Advantages of Short-Term Investments
People who are looking for quick gains may consider short-term investments. They can invest their money and earn high yielding interest rates within a short period of time. However, people have to make wise decisions especially in selecting which one would really give them the returns that they are expecting. They also have to consider the risks that they are taking as short-term investments with high rates for possible profits involve high risks as well.
The time element involved in short-term investments may run anywhere from a year to about 10 years. People who may have some immediate needs in the future like paying for a house or for a car perhaps may opt for this kind of investments. Instead of putting their money in savings accounts, they can put it in short-term investments in order to gain more for their needs. People may also supplement their retirement funds with profits from their investments as well.
Popular Short Term Investment Options That People Can Apply
One of the most common short-term investments that people can consider is the money market. They may be able to earn very high interest if they get into the money market rather than just putting their money in the bank as savings deposits. People may invest in gold and in silver for example through the time that they have access may be very limited as it is the time when they can really earn from their investments. They may hold on to their shares until the prices of gold and silver go up before they sell it.
Another option for short-term investments is for people to put their money into mutual funds. The profit that they may earn will depend on the swing of rates that change during the investment period and the selling rate in the future. However, people have to take note that these types of short-term investments also carry high risks as well.
Other money market options
People who are contemplating on investing in money markets have to think about the advantages as well as the disadvantages of this type of short-term investments. They have to weigh and consider the merits if they get into stocks, bonds or derivatives. Although the money market carries one of the highest risks, people can still make use of it to their advantage. They may choose more liquid assets or short-term borrowings that will yield higher interest rates. These would include certificates of deposits as well as treasury bills. There are also other forms of these short-term investments which they can derive interest rates at maturity date within a period of one year or less.
Although the interest rates in this kind of money market options are a little lower, people have lesser risks as these are backed by the government equities. At least people still earn more than the rates that their money will earn if they simply put them in savings accounts. One of the advantages of this type of short-term investments is its liquidity. People may not find it so difficult to convert their investments into cash when they would need it.
Risks involved in short-term investments
Whatever option people take when it comes to their short-term investments they are taking risks. However, certain money market options may be less risky than the others. People may be more secured if they invest in treasury bonds for example though they may gain higher returns if they choose to invest in the stock market instead. People have to remember though that inflation may affect the prices of their investment even if they opted for the more secure ones. The most sensible thing that people can do is not to put all of their money into one type of investment only.
The flexibility of short-term investments in some ways is benefits people as they do not have to tie their money down for a very long period of time. They may pull out their money upon maturity and they do not have to wait too long for it to happen. People are also encouraged to make short-term investments because they are able to see tangible results within a relatively short period of time.