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Short Term Investment: Definition, Types, and Strategies in Its Application

Short term investment

In maintaining financial assets, in addition to long-term investment, there are other options that you can apply, that is short-term investment. 

Investing has really become a popular activity in recent times. The instruments offered also vary from gold, mutual funds to bonds.

However, everyone has their own investment goals, including short-term ones.

So what is the meaning of short-term investment? Don't worry, here Glints will explain it to you. 

short term investment

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What is Short Term Investment?

To understand this type of investment, you should first understand its definition.

According to Investopedia, short-term investments are temporary investments and can often be easily withdrawn in the short term.

Advantages and Disadvantages of Short Term Investment

Every investment has its advantages and disadvantages, so do short-term investments.

So here are some pros and cons you will get if you make this investment:

1. Excess

According to the Institute of Corporate Finance, the number one benefit you get from a short-term investment is that investors will have flexibility in withdrawing money.

Because he doesn't need to wait for his assets to mature to convert to cash.

Moreover, another advantage provided is that investors can make large profits in a short time. So this one-time investment is suitable for those of you who don't want to wait long to profit from the investment.

However, pay attention to the right ways to invest in the short term so as not to be confused.

2. Weakness

Because it is only short-term, investors must have expertise and spend a lot of time to monitor the change in the value of investment instruments.

This is done to find the right time and place to buy and sell. This is the downside of short-term investing.

In addition, taxes and inflation are likely to reduce this return on investment.  

Simply put, this investment does not refer to a long term that can be disbursed whenever the investor wants. 

On average, people making these investments cash out within 3 to 12 months.

Even if it is only temporary, this type of investment has indeed become a strategy in its own right for investors.

By starting The Balance, making short-term investments, one can take advantage of rising interest rates that change over time.

This investment is clearly different from the average long-term investments that can exceed one year. 

For this reason, everyone has their own goals when it comes to investing, whether long-term or short-term. 

Types of Short Term Investments

1. Mutual Funds

This unique investment tool is often an option for novice investors.

Indeed, there are now many apps or websites that can be used to buy mutual funds online.

Generally, there are four types of mutual funds, namely money market mutual funds, fixed income mutual funds, equity mutual funds, and hybrid mutual funds.

If you are interested in short-term investing, mutual funds could be one of your options. In addition to being easy to use, mutual funds are easy if you want to diversify your portfolio.

2. Deposit

Besides mutual funds, you can also use deposits for short-term investments. Compared to mutual funds, deposits are less risky.

Besides the low risk, deposits can now be found at most banks. When you save some money in the bank, its value will increase due to interest.

However, you also need to determine the right time to deposit in the bank.

Whether for a period of three months, six months or even up to a year, it all depends on your needs.

The downside of a deposit is that the return you get isn't strong enough to beat the inflation that happens every year.

3. P2P lending

Investing through P2P lending can also be your option if you are only looking for short term. Currently, you can find fintech companies that have been directly supervised by OJK.

Reporting from OJK, here are some of the official companies under its umbrella:

  1. Danamas
  2. invest
  3. Amarthe
  4. Silver Friend
  5. Smart credit
  6. and others

Pick one, then invest in it. Then you can take advantage of the loan interest rate.

Short-term investment strategy 

After understanding a bunch of discussions about this investment, you should definitely give it a try.

Well, before that, you should pay attention to the strategy below:

1. Identify investment instruments

Do not be careless in choosing investment instruments.

To choose it, it is necessary to study all available investment instruments, starting from their advantages, disadvantages and operation.

After studying them one by one, you will understand which investment instrument is right for you. Also, remember to always monitor your financial assets after identifying an investment instrument.

2. Diversify

Portfolio diversification strategy is one of the good strategies to implement in short-term investing.

This is done to protect your financial assets from loss.

For example, you have invested in a mutual fund. However, the sudden drop in stock prices forced them to diversify their portfolios.

For example, you split assets into 40% mutual funds and 60% P2P loans. You can change this situation back depending on the situation.

3. Don't panic

The main key to investing is to never panic. Even if the value has decreased, do not rush to sell it immediately. Because we will never know what the future will look like.

Different pros and cons of saving and investing so you don't have to hesitate to choose

So that's the explanation of short term investments and all that. Are you increasingly interested in short-term investments?

If you are still unsure and thinking, don't worry, you can learn more about investing through Glints blog posts!

There are several articles on the terms of the investment world to consider before making an investment decision. Interesting? Come explore and read a collection of articles in this blog.

Eren Yeager
Eren Yeager Welcome