what it is? Types, risks, benefits


2019-05-14

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Short-term investments are very popular. The relative protection of capital and the ability to withdraw funds from circulation at any time become the determining factors for the implementation of this type of activity, both for companies and individuals. In addition, the investment period allows you to make an accurate forecast and leave the project on time in case of risks. It remains to decide on the type of investment and assess the possible profitability.

Short-term investments

Definition

Short-term investments – a temporary investment of cash, in order to preserve capital, for further use in profitable projects.

Standard withdrawal periods are from 3 to 12 months. But the indicator is conditional and each investor perceives “short-term” in its own way.

For example, for large companies with great financial capabilities, a period of up to 5 years is considered short. Private entrepreneurs prefer to limit themselves to a few months.

The profitability of short-term investments varies within 5-30% and depends on many factors, such as the risk of the project (the higher, the greater the percentage of earnings), the economic industry (bank deposits give 3-5%, equipment and raw materials – 15-20%) , forecast of the development of the financed company. After the expiration of the term, the owner receives the above profit and completely withdraws the capital from circulation.

The main goal of short-term investments is the efficient operation of cash, even during periods of “calm” or, as an alternative to passive savings accounts, which yield only 1-4% per annum. At the same time, the capital must be under reliable protection and, if necessary, withdrawn from the project at the first request of the investor.

Nevertheless, the conditions of “quick” investments do not negate the risk of the event. Before making a contribution, experts recommend that you carefully study the general economic situation and make an informed decision.

Views

Short-term investments are classified into several groups – liquidity, risks and types. All three indicators are of interest to a private investor. But still the type is the priority.

After all, it is he who determines the term of the deposit and the amount of profit. It is customary to distinguish between several classic types:

  1. Government securities (federal loan bonds). Produced by the Ministry of Finance of the Russian Federation, the place of trading is the Moscow Exchange, the agents are Sberbank and VTB, the yield is 8.5-10% per annum.
  2. Shares, bonds, promissory notes of large companies, with a dividend payment period of 6, 9 or 12 months. The profit depends on the par value of the securities, their quantity and the percentage of dividends set by the company. As a rule, rarely exceeds 10%.
  3. Investment in mutual funds. The funds manage the finances of thousands of investors and invest in guaranteed profitable projects. The main thing is to choose a reliable mutual fund.
  4. All types of private lending, including loans against IOUs, investments in microfinance organizations. Liquidity is very high, reaching 30%. But the risk of burnout is also great.
  5. Bank deposits. The yield depends on the term. 1 month – the minimum rate, 3 months – 1% is added to the base rate, 6 months – another 2%, 12 months – the bank adds 2-3%. In any case, the profit will not exceed 8-9% per annum.
  6. Precious metals and stones. This method has been invariably popular for many centuries. Although the income is small, but stable, the investor is not threatened with the loss of fixed capital.

When choosing a type of short-term investment, you should pay attention to the possibility of transferring investments to a long-term basis.

If the income has met or exceeded expectations, the investor will have a chance to receive constant profit.

Risks

Any uncertainty about investments that can negatively affect your personal financial condition is called risk. Short-term investments are no exception.

This type of deposits has:

  • market risk – the value of assets may fall or rise;
  • business risk – corporate decisions (entering a new business area, merging with another company) can affect the cost;
  • currency risk (political) – if investments are made in an international company, events in the country of registration may affect the final profitability;
  • liquidity risk – it is easy or difficult to get a return on the deposit;
  • concentration risk – all capital is invested in one investment, etc.

Investments that fall under the definition of “risky” will bring the greatest return. But you can also lose money here just as quickly. Deposits in a bank, deposits in government bonds, purchases of precious metals, etc. have the least degree of risk. But you can get tangible income here only if you have a relatively large capital, because the interest rate is only 8-10% per annum. For example, with $ 10,000, an investor will receive $ 200 in three months.

The situation is different with risky enterprises – short-term venture investments (investments in startups), financing of microfinance organizations. The profitability is high – 30%, sometimes more is promised. With the same $ 10,000, the investor receives $ 750 in three months. But, a new project can burn out, if startupand the financial institution goes bankrupt or shut down (fraud). Therefore, an investor is required either to have encyclopedic knowledge in the field of economics (to make a forecast), or to exercise elementary caution and use the experience of successful entrepreneurs.

short-term disadvantages



Advantages and disadvantages

Short-term investments are available not only to companies and professional investors, but also to individuals. This is the main advantage of “quick” investments. Additionally, entrepreneurs get the opportunity to:

  • work with a small amount of cash;
  • withdraw capital from circulation on demand;
  • make deposits in several attractive objects at once;
  • protect savings from inflation (depreciation) in an unfavorable economic situation;
  • the ability to make a profit on a monthly basis.

But at the same time, there are disadvantages:

  1. To get tangible income, you need to invest at least $ 10,000, otherwise be content with very modest dividends;
  2. Short-term investments are directly dependent on the political and economic situation in the country;
  3. The list of risks is extensive and requires study.

In order to protect fixed assets and get the desired profit, you need to understand the very essence of investments and not spare money for consulting with experienced entrepreneurs.

Output

Investing money with the aim of making quick profits is at all times very popular. The main thing is to avoid risky actions in the early stages and gradually build up capital. This will help to gain not only invaluable experience, but also to multiply “free” funds several times in order to reach a completely new level of financial situation. It remains to wish successful conquest of economic peaks with the help of short-term investments. Share your experience and mistakes in the comments!