Short term investments can mean any investments that are for a period of as little as a day up to about three years. The key feature of short term investments is their liquidity. You have to be able to unload a short term investment with very little notice. It is worthwhile taking a moment here to point out the difference between marketability and liquidity as these two terms are often confused.

Marketability vs liquidity

Marketability is the ability to sell something quickly on the open market. Liquidity refers to the ability to sell something quickly on the open market without having to discount the price to move it. For example, there might be lots of demand for a house in London, so it is very marketable but it is not liquid as it will take time to realise market price. A bar of gold is very liquid and would sell at market prices immediately with no discounting required.

Some short term investments may contain a higher element of risk whilst at the same time offering a higher potential of return. The stock markets and foreign exchange markets are good examples of this. Stock market traders and forex traders normally operate in the short term, effectively betting on market fluctuations and sometimes buying and selling assets within hours, let alone days.

Trading in shares

Stock trading used to be confined to large investments banks and wealthy individuals now anyone with some money can get started on the internet immediately. Stock trading is a very high risk strategy and not necessarily recommended to those with no experience or training in how the markets work. However, if you can afford to gamble the money, trading on the stock markets can be hugely exciting. If you’ve ever studied form, and put a bet on a horse, the process will not be unfamiliar to you. Read the financial columns for announcements of things that you think might affect the value of a company.

Research

Research the company thoroughly and inspect their past performance; all floated companies must publish their annual accounts and these are readily available on-line. Also research the non financial information such as demand growth of the products and services they sell and industry comparisons. Having chosen where to invest your money, follow the company’s performance closely and decide when you think the price is right for you to sell. It is very easy to say “buy low, sell high”, it’s much harder to make it happen consistently.

Understanding PE

The P/E ratio (price-to-earnings ratio) of a stock is also called its “multiple”). This is a consistent and measurable element of all stocks. It is the value of the share today relative to the annual net income (profit) earned by the firm per share. Simply divide the company’s market capitalisation by its total annual earnings.

understanding price earnings ratio

Other short term investments

But of course, trading on the stock exchange is not for all of us. Many investors simply don’t want their capital to be out of reach for too long. If you want to make an investment, but are unsure when you might need access to your capital then you might want to consider a short term investment of around a year to 5 years.

There are a dizzying array of bonds, ISAs and savings accounts available and some of these might be the right thing for you. Access is quite often the most important factor for investors. A short term investment such as a savings account will grant you easy access to your money with the ability to withdraw funds, transfer funds and close accounts whenever you want. A cash ISA will generate tax free returns and also grant you access to your money whenever you want. In 2011 the annual Cash ISA allowance has been increased to £10,680, however only £5,340 may be used for a cash ISA, the rest can go into shares or other investments. Bonds can offer you a guaranteed income, they pay low amount of interest but are virtually risk free. They will tie your capital up for what ever period you decide on. If you want high risk check out Greek Bonds, they offer to pay a huge interest rate due to the financial crisis – but you might lose some or all of your cash.

Short term investments range from the high risk strategies such as stocks and shares to the safe but pedestrian financial packages available on the high street. A well thought out financial strategy will diversify your investments between high risk and low risk; short term and long term investments. Giving you the best of all worlds and avoiding the fatal mistake of putting all of your eggs in one basket.

Alternative investments

Overseas property

High growth investments

Ethical investments

African investment

High return investments

Green investments

Brazil property

High yield investments

Classic car investments

Caribbean property

Long term investments

Diamond investment

Cyprus property

Offshore investments

Gold investment

Florida property

Retirement investments

Hotel room investment

Turkey property

High growth investments

Student accommodation

 

 

Whisky investment

 

 

Wine investment