The challenge of creating a balance between making a decent return on investment and being able to recoup all the funds in the shortest time possible, is one of the factors discouraging people who plan to use their money in the not-so-distant future from the investment ecosystem.
Because short term investments often present lower returns than longer-term investments, some potential investors do not bother to invest at all.
Short Term Investment
Short term investments are financial investments that can easily be converted to cash, typically within five years. Many short term investments are sold or converted to cash after a period of only three to 12 months.
FBN Quest says “In seeking a place to invest or save cash for the short term, your priority should be for you to get your money back at a particular time. This is crucial because you often need to have the money in a specific time to meet obligations such as a down payment on a house, wedding expenses, your children’s tuition, or to meet your budget for a scheduled vacation.
“On the other hand, while you want to keep your money safe, you also want a decent return on your savings. It is unlikely that you will earn as much in a short-term investment as you would in a long-term financial instrument.
Long Term Investment
“Long term investments usually offer greater returns, but their prices are more volatile than short term investments. While the company stock price may rise multiple folds over several years, it could decline during the next few months. You may also face the challenge of finding a buyer for the long term asset that you have purchased. Short term investments, however, are often highly liquid, allowing you to cash out quickly should the need arise.”
Advantages Of Short Term Investment
It adds “Suitable short term investments are typically characterised by stability in value, liquidity and low transaction costs. These features mean that your money will be safe and accessible when you need to use it, which is a significant reason to have short term investment. If you are investing money for three years or less, a few principles will help.
Set reasonable expectations because short term investments typically have lower potential returns than long term investments.
Focus more on the safety of your investment than the return. A little extra return may not be worth the additional risk.
FBNQuest says its Money Market Fund offered by FBNQuest Asset Management, which is a pool of money collected from many investors to invest in securities like treasury bills, commercial papers, banker’s acceptances and certificates of deposits. It is well suited for and adaptable to any investor type.