You want to temporary invest money and make some extra cash, but you are not quite sure where to invest? Well, this article will help you understand what short-term investments compared to long-term investments are and where should you put your money into in 2019.
So, What are Short-Term Investments?
One of the requirements for an investment to be classified as a short-term investment is to be easily and readily convertible to cash. If an investment doesn’t meet this criterion, then it isn’t a short term investment.
The second requirement is for the investment to be converted or sold within 3 to 12 months. If the investment period is longer than one year it is considered to be a long-term investment.
Short-term investments are also known as marketable security and temporary investment.
According to Investopedia, “Money market securities are short-term IOUs issued by governments, financial institutions, and large corporations. These instruments are very liquid and considered extremely safe. Defaults on money market instruments have been extremely rare.”
Can a Short-Term Investment Become a Long-Term Investment?
Yes, it can. A short-term investment means you intend to hold the asset for a short period because it’s expected to be converted into cash in the next 12 months. This means quick returns and plans on selling in the current accounting period.
However, if you decide to hold the same asset for a more extended period and not sell it in the current accounting period, then this investment is no longer a short-term investment. Keeping the asset for longer than a year means you’ve made a long-term investment.
What is the Difference Between Short-Term and Long-Term Investments?
The differences between these two investments can be divided into three groups. So, let’s take a look at the main differences:
Different Expectations and Time Span
When you make a long-term investment that you intend to keep longer than one year, then you are sure the value of the investment will go up, and you are expecting to sell the investment and make a profit in the future. However, the profit might be not as high as when you invest short-term.
Before you make a short-term investment, you have to make sure you are making the right decision by reading and learning every possible information about your future investment. Short-term investments are riskier because you can either double or even triple your money, or you can lose everything.
Typically, people tend to make long-term investments because they have a long-term goal in mind. For instance, buying houses for your children and leaving a legacy behind.
However, short-term investments are often made when you know that you will need a large amount of money in a few months. That’s why it would be safe to say that short-term investments are a great choice if you have a short-term goal in mind.
With short-term investments, you can either make a lot of money in a short time, or you can lose your money fast. In other words, short-term investments carry a higher risk compared to long-term investments.
To lower the risk of a short-term investment, you need to analyze the investment in detail before you invest your money.
On the other hand, long-term investments are associated with volatility or in other words, the fact that the investment could lose its value.
What Are The Best Short-Term Investments in 2019
Common yet effective examples of short-term investments and strategies used by investors that you should consider in 2019 are:
Money Market Accounts = Interest-Bearing Accounts
- Require a minimum investment
- FDIC-insured except for money market mutual funds
- Based on the account balance
- Higher rate of return
- Risk-free return
- Low-interest rate
- High liquidity
- FDIC-insured up to $250,000
Certificates of deposit (CDs)
- Offered by banks
- A specific length of investment time
- Higher interest rate
- FDIC-insured up to $250,000
- Treasury Inflation-Protected Securities (TIPS)
- Indexed to inflation
- Fixed interest rate
- Low Risk
- Best for short-time investments
- High returns but there are applicable fees
- Low risk but not FDIC-insured
- Money can be withdrawn when needed
- Good for short-term investments
- Potential for fast returns
- High liquidity
- Simple tax rules
Now that you know what the best short-term investments in 2019 are, you can choose from the mentioned above investments and invest your money.
Let’s sum up what we’ve covered so far about short-term investments:
Short-term investments are investments for a short period in which you invest your money. This debt or equity security is expected to be sold or converted into cash in the next 3 to 12 months.
In other words, short term investments have the potential to make you a lot of money in a very short amount of time and are a great choice in 2019.
So, if you want to make some extra cash with short-term investments, we suggest you begin by educating yourself on the topic before you invest your money. Because to know what to expect from your investments, you need to know the market well. Taking the right choice is crucial when you put your money on the line.