Best Short Term Investments

Individuals who have accumulated funds that exceed their day-to-day needs instinctively seek to avoid having their fund surplus lay idle for any length of time. These are the types who seek not just any investment but the best short term investments.

Why short term? It is because majority of individual investors want to be able to withdraw their investment quickly without incurring a penalty if a better opportunity exists elsewhere for the use of their funds.

In an ideal world, there is a well-defined rule for determining the best short term investments. However, in the real world there are only guides from experts in money matters, proven investment practices from years of experience, and gut feel on the part of the investor himself.

A neophyte would-be investor might ask, “What is this thing called ‘investment’?”

Investment is the act of placing your money in assets like financial instruments or other objects of value for the purpose of earning profits in the form of income flow, increase in asset value, or interest. Financial instruments include money market accounts, treasury bills (T-bills), and certificates of deposit (CDs).

Based on the duration of commitment of money, there are two kinds of investment: long term and short term. The phrases “long term” and “short term” have been borrowed from the practice of Accounting, wherein “long term” means a time period that is generally in excess of one year, while “short term” is understood as one year or less.

Investment in machinery, buildings, or land is an example of long term investment. It takes a number of years before the amount invested is recovered through the income generated by the assets in which the investment is placed. Big business enterprises are usually interested in long term investments.

An example of short term investment is placing money in financial instruments that mature within one year, such as: money market account or 3-month certificate of deposit (CD).

Finding the best short term investments could be a challenge because sometimes it is a matter of good judgment and well-informed opinion. What looks like the best short term investments for one particular person may look entirely different to the rest of humanity.

Here are guide questions you can use in assessing what is the “best”:

·        Does the investment offer the highest annual percentage rate (or APR) in a given term? A term can be a quarter (3 months), a semester (6 months), a year (12 months), or any number of months in between. Don’t be confused between APR and APY (annual percentage yield); a 5% APR is better than a 5% APY.

·        How much access does your financial institution allow on your funds before its maturity? The less access you are allowed, the less control you have over your investment.

·        What is the penalty for terminating an investment earlier than its term?

The best short term investments pay the highest APR, are accessible, and impose the lowest penalty for pre-termination.