Short-Term Investments

What are Short-Term investments?

Short-term investments have a life of one year or less and usually (but not always) carry little or no risk. People buy these investments as a temporary “warehouse” for idle funds before transferring the money into a long-term investment. Short-term investments are also popular among conservative investors who may be reluctant to lock up their funds in riskier, long-term assets such as stocks or bonds.

Short-term investments also provide liquidity because they can be converted into cash quickly and with little or no loss in value. Remember that liquidity is important to investors because it is impossible to know when an emergency or other unplanned event will make it necessary to retrieve your cash by selling an investment. During this time, the speed at which the investment can be sold is particularly important. Then again, almost any investment can be sold quickly if the owner is willing to lower the price enough, but having to sell an investment at a bargain price only worsens the problem that led to the need to sell in the first place. Liquid investments give investors peace of mind that they will be able to get their hands on cash quickly if they need it, all without selling their investments at fire-sale prices.