Short term investments are those which can be easily converted into cash. The time period for conversion is limited as compared to the long term investments. These are high yield savings accounts and money market accounts. Money from short term investments can be quickly accessed.
If you are looking to make investments in the stock market then it is a wise investment to have a plan and keep investing for a period of five years. If you are putting money in savings accounts for five years that will not give you higher returns compared to other investments. There are various ways in which you can make investments grow in a short period of time.
Here in this article, we discuss short term investments. These short term investments are for a period of time between as follows.
- Investments in short term instruments less than two years.
- Investment in short term instruments between two to three years
- Investments from between three to five years
The time frame decides the returns on the investment. High returns require more investment time and less returns require less time and lesser risk on investment. Sometimes there is no risk in investment for short term investments. Based on the time frame short term investments are discussed as below.
1. Short term investments less than 2 years
Savings account investments or money market investments can be made to get the returns in less than 2 years likefixed deposits less than 2 years. Making the right investments in the money market such as investing in equities, exchange traded funds, sukuk islamic products, futures, derivatives investments, Real estate investment trusts and other investments.
There are robo advisors which can advise you to make the right investment decisions according to your investment needs and money you want to invest. There is another method of investing into the short term like goal setting investments for a period of time. The returns on these investments depend on the time period.
2. Short term investments between 2 to 3 years
Example of Short term investments between 2 to 3 years are bond investments. A bond investment is better than short term investments in stocks. The risk is lesser in bonds compared to stock investments. When the interest rates increase, the bond values go down. The best investment strategy is to make investments in government bonds which are safe for the investors.
The other form of investment strategy is to invest in debt instruments, recurring deposits, large cap mutual funds, bank fixed deposits, corporate bonds, corporate deposits, term instruments, securitized instruments and other forms of investments. The returns and the interest rates depend on the investment instruments. The risk involved also depends on the type of investment.
3. Short term investments between three to five years
For investments between three to five years, Certificate of Deposits are the good risk free investments options. Certificate of Deposit or CD is a form of preset which is a guarantee investment instrument with interest rate. The money invested is locked for a period of time, and cannot be withdrawn during this period. When you are investing in CDs, the higher the time period, the higher is the interest rate.
You can also make the investments into these instruments for more than five years. You can also withdraw money from the CDs before it gets matured. This form of withdrawal calls for a penalty which is based on interest calculations for the number of months premature interest. The penalty amount depends on the interest rate for which it is withdrawn. CDs have a minimum deposit amount requirement.
You can also make investments for three to five years and more than five years which are into property investments, investment in gold instruments, investment in land, commercial papers, shares, options, and other capital budgeting techniques. Capital budgeting is a major project investment where the returns on the investment yield in a longer period of time in the future.
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Are short term investments worthy?
Short term investments are those where the returns are expected to get in a short period of time. Short term investments provide growth opportunities in the short term. To decide whether short term investments are worth investing in or not, depends on the returns when you are expecting.
Need for Money
If you need money in a short period of time and also want to earn on your investments then you can invest in short term investments. Some deposit accounts can give you returns on investments and provides you with money withdrawal when you need it the most.
You can keep money invested in your account and use it when you require. Before investing, you can decide when you want the money and also can know how much money you will be getting during the maturity period.
Short term Investments for Retirement
If you are making investments for retirement then consider your age and make the short term investment. If you have stopped working and want to invest your gratuity amount or the retirement benefits amounts then you can invest in the short term investments.
The investment amount can come handy during when you need it the most. The amount can be used for medical expenses or living expenses. Short term investment can be the best source as you also get the benefit of senior citizens. The interest rates are high for the senior citizens.
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Serves as Regular Income
There is a stable income with the short term investment. When you are in need of a regular source of income then you can use the short term investment. The returns are not high in this investment but you can rely on the source of income. You can get access to money on a regular basis and it is a safe kind of investment.
Take away
The difference between the short term investment and long term investment is that there is high risk and returns associated with them. Short term investments are best when you need the most in the near future. The growth of money is slower and the risk is also lesser. Returns on the investment in short term instruments depends where you have invested. The yield will not be the same for all kinds of investments. Make the right investment choice according to your requirements and get the most benefits of short term investments.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
