The best 8 short-term investments to achieve profitability

Short-term investments have become the best option for people who want to start as investors. These are ideal for those who want their money to generate returns in less than a year.

For this reason, you must know everything that involves working with short-term investments so that you can organize your strategy to start investing.

Remember that money under the mattress does not multiply even in a savings account.

Consequently, in this article we will explain what short-term investments are, what are the best financial products to invest in the short term, with their advantages and disadvantages.

Finally, you will learn the essential investing tips to succeed when investing your savings.

What are short-term investments?

A short-term investment is an investment that is expected to be held for one year, and then sold and obtained a return.

Because it is an operation that delivers returns in a short time, it is very interesting for people who want to start investing. That is a main benefit.

According to investopedia , these types of investments also relate to stocks that a company owns but intends to sell within a year.

Therefore, when choosing this type of investment, two important factors must be considered: security and liquidity.

On the one hand, security refers to unforeseen events that may arise. While liquidity is the ability of an asset to be converted into money.

Types of short-term investments:

1. Investments in CDT.

A CDT is one of the alternatives you have for short-term investments. This is nothing more than a fixed term certificate of deposit.

In short, this model consists of a deposit of money that you make to the bank for a certain time and after that time passes you can receive it again plus additional money as a result of profitability.

Something you should keep in mind is that these types of short-term investments do not ensure high returns, because they have a low risk profile.

Because it is a fixed-term deposit, a CDT generally has a term of 3, 6, 9 or up to 12 months.

Compared to a savings account, a CDT gives better profitability because the financial institution has availability of all the money for the agreed time.

Regarding the interest on a CDT, the bank can pay it monthly, bimonthly, quarterly, annually or when the CDT ends. The interest rate can be fixed or variable, from 4% to 6% effective annually.

Advantages and disadvantages of a CDT:

The advantages are:
  • It can be created for the value that the person wants.
  • You can choose from several installment options offered by the bank.
  • They offer higher interest rates than savings accounts.
  • Online banks will offer a better rate than traditional banks because their operational costs are lower.
  • It is one of the safest investments that exist.
The disadvantages are:
  • You cannot use the money deposited during the term of the contract.
  • So, you can miss out on other financial investment opportunities while you have the money in the CDT.
  • CDTs do not pay enough to match the inflation rate. You need to make other investments.

2. Short-term Treasury Bonds.

Treasury bonds are issued by a country's government and are considered relatively safe investments.

For example, U.S. Treasury bonds with maturities of 1 to 3 years can be a short-term investment option that offers fixed interest rates and greater liquidity compared to CDs.

These bonds are considered relatively safe investments because they are backed by the government and offer a predictable income stream in the form of interest.

Advantages of Treasury Bonds:

  • Security: Treasury Bonds are considered low-risk investments because they are backed by the government of the issuing country.
  • Predictable income: Short-term Treasury Bonds offer fixed interest and regular coupon payments. Therefore, it provides predictable income to investors over the term of the bond.
  • Liquidity: Short-term Treasury Bonds are typically relatively liquid, meaning they can be sold in the secondary market before maturity.
  • Diversification: Short-term Treasury Bonds can be used as part of an investment portfolio diversification strategy. They can then act as a hedge against the volatility of other assets, such as stocks.

Disadvantages of Treasury Bonds:

  • Limited potential return: Although these types of short-term investments are considered safe investments, they usually have lower interest rates compared to other riskier investments.
  • Inflation Risk: If the inflation rate is higher than the interest rate on the bond, the purchasing power of the income generated by the bond may decrease in real terms.
  • Interest Rate Sensitivity: If interest rates rise, the value of existing Treasury bonds may decline. This can then result in losses for investors who sell before the bond's maturity.

3. Actions.

Stocks are short-term equity investments and therefore their profitability depends on market changes.

This type of financial products that represent a security issued by a company to capitalize or solve financial problems. This means that, when you buy a share, you become a partner in a company.

The profitability of stocks varies depending on the business of the general market. This means that it depends on the behavior of the company in the future.

So, if you want to make this type of investments, we recommend that you first learn how to invest in the stock market , to minimize the risk of losing money.

Remember that, unlike a CDT, shares do not have a fixed return established by an agreement, but rather depends on the good financial management of the company.

Advantages of investing in stocks:

  • You don't need a lot of money to get started.
  • There is the possibility of working from home to buy and sell online.
  • You receive dividends.
  • Stocks can give better returns than other short-term investments.

Disadvantages or risks of short-term investing in stocks:

  • Stocks have no known or predictable profitability.
  • The history of a stock does not guarantee the same behavior in the future.
  • The behavior of a stock does not only depend on the company. Socioeconomic variables that are not controlled must also be taken into account.
  • They have no maturity period, so the only way to liquidate is to sell.

4. Commodities.

Commodities are raw materials that are traded in the stock market. The most important characteristic is that they are products that do not have any added value.

The market has different types of commodities that can be:
  • Energy sources such as oil, coal, natural gas, among others.
  • Metals used in industrial processes such as nickel, zinc or copper.
  • Precious metals such as gold and silver.
  • Agricultural products such as coffee, corn, rice, wheat, sugar, soybeans and live cattle.
The price of these commodities fluctuates according to the behavior between supply and demand. But since they are essential consumer goods, their value increases progressively.

