Short-Term Investment Fund
A type of fund that invests in short-term investments of high quality and low risk the goal of this type of fund is to protect capital with low-risk investments while achieving a return that beats a relevant benchmark such as a Treasury bill index. Short-term investment funds include cash, bank notes, corporate notes, government bills and various safe short-term debt instruments. These types of funds are usually used by investors who are temporarily parking funds before moving them to another investment that will provide higher returns. These funds traditionally have low management fees, usually well below 1% per year.
Types of Short-Term Investments
There are many different types of short-term investments to choose from. Finding the one that best suits your situation is a matter of deciding what goals you have for your money. In situations where you are trying to keep your money accessible while earning interest in a relatively safe environment there are short term investments options to choose from. If you are a risk taker and really want to grow your money quickly there are options for that as well. Formulating your financial goals will be the best indicator of what types of short-term investments you should consider. Having clear goals will help immensely with the selection process.
- Treasury Notes - Treasury notes or T Notes are considered the most secure short-term investments. They are backed by the US Government so unless the government folds your money will be safe. There are notes that are for 6-month investments and notes that are for 60 months. The longer the term on the note the higher the interest that is offered.
- Corporate Debt Bonds - Corporate debt bonds are a bit riskier but the return is usually a lot higher than with treasury notes. The term on these bonds will vary but usually range from 1-5 years. This can be a rather risky venture so you need to approach this from the perspective that you may lose your principal, typically not but you just never know.
- Money Market Accounts and Money Market Funds - The Money Market Accounts are usually offered by banks while the Money Market Funds are usually offered by brokerage houses. The MMA usually has a lower rate of return but is safe because it is backed by the FDIC while the MMF is not. The MMF is usually very secure though because the managers typically invest in certificates of deposit and mutual funds.
- Certificates of Deposit - Certificate of deposits are offered by banks and are usually completely safe because they are backed by the FDIC. They do not pay out the type of return that other types of short-term investments but what you do not gain in interest you gain in security. Typically, CDs are offered in terms from six to sixty months.
- Traditional Savings - There is the traditional savings accounts that are also considered short term investment options. These types of short-term investments usually pay the lowest amount of interest but are the safest vehicles.
0 Comments