Looking to be smart with your money, but not quite ready to tie it all up or get into a high-risk deal? You’re not alone. It seems this year especially, with all the uncertainties and unknowns, more people are searching for the best ways to safely make their money work for them, without losing access to it in a long term investment.
A short term investment (also known as a marketable security or a temporary investment) can offer you an alternative to the traditional long term commitment that’s often thought of when we think of the phrase investments.
What is A Short-Term Investment?
Simply put, a short term investment is just a way to invest your money and see returns without losing access to your initial investment for a long period of time. In the financial industry, “short term” is defined as an investment generally that lasts three years or less.
The two biggest differences between short term investments and long term are the length of time you’ll be invested, and the return you can expect. In the world of investments, it’s particularly true that short term investments most often won’t offer you very high yield returns on your money. But there’s even more you need to know. By going the short term route, you’ll also be limited in the types of investments you can buy into. And, you wouldn’t want to make high risk investments like stock funds and stocks.
Advantages Short-Term Investments
Why would someone want to invest in short-term opportunities? There are a few reasons that make this investment strategy particularly attractive to some investors. Depending on your goals and your immediate future needs, short-term investing may be exactly what you’re looking to add to your portfolio. Let’s look at a few benefits.
Flexibility
If you want the flexibility of having access to your money at any time during your investment period, then short-term investments can be valuable. When you don’t have to wait for an investment to mature, you have a safer bet, earning money with less risk while trusting that if you need quick access, you’ll have it.
High Yield
While many short-term investments aren’t get-rich-quick vehicles, there are actually some opportunities that will allow you to make a substantial return in, you guessed it, a short amount of time. These can be great options for those who want more of a return than a typical savings account can offer.
Lower Risk
All investing involves some degree of risk, but short-term strategies are substantially less risky than some other options. Not only is your money not tied up, but as we previously noted, you can access it when you want. This can give peace of mind to some nervous or new investors. And, you don’t need a huge initial investment to get into a short-term investment, which translates to less of a risk as well.
Liquid
Short-term investments have the benefit of liquidity. They’re typically easy to get out of, so the appeal of your funds not being tied up can be a huge plus for many investors. It means you can potentially earn more on your money, without giving up any security and your safety blanket.
Disadvantages for Short-Term Investments
Just like anything else in the world of finance, there are some negative aspects to short term investing too. It’s important you know them, because understanding any potential downsides is key to being a smart investor.
High Costs
Since short term investments turn over quickly, there’s generally a higher cost associated with them. This is in part due to high volumes and commission fees. As there’s limited return potential, the higher cost to actually have these investments can have even more impact because they may eat away at your return.
Expertise Required
When you’re in a short term deal, you don’t have the luxury of time on your side. A longer term investment essentially has a recovery period built into it, so you can feel a bit more confident going the “set it and forget it” route. Ideally, a short term investor will be experienced enough to monitor and assess market movements to optimize buying and selling cycles.
Tax Implications
Finally, any time you have a gain from your investments, you have the potential for taxes. As short term investments typically don’t yield as much, both taxes and inflation can cut into your return.
Why Short Term Investments Are Right for You
Short-term investing can be a smart move if you’re looking for an investment strategy that has liquidity and is deemed somewhat “safer.” It can also be advantageous if interest rates are rising during a relatively short time period.
Short Term & High Yield Opportunities with Connect Invest
Connect Invest is changing the way people think about the world of investing. We offer short-term, high yield investments in real estate, with an approachable minimum investment requirement. Our goal is to give more investors access to more opportunities. Learn more about Connect Invest’s listings today.
