What are the risk factors associated with short-term and long-term investments?
Devaluation, Interest Rates (depending on the product selected), country and liquidity risks. The risk of interest rates rising or falling can affect both long-term and short-term investments in opposite ways. If the interest rate falls, the long-term investor would benefit, as his funds would be locked in at a higher-than-market interest rate. However, the short-term investor would lose, as he would be forced to re-invest at the lower market rate. If the interest rate rises, the short-term investor would benefit, as he/she would be able to take advantage of the higher market rates, whereas the long-term investor would lose, as his funds would be locked in at a lower than market rate of return. Devaluation is a risk factor if the dollar devalues enough to override the rate of interest an investor is getting on a particular investment. This would affect the long-term investor more, as he would be unable to make any currency changes. This risk factor is more applicable to the currency on
