Benefits of investing money in short-term investments

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Benefits of investing money in short-term investments

Future investments plans can be of various types. They could be for your dream home, retirement, or your child’s education. These different events occur at different stages of your life. To meet all these requirements, it is imperative that your financial planning must be supported with long-term and short-term investments. These two types of investment should be considered when investing money for your future. This helps you to be prepared at all stages of your life to face and tackle every type of situation.

What is short-term investment?
When investing money, investors follow a general thumb rule of discerning the nature of the investment plan. Any investment that is below the tenure of three years is known as short-term investment. Such short-term investments are done when investing money in combination and in support of long-term investments.

One of the main attributes of these short-term investments either is that the yield amount is very low or the risk factors are considerably high. However, these short-term investments are some of the best ways through which the profit amount on liquid assets and cash savings can be increased. Short-term investments are a great way through which you can make a good sum on investing money within a limited time period. You can further roll over these short-term investments into long-term investments.

Benefits of investing money in short-term investments
Experts opine that for a secure financial planning, you must have a fair combination and a blend of long-term and short-term investments. Short-term investments are mostly required to meet sudden crises and emergencies. As opined by wise men, problems and challenges often emerge without any prior notice. And in such situations, you often have to dissolve your long-term investments to handle the situation at hand. This is a step that could also result in loss. This type of situation can be better handled if you have short-term investments at hand that can be yielded within a short span of time.

Short-term investments are easy to liquidate in case of emergency. This can be attained through buffer cash which again deprives you of interests. For instance, a savings account offers you low interest. Such crisis and emergency periods can be best tackled with the help of these short-term investments.

However, at the time of making these short-term investments, you must keep the following aspects in your mind:
– What are your financial goals?
– When investing money, how much are you ready to invest?
– What is the tenure for which you are going to be investing the money?
– What is the flexibility that you require?
– Is there any chance that you can lose your investments?

Flexibility is one of the biggest advantages of short-term investments. You do not need to keep your money tied up for long periods of time. You can always sell it on another market, but you need to understand that you might not get what it’s worth.

Getting good returns is another benefit of short-term investment. The best part about returns is that you can also get them more quickly.

Aspects of short-term investments that you must bear in mind
Meanwhile, when planning on investing money in a short-term investment, you must bear certain aspects in mind, such as:

  • These investments plans pose a definite risk factor as these plans either offer low yield or have considerable amount of risk associated with them.
  • The tax consequence of such investments that are made for less than a year is yet again another aspect that can cause you much inconvenience
  • Financial experts often advise certain safer investment options for short terms such as treasury bills and certificates of deposits. The money market fund is also important. The first two options have fixed interest rates and maturity time. One of the biggest disadvantages of such fixed-rate investments in that when you take out these investments, you will lose a good amount of money as penalty.
  • Market mutual funds are one of the best options for such short-term investments. Although they offer lower yield as compared to fixed rate investments, yet they are much more flexible in terms of deriving money out of them at any point of time that will be convenient for you. This is again a great way in which you can protect your long-term investments.

On a final note, it can be said that neither types of the investments, be it long-term or short-term, happens to be enough or adequate for any one person. You might feel that getting your money double in less time is the best thing to do. However, such type of investments often come with their own pitfalls. Often there are investments that flourish better in long-term, even better than they do in short term. Hence, you should choose your investment plans wisely and maintain a proper balance of both types of investments.