Different people have different investment goals. While many look into investing in profitable long-term businesses, others want to put their money into temporary ones, which ultimately make good profits. Nonetheless, a projected holding period profoundly determines if an investment conforms to your portfolio. But have you considered short term investments?
Lots of short term investments exist that if people take time and look into, they would not believe how many opportunities they’ve let go. There is a hard truth here that one has to deal with before investing; some of these short-term investments offer high risks. Finding risk-free business long term returns remains a bit challenging.
What Are Short Term Investments?
- Assess expected or anticipated run out, either by liquidation or by expiring, within the course of one to three years, are called short-term investments.
- These types of investments prioritize capital protection with small risks.
- The investments come mostly accompanied by low returns.
- There are exceptions where one can invest in some businesses and still make lots of profits in the end.
- However, where this good chance exists, there is a possibility that you can lose the money as well.
Types of Short Term Investments That Make Long Term Profits
The following are some of the businesses one can invest in and realize high yields in the long run – as a manager, employee, or just a regular person.
1. Certificates of Deposit
Bridging the gap between investing and savings comes the certificates of deposit. It involves a bank locked deposit set to stay for a stipulated period, usually between a month to as long as ten years. With the bank’s perfect knowledge that your money will stay for long, it will pay a high-interest rate on the main amount.
- Despite most national banks paying little in their certificates of deposit, smaller banks offer the best values. These banks, in the search for long-term deposits, pay premium interest rates on deposits to attract more accounts.
- A good example of the above scenario is best depicted by how the Bank of America, as of February 2017, offered a small amount of 0.15% annually on 5-year certificates of deposits. On the other hand, another bank, the EverBank, provided a 2.28 percent a year on the same five-year deposits. Although the difference is negligible, over the life of the deposit, lots of income is realized.
- While investing in the certificate of deposits, it is mandatory that you buy them through the FDIC insured companies. This way, if the bank fails, you will remain protected from losing your interest.
- Opting to cash in the deposit attracts a penalty that varies from one bank to another, but is usually between 5 percent and 10 percent of the main amount. Buying the certificate of deposit, therefore, needs confidence that you will not withdraw them early.
2. Savings Bond
Bonds are a great way of lending money to a company or the government. It comes with a potential interest rate of one percent and more if one is a risk taker. To minimize the chances of risks, opting for savings bonds owned by the government comes highly recommended. A good example is I-Bonds. Why choose the bond? The entity will not default.
- I-Bonds makes another area of short term investments that attract good returns. It involves purchasing them from the US Treasury, which enables one to lend cash at a fixed rate, plus inflation to the government. It is guaranteed that the money grows as fast as the rate of inflation as time goes by. This protects one’s spending power.
- Impressively, I-Bonds, unlike certificates of deposits, allows one access to their money. This, however, is accompanied by a small penalty. Cashing in I-Bonds can be done after a year. If one wishes to have access to their money during the first five years, a three-month interest penalty will be charged. Those held for longer than the said period attracts no penalty at all.
- Buying I-Bonds is easy and can be done directly from the US Treasury through their website. For every Social Security Number in a year, an amount of up to $10,000 is accessible. This number doubles, enabling a married couple to invest up to $20,000 in I-Bonds for a year.
3. Bond Funds
The returns for a high-yield quality bond fund are very competitive due to the low-risk investment it offers. Nonetheless, it provides a near-immediate access to money in case of emergencies.
- A good example is the Vanguard Bond Funds. It provides a comprehensive exposure to a myriad of bonds in a portfolio and utilizes the indexed government and corporate bonds. It also allows one to invest in mortgage-backed securities with at least a year’s grace period. Vanguard Short-term Investment-Grade Fund, for example, provides a competitive 2.1 percent return for a minimum investment of only $3,000.
- This type of investment has one major setback, and the investment is not a guarantee. In the event of market panics, it attracts negative returns. In 2008-2009, the owners of Vanguard bond funds lost up to 8 percent in a span of four months; August to December of 2008. However, by mid-2009, everything was back to normal, and investors realized real profits hence.
- Of the riskier short term investments, bond funds are the worst. Their benefits, on the other hand, make it a necessary evil. It has no penalties for withdrawal even in a short period. Furthermore, one can top up the amount with any amount greater than a dollar any time they feel like it. This makes it a convenient short term investment.
Although short term investments are sometimes the riskiest on the market, one can still invest in them for long term yields. Once the knowledge on how to balance between the final profit margins and the risks, like dividing a portion of the portfolio in various bond investments sometimes guarantees insurmountable benefits after the stipulated time is over.
Short term investments make the best way to make good money. So you should not be afraid to look into the different innovative ways you can realize high yields. You should note, however, that if the short term investment runs for only a short period, pouring the cash into those that are not easy to liquidate or those that have high penalties for emergency withdrawals, should be a decision thought of carefully, before doing it.
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