Best Short-Term Investments

Short-term investments provide an opportunity for investors looking to make a quick buck without a long hold. They can result in huge profits within a short span of time, if handled cautiously.

High-Yield Savings Accounts

High-yield savings accounts are one of the most common forms of short-term investment. Nowadays, many banks offer such accounts with a higher APY (Annual Percentage Yield) and a much better rate of return than the local brick-and-mortar bank. Basically, it is a savings account at an online bank, and offers the facility of transferring money to and from the person’s checking account. However, opening this account is not an easy task, as the banks offer this facility only to certain valued customers. The investor should meet any one of the following criteria, in order to open such an account:

– He should make a sufficiently large initial deposit.
– He should limit his transactions.
– He should maintain a high average balance.

It is always advisable to first check with the existing bank, if there is any kind of facility which can yield better profits. In case, the bank doesn’t have anything to offer, one can check online.

Penny Stocks

Penny stocks are those that trade for less than one dollar. As compared to others, they are a riskier form of investment; however, the monetary returns can be substantial. The volumes traded daily can run into hundreds of millions for a sub-penny stock. In the past, some of these stocks have shown an enormous rise from 25 cents to USD 20, and on the other hand, there have also been cases when these stocks have become worthless. They represent all the small companies across the US, and are gaining popularity because of the comparatively smaller initial investment. They are powerful enough to turn a small amount into a big fortune. An example being Tim Sykes who has made millions from an initial capital of just USD 12,000. Trends provide an efficient way to find profitable stocks. They are basically a repeating pattern of the market, which occurs consistently over the history of the stock. On close observation, an investor can see smaller patterns that occur at consistent intervals, which can be used as guidelines to forecast future movement.

Low-Risk Stock Funds

Low-risk stock funds are also a profitable option for the short term. The ideal way to look out for them is to measure their volatility, by the standard deviation of their monthly returns, over a period of time. These funds also provide the benefit to buy a ‘n’ number of units, for a diversified portfolio. Before opting for a low-risk stock fund, the investor should get a thorough idea of factors such as the risk involved, profits, and tax-efficiency. It should be kept in mind that generally, these types of funds are of high volatility and low tax-efficiency.

One must remember that these investments need to be handled carefully. The time required to get the best benefit is usually very precise, and even a single mishandled purchase or selling opportunity can result in a big dent in its value. If required, one should take the help of a financial advisor.

Good, Safe Investments

Investing money for future use and liabilities is a known concept to the majority of us. Most people secure themselves and their families financially through different means of investments such as stocks, government bonds, property, etc. In wake of a global financial meltdowns, that leads to many asset losses and unemployment, it is understandable why individuals are vary of investments that do not give good returns immediately.

As an investor, one needs to understand three important things before investing hard-earned money. These three things more or less decide how safe an investment option is.

Risk Appetite: The amount of risk one is willing to take is termed as risk appetite. Higher the risk, higher the returns.

Time Frame: Time frame refers to the duration one is willing to invest for, keeping in mind volatility of the market and personal requirements and liabilities. Time frame includes short, medium, and long term investments.

Diversified Portfolio: Diversifying one’s portfolio helps to spread out risk in different types of investments. Diversifying helps in wealth management, as one can move funds between different investments, as per need and markets, without sustaining losses.

Good Return on Your Investment

Most investment advisers follow standardized formulas for calculating the proportion of investments one should make. ‘Start investing young’ holds true if you want to increase your returns, even in a bad market scenario. The following is one of the many formulas used to help one assess and understand the concept of safe investments.

Age Matrix Formula
Formula: 100 – age of the investor
For example: 100 – 30 (age of investor) = 70
Therefore, 70% of the total amount to be invested (wealth assets) should be put in equities and the remaining 30% in government backed securities.

A younger person can invest in a high risk market, as the age component makes it a relatively safe investment. The common misconception that has arisen due to the fall of stock markets worldwide, is that stocks are not safe to invest in. However, all long time investors know that for any stock or share to provide a good return, the money invested needs to be locked in for a minimum of 7 years. A longer duration of the investments eventually evens out the ups and downs of the market. There is no better proof of this fact, than the resurgence of the world stock market (though slowly), after a low of nearly ten months. Assets invested in government securities like fixed deposits, bonds, debentures, etc., are low risk investments that yield low returns, but assure that there are no monetary losses. Similarly, for an older person, particularly someone close to retirement, who needs regular income, it makes sense to invest more in government securities and less in stocks.

Types of Investment Options

Types of investments can be classified under financial and non-financial instruments. One can choose a variety of options to diversify the wealth portfolio. All investments carry risk with them, a thorough study of these investments, along with the company that one is investing in, is of extreme importance.

Financial Instruments

Equities are traded in stock markets. By purchasing an equity (shares or stocks), the purchaser becomes a part owner of the business. This form is a good long-term investment option, as the returns are generally higher than most other investments. However, greater returns also mean greater risks, so this has to be a long term plan. Being part owner of the company also entitles one to vote at shareholder meetings and receive profits (dividends).

Bonds fall under the category of fixed income group, and refer to securities that are founded on debt, for the purpose of raising capital. When one purchases a bond, it is like lending money to a private company or government. In return, interest is received on the money. Bonds are generally considered as safe, and the incoming interest is mostly stable. However, they come with risk, though a lot lower than others.

Mutual or Growth Fund
A mutual fund refers to a group of people, who pool their money together and have it professionally managed. They are set up with a specific strategy in mind, which includes a predetermined investment objective of earning higher returns. Mutual funds are a popular investment type, as one can invest low amounts monthly, and risk is diversified as the money is invested in stocks, bonds from government and companies, etc. This again is a long term investment and is subject to market risk.

Investing in banks, government schemes, post-office deposits, such as fixed deposits, recurring deposits, different plans, etc., are a very common way of securing surplus funds. However, these instruments give low returns as they involve very little risk.

Non-financial Instruments

Real Estate
Despite the fall in the real estate market in the United States, markets are predicted to go up again in the near future. The fact that land is becoming scarce, cannot be disputed. Hence, real estate is a profitable investment proposition.

While most markets were down, physical gold prices rose. In fact, this is the only commodity that has seen an upward swing in recent times. Besides physical gold, a number of products which derive their value from the price of gold, such as gold futures and gold exchange traded funds are also available for investment.

Safe investments are generally those that are well diversified, as they can help cushion the impact of a fall in the stock market. All investments should be done keeping in mind the age of the investor, and expected future liabilities. Consulting an analyst is a good option for those who don’t have a good enough understanding of investment options. If possible, one must study and research different options well, before investing in them.