Different investors have different goals. For short-term goals, like preservation of principal, use short-term investments, such as savings accounts and money market funds. With these investments, the risk of losing your money is low, but the rewards are lower as well.
Use long-term investments for long-term goals, such as saving for retirement. Stocks, for example,—and the mutual funds that invest in them—are considered long-term investments. Their value will go up and down in the short run, and while they carry more risk, they also have a history of providing higher returns over time.
In the real world, investors have both short and long-term goals. That’s why choosing a variety of investment options can help you meet your various goals while lowering your risk exposure. This process is called diversification, and it can help you in your race to financial security.