Short Term Investment: Definition, Types and Tips

Investment is one way that you can choose to save and earn money. Maybe hearing the word short-term investment is often enough for you today. But what exactly are the benefits of short-term investing?

Apart from the short term, there is also the long term. We will review things about this type of investment. Before understanding the tips and instruments, you need to know about the definition of this type of investment first.

Definition of Short Term Investment

Short-term investment is a type of investment that has a period of 3 to 12 months. Although the duration is short, this type has the least risk. In addition, as an investor, it is easier to cash out assets than other types.

As an investor who invests in the short term, you get the benefits generated by changes in interest rates. Therefore, in a period that is generally only a maximum of one year, investors get profits with little risk.

Short Term Investment Goals

After knowing the definition and timing of this type of investment, what you need to know next is the goal. Why does this type of instrument have less risk? What is the real purpose of investors providing funds in this type of investment.

From saving for personal needs to big needs, here are the goals of this type of short-term investment:

1. Distribute Remaining Cash Flow Wisely

The purpose of making this type of investment is generally to maintain cash flow stability. This helps you to channel the excess funds that are in your finances so that they can be saved on this investment. By doing this regularly, you can maintain financial health and avoid wasteful behavior.

2. Have Passive Income

This type of short-term investment has a maximum period of one year. If you don’t take the funds you saved, then the final amount you earn will increase.

This happens because of changes in interest rates on the type of instrument you choose to invest in. So this causes you to indirectly have passive income.

3. Additional Capital at any time

In addition to benefiting from the return at the end of the investment duration, you can also withdraw funds at any time. Although there is a duration in the investment period, if you need additional capital, you can disburse the invested funds.

This is because there are no provisions regarding the time for disbursement of funds and there are no penalties or sanctions for investors.

Types of Short-Term Investment

Then for short-term investments there are several instruments that you should choose to invest in this type. Some things that need to be considered in determining the investment instrument to be chosen include the main objectives, needs, abilities and trying to ask someone who is an expert in their field for advice.

Therefore, here we provide some examples of short-term investments that you can choose:

1. Mutual Funds

The first type of short-term investment is mutual funds. This is an investment product that is managed by an investment finance manager who gets funds from investors.

The investment manager manages the fund until it makes a profit. Mutual funds are suitable for those of you who are beginners because you don’t have to bother with strategies to get profits.

Mutual funds that you can choose to invest in with a short period of time are money market mutual funds. You can choose RDPU because the duration is only one year and offers an attractive interest rate.

For now, there are various trusted applications that you can choose to buy mutual funds as an investment.

2. Deposit

Time deposits have an easier meaning, namely the term time savings with a specified duration. For short-term investments, you can choose deposits with a duration of 3.6, up to 12 months.

The thing you need to know if you store funds in a bank deposit is that you cannot withdraw funds until the due date arrives.

The advantage of this deposit is that it offers a fairly high interest rate every month. So this gives you an advantage.

In addition, you don’t have to worry about the security of the money you deposit because this type of investment usually has insurance available at the bank of your choice.

3. P2P Lending

P2P or Peer to peer Lending is a capital lending activity between investors and borrowers. Currently P2P Lending is quite popular. Before knowing how much profit is offered, you should know how this investment works.

P2P Lending as a means for investors to invest in several borrowers who are in need of an injection of funds.

You can choose the P2P lending program officially on a wide selection of services that have been licensed by the OJK, one example being KoinWorks. So you don’t have to worry about capital turnover. The benefits offered by this investment start at least from a figure of 10%.

Short Term Investment Tips

In investing, you need to pay attention to various aspects. In addition to the percentage of profit and risk, there are other aspects that you need to pay attention to. You can apply the following tips in investing to make money:

1. Customize Abilities

The essence of investing is channeling excess funds in your finances, so invest in moderation. Whatever the remaining funds in your financial turnover, then that’s enough that you will use for investment. Because before making an investment you also need to have an emergency fund, insurance, and daily necessities.

2. Setting Goals

Deciding to invest, of course, comes with a strong motive. Because by having a goal, you can invest in a targeted and routine way. In addition, goals can also help become a benchmark for your financial capabilities.

3. Analyzing the Performance of Instrument Type

The last tip is to analyze the capabilities of the type of instrument you choose. This step you do to minimize the risk of loss.

Your goal of investing is to make a profit, and with this step you analyze whether the instrument can provide the promised returns.

Short Term Investment Benefits

What are the real benefits for investors who make this type of investment? The following is an explanation of the advantages of short-term investment:

1. Withdrawal Time Anytime

The duration of this type of investment is generally one year, so you can decide for yourself the time to invest. Some examples of short-term investments you can liquidate at any time without a certain duration.

The thing you need to pay attention to is the main reason for making the withdrawal. But there is no need to worry because there is no penalty in the form of money or sanctions.

2. Fast Profit and Low Risk

The choice of instruments of this type of investment offers different percentages of profit. With a short duration, you can invest with the existing profit percentage. So that this can provide benefits that do not need a long duration and have a low risk of loss.

3. Short-term investment is safe for beginners

The next advantage, this type of investment is safe for those of you who have never invested at all. Therefore, with quick profits, low risk of loss and proper analysis, you can start investing.

Difference Between Short and Long Term Investment

Have you made your choice to invest? Before that, you need to know what exactly is the difference between short and long term investing. Here are the differences that you need to recognize between these two types of investments:

1. Investment Capital

The first thing that underlies the difference is the amount of capital. In the short term, you don’t need a large amount of capital to invest. Meanwhile, long-term investments require larger capital in order to generate high returns.

2. Investment Duration

In addition to capital, the duration of investment is also different for these two types. Short-term investments have a minimum duration of 3 months and a maximum of 12 months or one year. Meanwhile, long-term investments require a duration of at least more than five years.

3. Investment Risk

The last thing that sets it apart is the magnitude of the risk. In the investment world you may have heard of the term high risk high return and this can usually be found in long-term investments.

Long-term investments have a high risk because you always analyze the performance of investment products. Meanwhile, for short-term investments that pay attention to the performance of investment products, namely the investment management that you choose.

Although the benefits of this type of investment with a short duration are smaller, the risks borne are not as large as long-term investments. Therefore, if you make an investment, it is obligatory to use cold money and adjust your abilities.

Conclusion

After knowing what are examples of short-term investments, are you interested in investing? You can start investing by setting goals and setting aside more funds than finances.