Final answer:
The true comparison between short-term and long-term investments is that both can consist of stocks, bonds, and cash. Short-term investments are more liquid and less risky, while long-term investments usually offer higher returns but with greater risks and less liquidity. Investment choices should align with one's time horizon and risk tolerance.
Step-by-step explanation:
The correct statement comparing short-term and long-term investments is that both include stocks, bonds, and cash. However, it is important to distinguish between them in terms of liquidity, risk level, and potential of returns. Short-term investments are designed to be highly liquid and are often used for money that will be needed relatively soon, such as in less than 5 years. They tend to have lower returns and risks. Long-term investments typically have higher return rates over time but also carry higher risks, and they are not as liquid as short-term investments because they are meant to be held for periods of 5 years or more.
While stocks offer high liquidity and can generate high returns over time, they also come with a high risk of loss, especially in the short-run. Mutual funds, representing a collection of various investments, can provide diversification and can have lower risks and returns than individual stocks, with liquidity depending on the tradeability of the fund.
The differences in investment types highlight the importance of considering one's investment horizon and risk tolerance when choosing between different investment options. For individuals looking at the long haul, such as young workers saving for retirement, a balanced portfolio with an emphasis on stocks and mutual funds might make sense. On the other hand, someone nearing retirement may prioritize stability and low risk, leaning towards short-term investments and fixed-income securities.