Commodities are assets that are consolidated day by day within the portfolios of investors around the world.

Therefore, it is another short-term investment possibility that you can make, if you do not know where to invest money .

Commodity characteristics:

  • They are easy to negotiate because they are essential products and raw materials.
  • Investing in commodities has a high risk and its profitability is unpredictable because it depends on external factors such as the weather and government decisions.
  • The return on investment may vary depending on the type of product.
  • Large sums of money are generally invested by large companies.

5. Crowdfactoring.

Crowdfactoring is one of the newest short-term investments in the stock market. This type of investment is relatively new and emerged thanks to the growth of the Internet in recent years.

The idea with this concept is to connect small and medium-sized companies that need cash flow with a group of investors willing to buy the company's invoices in exchange for a return.

Thanks to this methodology, many people have had the opportunity to access investment products that were previously only under the control of banks.

Advantages of investments in crowdfactoring:

  • It allows you to earn money quickly , because the return on investment is short-term, that is, between 30 and 120 days.
  • This is one of the short-term investments with the best profitability rates, reaching up to 18% effective annually.
  • It is possible to invest in different invoices receivable from different companies and for varying amounts.
  • You can start investing from $300, a relatively low amount for an investment.
  • They are safe and transparent operations because you can know all the information about the companies and their investors.

6. Investment funds.

Investment funds are a group of people who pool their capital to invest their money in multiple businesses. These investments can be made in:
  • Actions.
  • Local and foreign currencies.
  • Public or private debt.
  • Commodities.
  • Other investment funds.
The profitability of an investment fund is calculated based on the return given by each of the assets in which they are invested during an established time. Investment funds do not have terms or expirations, contrary to what happens with CDTs.

In general, an investment fund will never guarantee a return, unless it is a guaranteed fund, which has a low return.

Funds, as one of the short-term investment strategies, can serve as a savings instrument to know how to invest your money .

In addition, they allow you to have a diversified investment according to the risk level of your investors.

Advantages of an investment fund:

  • Flexibility to be able to invest both large and small amounts depending on the financial product.
  • Investment funds make it easy to buy and sell shares.
  • They allow savers to invest their money without having knowledge about the stock market. This is because the funds are managed by a professional team.
  • This type of short-term investments allows savers to access financial products that are difficult to access.

7. Investment in fixed income securities.

Fixed income securities are debt securities through which companies and governments are financed to raise money. These new resources are used to continue developing its functions.

As they are debt resources, they are considered loans that the issuer agrees to pay at an agreed rate and for a certain time. Therefore, it is another short-term investment.

Short-term or discount securities are designed for those seeking conservative and very short-term investments. Within the short-term fixed income securities are:

Public debt:

  • short-term TES (TCO).

Private debt:

  • Commercial papers.
  • Term deposit certificates (CDT).

8. Currencies or Forex.

Currency refers to the currency used in a region or country. These currencies fluctuate with each other within a global money market. This is one of the oldest short-term investment alternatives in the world.

In this way, the different exchange rates between currencies that constantly vary are established. This variation occurs according to many economic variables, such as inflation and the economic growth of a country.

When carrying out operations between currencies, one speculates on the strength of one currency over another and thus obtains performance.

The foreign exchange market or Forex is the market where all the currencies in the world are bought and sold. Its function is to facilitate the transfer of purchasing power of currencies from one country to another.

The fluctuation or variation of currencies depends on three important factors:
  • Interest rates.
  • The country's inflation.
  • The psychology of the market.

Characteristics of short-term investments with currencies:

  • The oldest financial market in the world.
  • Currencies can be traded 24 hours a day.
  • It is the largest financial market in the world.
  • A market with a lot of liquidity because of how big it is.
  • How to invest in currencies and take advantage of the forex market.

Tips for investing in the short term.

You have already seen that there are several options in the financial market that you have with short-term investments. These can bring you good positive results with good profitability.

But since no one is born learned, it is important that you follow the following tips that will help you avoid financial mistakes and be successful with your investments in the short term.

Diversifying is the key.

One of the most important pieces of advice in financial markets is “not to put all your eggs in one basket.” This means you have to work smart to move your money into different short-term investments.

If you do not diversify, you will be increasing the risk of losing all your capital in a single transaction. Therefore, you must invest in various assets and create your own portfolio.

Find out how the market works.

It is important that you know even the smallest details and characteristics of the financial market where you are going to invest.

This will serve to define your risk profile that you must assume and is one of the habits of entrepreneurial investors.

If you don't, you could be condemning your investment to failure. Be very careful when investing, because not all investment products are profitable in the short term.

Don't touch your assets:

Investments will always be a risk. For this reason you should not compromise your base money to live on, that is, your house and assets that produce your income.

So, to make short-term investments you must do so with money that you do not need to live. If you do not yet have this money, you should review your savings strategies to be able to do so.

Have a goal when investing.

You must establish your financial goals. For this, it is important to be clear about how much money you are willing to lose. Remember that investments are and always will be a risk.

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