Do you want to invest money, but without long contract terms and capital commitment? Then short-term investments could be of interest to you. However, these forms of investment are primarily aimed at preserving capital or saving certain sums for a somewhat larger purchase. If you are speculating on returns, medium and long term investments are better suited. For this reason, other criteria are often in the foreground for short-term investments, which we present to you here. This gives you an overview of whether and how you want to invest your money for a shorter period of time.
What are short term investments?
“Short-term” generally refers to investments for less than a year. In most cases, however, it is not just a question of financial investments with short terms (e.g. fixed-term deposits, short-term bonds, etc.), but forms of investment that can be liquidated or sold relatively spontaneously (e.g. overnight money, stocks, etc.) .).
Basically, these variants are possible for short-term investments with a high degree of security:
- Overnight money account
- Checking account
- Fixed deposit
If you would like to accept a higher risk in order to possibly achieve returns, the following options are also possible:
- Open Funds
- Day trading
What characteristics should a short-term investment have?
- High liquidity
- Low volatility and high security
- Infographic on the most important properties of short-term investments: high liquidity, high security, low volatility, yield
What options are there for short-term investments?
There are many opportunities for short-term investments and each form of investment has its own advantages and disadvantages. Nevertheless, two categories can be distinguished: short-term investments with high security and speculative short-term investments with less security, but the prospect of a return. Park money with security, but with no return: current account, overnight money, savings book, fixed deposit
Investing money without a return sounds strange at first – but in times of low interest rates, this is a sad reality for many “classics” of financial investments.
But why invest money without a return?
In order to achieve short-term savings goals, returns play a subordinate role. Basically, it is enough if you put the money aside and keep it safe. For this reason, investment forms such as overnight money accounts, which are secured by deposit protection up to at least USD 100,000, are a sensible option for these goals. Because even if there is no interest, the other way round you cannot lose any money.
TIP: A savings book and a fixed-term deposit account offer similar conditions to a daily money account or a current account when the interest rate is continuously low . If security plays the main role for you in your investment, you can also simply park your money in your current account.
RETURNS WITHOUT SECURITY: STOCKS, FUNDS, ETFS, BONDS
Exchange-traded securities such as stocks , ETFs and open funds are very liquid and are therefore also suitable for short-term investments. On top of that, even good returns are possible. However, the risk of loss with these forms of investment is problematic. Especially when you need your money very spontaneously and at short notice. You then run the risk of having to sell your securities at a currently unfavorable price.
TIP: If you know in advance when you will need the money again, you can plan a slightly larger window of time for the sale and thus possibly reduce the risk of a bad price on the day of sale. A certain residual risk remains, however, because, unlike a medium to long-term investment, you cannot sit out persistent price lows and also do not benefit from possible dividends. Bonds represent a special form in this category . Bonds are quasi loans for companies or states, with investors acting as lenders. These papers have a fixed term, upon the expiry of which repayment for the debtor is due. However, you have the option of selling this paper before it expires – but then you have to expect current price fluctuations. In addition, default of the final repayment is possible in principle.
Short-term investments for professionals: day trading
In day trading , there is speculation on price changes within a day. Since real securities purchases are hardly worthwhile for this extremely short investment period, derivatives such as warrants, leverage certificates or CFDs are usually traded. Day trading, however, is extremely risky and should only be practiced by very experienced investors. One reason for this is, for example, that price developments within a day are influenced by special factors that laypeople are unlikely to be aware of. Therefore, the risk of a total loss with these papers is extremely high. Professional day trading is not possible without intensive and time-consuming market analyzes.