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Making short-term investments is a crucial strategy for any investor. Short term investments are great tools to help you diversify your investment portfolio. Both investors and businesses can make short-term investments for many purposes. They require a low holding period and are usually low in risk. In most cases, short-term investments refers to any asset with a holding period of between one to five years. Some investors also like to invest for the short-term since it typically gives them their returns within the first five years.
As an investor, you must recognize the risks and rewards associated with short-term investments. You must not only know how to differentiate between good and bad opportunities, but also how to shield yourself from risks.
Your investment goals usually decide the type of investment that is best for you. Some investors invest with a motive to create alternative income, while others may want to pursue it as their main source of income. No investment can guarantee you high returns as there is always an element of risk. In simpler words, are you willing to take the risk? That is the question.
Here are the 5 best short-term investment strategies that can deliver returns with considerably lower risk factors:
1. Savings Account – This could be a good short-term savings option. The average savings account generates a small amount of interest, but if you can open a high-yield savings account, you can get higher returns. When compared to regular savings accounts, high yield savings accounts typically offer higher interest rates.
2. Corporate Bonds – These are a kind of debt security sold to investors. Many conglomerates issue them to generate money for various purposes. Corporate bonds are only at risk if the company issuing them dissolves, but a company’s assets can be used as collateral, maximizing your chances of being reimbursed for your losses.
3. Government Bond Funds – These work on similar lines as corporate bonds; the only difference is that they are issued by the government. It’s a low-risk investment as it pays low-interest rates. Most government bonds are issued to boost infrastructure, public services, and domestic programs.
4. Money Market Accounts – Borrowing and lending of short-term funds in financial markets comes under the money market segment. These account mature anywhere from one day to one year. RBI and SEBI regulate this market in India.
5. Certificates of Deposit – In this, you deposit a large sum of money for a fixed period of time such as 6 months, one year, or five years. You must keep it untouched, or you will be charged a penalty for an early withdrawal. In return, you will get a premium interest rate. You will get higher interest rates than any savings account. It can be a great way to make your savings work for you.
Short-term investments use many routes to make money. The catch is that you must educate yourself on applying these investment vehicles to attain success. As you learn more about short-term investments, you’ll find yourself drawn to one strategy or another before settling on the right mix for your preferences and risk appetite. The goal of any trading strategy is to keep losses at a minimum and profits at a maximum, and this is no different for short-term investment.
