Short-term investments are a great way to grow your company’s long-term financial health. They can help pave the way to your long-term goals, such as bettering the working environment, improving customer service, and preventing financial risks. They can also be a good way to raise capital quickly.
Read on to learn more about what short-term investments are and why your company should invest in them.
What are short-term investments?
Short-term investments, also known as temporary investments, are said to be assets that reach their maturity in less than three years. The best investing books explain that short-term investments can be liquidated for profit within a short period of time. However, the majority of short-term investments take about 3-12 months.
A short-term investment is one that can be easily converted into cash; examples of the best investments include high yield savings accounts, government bonds, treasury bills, and money market accounts. Companies tend to make these short term investments for the following reasons.
If your company is looking to make a quick profit in a short period short-term investments are the way to go, unlike long-term investments that tie down your money for years you can enjoy the results of a short-term investment within weeks or months of investing depending on the investment made.
This makes it possible for companies to record their returns on investments as part of the profits for the year. In addition to this, it leads to the growth of the company’s purse giving it the purchasing power to expand and take on larger projects as it is a good way to raise capital.
Easy to manage
Short-term investments have always been easy to manage as investors can tell what is happening to their assets on a daily basis and make decisions based on this.
This process has been improved with the introduction of technology, meaning that in addition to being able to manage your short-term investment portfolio easily, you can also make short-term investments online. An example of this is online investing with sofi.
One of the reasons why short-term investments are popular among companies and why other companies are getting in on them is because of their liquidity. Short-term investments are liquid. This means that they can be easily converted into cash, and this is a major characteristic of the investment.
This liquidity makes short-term investments a means of managing excess funds. Take for example, a percentage of the company’s financial assets not being utilized can be put into a short-term investment, and if any emergency arises and the company needs the funds, it can liquidate the assets quickly.
Short-term investments are a relatively lower risk as the investment capital amount is usually low and the time horizon is shorter. This is because companies only invest fractions of their assets in short-term investments so they do not stand to lose much.
Short term investments are often deemed low risk based on the investment asset. Take for instance, short term investments like a money market account or other bond investments discussed in bond investing books. These present low volatility or cash deposits made to banks which are insured by the government.
Other short term investments like treasury bills and government bonds are also well-regulated by the government. Based on this it can be said risk attached to short term investments is a lot lower.
There are strong reasons why your company should invest in short-term investments, but before making any investments, you must do proper research to understand what your company is getting into. You should also seek the services of your attorney, financial advisor, or an investment manager before making any short term investment.