decide the correct time to purchase or sell a stock based on price movements.