Once you establish a financial goal and start saving, a good way to grow your cash is by investing it. There are Short-Term and Long-Term Investments. Long-term Investments are assets you invest in for more than a year. They are also not likely to be sold. Some examples include stocks, real estate and government bonds.
A short-term investment is any investment that can be converted into cash in less than one year. If you are starting out as a new investor, it is a good cash flow strategy. This is because it gives you the flexibility to access your cash in a short period of time. A typical short-term investment is usually expected to grow for several months and they can be turned to cash when they reach maturity.
It is important to note that as a short-term investment, the stock market is not a place to invest in. This is because even though they can be readily converted to cash, there may be a significant spread between the assets book value and its current price and you may end up at a loss. The rewards of investing in the stock market are best cultivated as long-term financial transactions.
Most Short-term Investments fall into the category of Money Markets. Some examples include:
Why are Short-term Investments Most Suitable for First Time Investors?
- They can be used to generate additional income quickly
- They are used to create emergency cash reserves
- They are flexible and you can withdraw your cash without making huge losses
- It is an effective way of managing your cash flow
What are the Challenges of Short-term Investments?
- They require a discipline that overrules impulses that drive people to purchase items on a whim. This means that you must make careful thought out decisions in every investment, and manage the cash in hand wisely so as to avoid any problems.
- They require consistency in their execution and for one to pay close attention to what exactly they are investing in. You must be consistent in how and what you invest in, bearing in mind any trends that may affect your decision.
- You must also possess the necessary knowledge to navigate through short-term investments successfully, alternatively you could hire or seek out counsel from a financial adviser to do the transactions on your behalf.
Further Reading: Best Place to Put Short-term Savings