By miguel cane
There is always interest in short-term investments. Because there are many more people and companies with temporarily free funds than willing to invest for a long time. There are many options for short-term investments. They are very different, and it is difficult to single out common features, except for the investment period. But there are general trends.
Short-term investments: how they work
Financial investment involves the purchase of intangible assets. For example, placing funds in a bank, mutual fund, microfinance organization, and buying shares on the stock markets.
Relatively reliable, low-risk short-term investments are bank deposits and government treasuries. The profitability here is low and loses with inflation. On average, the investor’s income will be 2-4% per annum.
Another asset is that you can make money on stocks. A speculator needs to find undervalued securities and make a profit within a year. There are many risks because even if it were possible to “calculate” the paper, it does not mean that it will be possible to make decent money on it. The market is quite a complex mechanism and many factors nullify the profit.
Short-term investments are made by many professional investors, individuals, and companies that are engaged in other types of business. Each investor has their own goals, preferences and opportunities.
- Non-professional private investors often invest their own savings to receive additional passive income;
- Professional investors buy securities and bonds for themselves or entrusted to them, actively resell them and earn from it;
- Manufacturing companies invest free money temporarily for the sake of additional income.
What is the difference between short-term investments?
In addition to the short period of investment in an asset, such investments have one more fundamental difference.
Short-term investment objects are always highly liquid assets. Something that can be bought and sold quickly and easily.
The object of short-term investments can only be mass products with uniform properties.
The current price of assets for short-term investments can be accurately measured in money.
A good example of a short-term investment is buying a permanently traded bond. But buying suburban real estate is almost certainly not going to be a profitable investment in the short term. Such an asset is sometimes bought and sold for a long time and it is difficult to predict its future price.
How do you make money with short-term investments?
There are different options for short-term investments, but there are only two ways to make money from them.
- The simplest and most common option is to buy an asset at one price and sell it at another. The lower the purchase price of the asset and the higher the sale price, the more profitable the investment will be.
- Another way to make money with short-term investment is the current income from it. However, not all investment assets promise current income.
Investments with current income from assets are usually made over the entire period of the investment. It would be correct to call them passive investments.
Short Term Investment Examples
- Certificates of Deposit (CD) Certificates of Deposit, per year – 0.5-3% or more
- money market account (MMA), money market accounts, about 2%
- Treasury Securities, US Treasury Securities, 0.5%-2.5%
- Bond Funds, Bond Funds, 2.5-3%
- Municipal Bonds, Municipal Bonds up to 4% or more
- Peer-to-peer (P2P) lending, peer lending, typically up to 5%
- Online Savings Accounts, Online Savings Accounts 1-2%
- Rates for online accounts are typically higher than for traditional deposits.
- Exchange Traded Funds (ETFs), Exchange Traded Funds
Pros and cons of short-term investments
Short-term investments are so varied that it’s hard to pinpoint some common pros and cons.
Most of the time, short-term investments are less profitable. If only because the profit is usually proportional to the duration of the investment. This is especially noticeable when investment income is reinvested when money earned during the period is added to the principal investment.
There are fewer types of short-term investments than long-term ones. Some short-term investment options don’t work or aren’t profitable. It makes no sense to invest in short-term real estate, long-term bonds, or stocks with a stable exchange rate. It is generally not profitable to buy precious metals and currencies for a short time, except in periods of crisis and high volatility.