Short-term investments are held for a year or less, used in a blended investment strategy to balance risk, and can be low or high risk. They can be liquidated quickly, and some funds operate primarily with short-term investments. They provide liquidity and quick returns while long-term investments pay off.
A short-term investment is an investment intended to be held for one year or less. Such investments are used as part of a blended investment strategy that is designed to balance and spread risk. Earnings can be realized through appreciation of the investment or through dividends and other payments. Careful research can be done to make decisions about investment decisions and people can also get advice from advisers and brokers if they don’t feel comfortable choosing for themselves.
Some short-term investments are designed to mature in a year or less. Investments can be low or high risk, depending on their nature, and are often held by corporations wishing to invest capital in highly liquid investments. If necessary, the short-term investment can be liquidated to quickly access the funds, but otherwise, the company plans to make quick profits to generate more capital that can be used for future investments or other purposes.
Others may be held for more than a year, but the investor does not choose to take a long position. These investments are also highly liquid and can appreciate and earn dividends for as long as they are held. At the end of the designated short-term holding period, the investment may be sold or a reassessment may determine that it should be held longer. In either case, the short-term investment return is often higher than the benchmark rate, providing an incentive to hold the investment.
Certain types of funds may operate primarily with short-term investments. Short Term Investment Funds (STIFs) concentrate capital in investments that are held for short periods of time. The fund manager chooses low-risk investments to ensure a base level of return that is above the benchmark rate. Common options for such funds include government securities, as these investments have guaranteed returns and are backed by the full faith and credit of the government.
People with a mixed investment strategy can use short-term investments to provide a source of liquidity and quick returns that will hold long positions in investments that will pay off in more than a year. This is designed to ensure that long-term investments do not have to be sold at a loss in the event that someone desperately needs capital or there is a sudden change in the market. In addition to mixing short and long-term investments, investors also mix their buying decisions by type to gain a wide margin, reducing the risk of loss in the event that part of the market declines.
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