A short-term investment strategy involves putting your capital in the financial market to sell it in the short run with a targeted profit. Whether the goal is financing the acquisition of an item saving for a specific life event, or even increasing the savings rate, the right investment plan has to be selected. In this blog, we will guide you through the various investment plans specifically focusing on short-term investment plans and their advantages, drawbacks, and who can invest in these options.
What are Short-Term Investments?
A short-term investment is any security or financial asset mainly with a holding period that usually takes not more than 36 months. These are fixed investments aiming to yield quick returns with special regard paid to capital, liquidity and parlous nature. Specifically, the main goal is to achieve capital appreciation while restricting necessary fluctuations in the markets.
Best Investment Plans for Short-Term Gains
Several investment plans are short-term. One must choose carefully the best investment plan as per their financial requirement and short-term financial objectives. The different investment plans include the following.
Investment in Dividend Paying Stocks
Investing in dividend-paying stocks offers a dual advantage: a potential for capital appreciation and a source of regular income. These stocks are usually received from firms that have been in operation for a long time. It provides a steady income in terms of dividends thus attractive for investors who want additional cash flow from their investment portfolio. Besides, there is the chance or the possibility of stocks going up and therefore investment gain has an additional component, which potentially increases the overall return. But one must always remember the risk that is associated with it since stocks are available in the market in which price fluctuations are on constant change. To avoid this type of risk, one can turn to the ‘blue-chip stocks’, these are shares of large financially sound companies with a history of high dividend payout. These types of firms are normally less risky and are capable of withstanding economic risks comfortably since they act as income-generating and capital-growth instruments in the stock market.
Robo-Advisors
Robo-advisors are relatively modern forms of investment management programs that use an individual’s risk profile and investment goals. Due to their efficient nature, they provide a convenient method of investing since they are more than willing to develop and manage the portfolio for their client, which can entail a mixture of short-term and long-term investments. Such websites and applications clear the hindrances that discourage people from investing since they make investing easier for even people with little knowledge of finances and also help ensure your portfolio has diversified across the asset classes. Moreover, a robot advisor often is cheaper than a conventional financial advisor based on research and analysis that has been done as provided while aiming at higher returns for their clients’ investment, whether they are new or experienced investors.
Short-Term Bond Funds
A short-term bond fund is a mutual fund that is used in pooling funds for purposes of buying a variety of bonds most of which have a maturity term of between one to three years. Higher returns are possible compared to savings accounts and CDs Nevertheless, these funds are relatively safe because their lifespan is rather short. One benefit is that risk is diversified since it is spread out over various bonds which tends to decrease the potential of poor-performing bonds affecting so many bonds. Also, such funds are professionally managed by competent financial experts; thus, investors do not have to get involved in the bond market directly. One obvious advantage must also be acknowledged in the reign of short-term bond funds and these can be rather quickly traded on the market, which means that an investor can get prompt access to his/her money if necessary.
Certificates of Deposits
Certificates of Deposits or CDs are bank deposits that work as ordinary saving accounts which are, however, coupled with fixed interest rates and maturity periods. They are suitable for use by consumers who can afford to close their wallets for a certain period as expected by the providers of the ODAs and who also get higher interest rates compared to the basic saving rates. CDs are relatively safe from losing the principal amount because they are eligible for FDIC insurance of up to $250,000. Nevertheless, doing so entails some risks when penalties for early cash withdrawal cut down the total income whenever the CD’s term is before the maturity period.
Evaluating Short-Term Investment Plans
To leverage short-term investment plans, a person is supposed to consider some factors such as risk and liquidity when investing. Risk tolerance refers to the capacity of an individual to succumb to possible losses; some investors, for instance, are very cautious and might go for instruments that guarantee the safety of their money but at a very small rate we have saving accounts and CDs. On the other hand, those who are willing to accept a higher level of risk may opt for a certificate of deposits and short-term bond funds lending may offer higher returns. The reasons for holding funds for cash also depend on how soon or in what short time frame one may require the funds.
Conclusion
Overall, choosing the best investment plan with the view to earning short-term returns involves several considerations such as the investor’s objectives, his/her ability to endure risk, and the need for accessibility to funds. The different short term investment such as Robo-advisor and short-term bond funds are safe and easily accessible but give little profits. Those people who are ready to take higher risk for higher potentially higher returns can consider short-term Corporate bonds and Peer-to-peer lending. Hence, a short-term investment plan is the only investment strategy that one needs to make depending on the overall financial plan and risk appetite. Thus, by thoroughly selecting the right combination of short-term investment plans, you can fulfil your financial objectives while maintaining the security and flexibility of your assets.
