What are short-term investments:
Short-term investments are highly temporary, that is, they are made over less than one year.
Indeed, they are fast and simple transactions that yield a return on investment in a matter of months, which represents one of their most important attractions.
So when investing your money, you should think about what your goals are and decide if you are willing to wait a long time to wait for a return, or if on the contrary, you want to obtain it in a matter of months.
If you prefer the second option, short-term investments could become your best allies, and in the next lines, we will tell you more about it.
Characteristics of short-term investments:
To understand more clearly what short-term investments are, you need to take a look at their main characteristics:
- They are placements that become effective in the short term, and therefore, the risk within the market is not usually that high (this will depend on the assets).
- Short-term investments generally consist of marketable debt or equity securities, which are purchased with cash that you don’t need urgently, or right now.
- Short-term investments are fully tradable, or in other words, they can be easily sold if you need to convert their value to cash.
- They offer you great financial stability and favorable liquidity.
- They allow you to diversify your investment options: you can invest in fixed income or variable income, such as stock purchases.
- Short-term investments allow you to receive quick profits.
However, it is necessary that you define and know your investor profile, as well as deeply study the market before making this type of investment, or else you would be risking more than you should.
Examples of short-term investments
The starting point is to understand what a fixed income or variable income investment consists of, since knowing the difference between one and the other is crucial to deciding which investment strategy is best for you.
The first, fixed income investments, are executed with a previously established interest rate, while the second is carried out without knowing the return that it will generate in less than one year.
With that clear, let’s break down what types of short-term investments exist so you can decide on how to put money to work for you.
1. The actions:
They are variable income investments, and therefore, their return is subject to market volatility. The first thing we recommend is that you learn how to invest in the stock market before placing your money in these instruments.
A share represents security and is issued by a company to increase its capitalization, or to solve a financing problem.
It is important to know that, in stock investments, their profitability is very volatile, for which there is a considerable risk of losing money if you do not have good advice from professionals in the area.
You cannot buy shares on your own account since legally only a broker, or trading platforms, are empowered to do so.
That is why we recommend you contact a truly experienced one so that your investments turn out as expected.
What can you buy in the stock market?
You can not only buy shares on the stock market, but also other investment instruments that offer good returns, such as:
- The titles.
- The certificates.
- The bonds.
2. Commodities :
Commodities are raw materials that are traded on the stock market; there are some of an energetic, metallic, input, or food nature. For example, one of the famous is to invest in gold.
Best of all, they are often easily and quickly traded as they drive the production of goods and services.
One of the options you have is to make short investments in Commodities, but the return times will vary according to the type of product in which you are finally going to invest.
Commodities increase in value as demand increases and experts agree that the price of an underlying commodity fluctuates by 30% on average.
3. Investment funds:
Within this type of short-term investment are investment funds in securities and variable income funds.
However, investments in mutual funds fit the profile of riskier investors who aspire to receive high returns.
So if you are looking for security in exchange for profitability, it is best to invest in more stable financial instruments.
Now, the return and risk will largely depend on the investment fund you choose, since quite a few offers are depending on your level of risk, your level of financial leverage, and objectives, among other variables.
4. Treasure Letters:
These are one of the safest short-term investments you can make. They last between 3, 6, or 12 months and constitute fixed income securities.
Treasury bills are issued at a discount, which means that they cost less than their face value and that the return is obtained at the time of repayment.
Another noteworthy point is that you can buy treasury bills independently, or through an intermediary (through another person or a bank).
Did you know that there are more than 1,500 cryptocurrencies on the market? Likewise, the good news is that you can invest in them through various payment mechanisms such as cards, bank transfers, or PayPal.
These short-term investments have become very popular in recent years, however, you need to understand that their volatility is high, which means that their prices vary a lot from day today.
You must learn how to buy bitcoins or the currency you wish to invest in, before making a decision.
In addition, this market is not subject to regulations, and in this sense, it is best to invest only the money that you are willing to lose -in the worst case-.
Another piece of advice that we can give you is that you seek advice from an experienced trader in the market, instead of investing on your own without knowing what you are doing.
6. Forex Investments:
Forex is the market that encompasses all the operating currencies in the world. It is 100% decentralized and the daily volume of operations is greater than 5 billion dollars.
There are more and more traders interested in investing in currencies and the most profitable strategies are usually those of Scalping, Intraday Trading, and Swing Trading.
Some of them allow you to reduce the risk margin to a minimum, but you should study which of all of them is most satisfactory to you before investing in the Foreign Exchange.
At the same time, the starting point for investing in Forex is knowing that all operations involve two currencies. For example, to the euro and the dollar, since you will be betting the value of one against the other.
7. Contracts For Difference (CFD):
These short-term investment instruments allow two parties to exchange the difference between the entry and exit price of a certain underlying asset.
In financial matters, the seller must pay the buyer the difference between the current value of a said asset, and its value at the time of the contract.
Therefore, when the contract is closed, the investor must collect, or pay, the difference between the closing and opening value of the Contract For Difference, and that of the underlying assets.
Consequently, when you decide to invest in this type of contract, you are betting that the price of the asset will rise, which will make you earn money.
Whereas when selling a CFD you will be betting that the price of the underlying asset will go down, in which case you will also make a profit, by being short on that asset.
In essence, Contracts for Difference allow you to make money when a financial asset rises or falls in price.
