Understanding Short-term Investments
Short-term investments are investments you can cash within a short time, such as three to five years. Short-term investment instruments owe their popularity to their liquidity and quick conversion to cash. Even though short-term investments do not generate significant returns like long-term investment options, there are many takers for this investment format. It is best to opt for short-term investments if you have some excess funds and want to strike a quick gain.
Short-term Investments vs. Long-Term Investments
It would not be fair to compare short-term investments with long-term. Both investment instruments are designed to serve specific financial purposes. It depends on your investment’s goals and the timespan convenient for you. If you cannot afford to lock up your money in an investment for ten years, it is better to invest short-term.
Short-term Investment Tips from Experts
Once you analyze your finances and decide that investing short-term is the best choice, it’s time to find the most lucrative short-term investment avenues for your money. It is always best to research your options well to determine where your money can perform the best. Here are some of the best tips for short-term investing that experts recommend for you –
- Know Your Investments Goals – Before you choose an investment option, ask yourself, “What do I want to achieve with this investment?” Establishing clear, measurable investment goals beforehand helps you zero in on the most appropriate investment options. You can set the achievement horizon as short as one year or as long as five years with short-term investments.
- Create a Robust Asset Allocation Strategy – If you wish to build a diverse portfolio, you must find various short-term and long-term investment options aligned with your investment’s goals. It is also advisable to analyze the risk level of each investment avenue before including it in your portfolio. Set aside some of your money to invest in high-risk, high-return instruments to help grow your corpus. The remaining amount can be allocated to safer investments that offer lower returns but promise to grow steadily. Revisit your asset allocation from time to time and move your money around to make it work better for you.
- Investment, Risk, and Return – When considering a new investment financial instrument, investigate it thoroughly before investing. Look at the option from the perspective of profits versus risks. The best investment strategy is to find low-risk, high-return investment options. Even if you think you have built the portfolio you need, keep exploring investment opportunities and keep yourself aware of the lucrative investment avenues out there.
- Short-Term High-Yield Investment – If you plan to invest for three to five years, looking for a smart investment option with high returns at the lowest risk is best. Keep track of stock market developments and choose your investments carefully. Allocate your money wisely in debt and equity investments to make the most of your money. A short-term portfolio with a few stock investments is likely to yield high returns within three to five years.
- Passive vs. Active Investing – Short-term investing is more of an active investment strategy, while long-term investments fall under passive investment. Active investors keep tabs on the stock market and move their funds around to invest in varied financial instruments. If you wish to invest short-term, ensure that you stay up-to-date with market developments and are prepared to move your money from one product to the other with agility.
- Invest in Large-Cap Mutual Funds – Mutual funds that invest money in large market capitalization companies are known as large-cap mutual funds. These funds are low-risk instruments because the investments are made in large, well-established companies. Such funds offer stable returns to their investors within one to three years. If your intention is to grow your corpus with a high-yield low-risk investment in the short-term; then investing in a large-cap mutual fund may be a wise decision.
New-age investors are eager to find lucrative investment options and begin their financial journey to create wealth. But this new generation of investors has different financial expectations than before. They are looking for high returns within the short term and are willing to work for it. Short-term investments offer this flexibility and liquidity to the next-gen investors and help them grow their money effectively.
Author Bio:
Naina Rajgopalan has a thing for numbers and a deep fascination to learn about all things finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her. Being a part of the content team at Freo Save, a digital savings account app that offers a 7% interest rate on savings along with benefits such as insurance on balance, safe & secure banking, and so on, Naina stays updated with the latest of what happens in the banking and fintech industries. She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.