According to Nasdaq, with CFDs, both buyers and sellers book some margin.
However, these investments carry high risk as they involve making bets on the upside and downside.
One of the key aspects of CFDs is that they are not listed on an organized market and that they do not have an expiration date.
Therefore, they are more attractive to investors than financial futures. CFDs are currently one of the most widely used investment instruments on the planet.
Additionally, they offer great liquidity and enjoy financial leverage. These are its main types:
- About an action.
- CFDs on a stock index.
- About raw materials.
- CFDs on currencies.
8. Stock market promissory note:
With stock market notes you could also make short-term investments. These are debt securities issued by a private company on the stock market.
They are generally issued at a discount, offer less liquidity than bonds, and are equivalent to Treasury Bills in government debt.
Although financing through promissory notes tends to be more expensive, it is also more flexible than those offered by a bank.
At the same time, the concept of “nominal value” is key, since it represents the amount of money that will be delivered to the investor once the promissory note expires.
For its part, the price that the investor must pay to buy these instruments is calculated using the compound or simple interest formula.
At this time, the promissory notes can be listed on regulated markets or Multilateral Trading Systems.
If you are interested in making this type of short-term investment, you must also have certain guarantors.
These would be natural or legal persons who will respond for you, in case you cannot meet your payments.
Several important figures are involved in this type of investment, such as:
- Registered advisor.
- Banking entity.
- Placement entity.
- Agent bank.
- Legal adviser.
- Rating agency.
It is an investment modality that allows companies to anticipate their obligations, based on the contributions made by private investors, and even other companies.
Crowdfactoring allows companies to request the benefit of “factoring”, or an advance on their clients’ invoices.
In short, the upfront cost of these accounts comes from corporate or individual investors.
For many, this investment mechanism is still very new, but for others, it is very attractive and interesting.
The goal is to connect small and medium-sized companies that need cash flow, through a group of investors who are willing to assume their bills, in exchange for a return.
In most cases, these investments have a higher rate of return than conventional investments.
In addition, one of its great advantages is that the return on investment is short-term (between 30 and 120 days).
As if that were not enough, the investor can complete all the crowd factoring operations online; specifically through the platforms intended for these investments.
Additionally, you should know that you can choose invoices with low risk, in case you want to ensure your investment.
Keep in mind that there are no investment limits and that you have the possibility of investing in several invoices (Their amounts may be different and they may also come from different companies).
10. Fixed-term deposits:
Fixed-term deposits work as contracts between banks and users.
Specifically, customers give their money to the bank, at a fixed interest rate, in exchange for a return.
Although the latter tends to be below, it is also beneficial for them because the financial institution offers them support and security.
Those who make these types of short-term investments are aware that they will not risk their money in the same way that they would with long-term investments.
In essence, these savings products allow you to recover both the invested capital and the interest related to the established period.
To do this, you must understand that you will not be able to access the fund for a year or less. But after that time you will have access to your money again and you will also enjoy the return on your investment.
Fixed-term deposits guarantee a return. Even both you and the financial institution will be aware of the projected profitability in advance.
Additionally, you should know that the interest rate is usually higher than that of a savings account.
This is because you will not be able to dispose of the funds during the months established by your bank.
Therefore, if you want to access your money before the expiration of the term, you will have to pay a special commission or assume a penalty from the bank.
In general, if you are a conservative investor, that is, if your aversion to risk is high, you might feel more comfortable with this type of investment in the short term.
And it is that even though the return on investment is small, you will be able to access it with total security and efficiency.
Advantages of short-term investments
Below we present a series of advantages that you obtain once you decide to make short-term investments.
- They help you maximize your wealth, creating new sources of passive income.
- Short-term investments make it possible to transfer risks and funds.
- Short-term investments are very favorable for increasing profits from surplus capital.
- Both companies and small investors can make this type of temporary investment.
- Most of the quotes can be consulted in real-time through the Internet, and therefore, they are quite transparent operations.
Recommendations to invest in the short term
As you have seen, short-term investments can offer you very good results and a positive return.
So that everything goes in order, avoid falling into scams, or losing large sums of money that affect your personal finances, you must follow the following recommendations:
Know the market well:
Investing without knowing the nature of the market, its characteristics, or how it works is like leaping into the void. The best thing you can do is dedicate yourself to researching and analyzing the business well before investing your money in it.
Remember that not all that glitters is gold, so you can stumble upon proposals or offers that could end up harming you.
With these, we refer to scams or all those who intend to make you deceitfully lose money.
Do not compromise your finances:
Experts recommend making short-term investments with additional money, or that you do not need in your day today.
Think of it this way: you can’t borrow expensive interest to invest, this doesn’t make any sense, much less any benefit, so make sure your investments don’t compromise your finances.
Diversify to earn more:
This is key: do not invest all your extra money in a single short-term strategy because the level of risk could be too high.
Being financially smart is about understanding the power of diversification, so invest in multiple assets so you don’t have all your eggs in one basket.
Trust short-term investments:
While learning how to save money is key, statically saving it won’t make you any money.
This is why if you have money available and do not need it to live, consider these short-term investment options.
As you will see, today you have multiple options to make temporary investments that will generate a good return in just a few months, such as the stock market, the foreign exchange market, or raw materials.
It is only a matter of knowing the business in which you will enter so that you do not take too high risks, or end up losing money disastrously when making your short-term investments.