December 27th, 2008 | 
Author: Short Term Investing certainty is not a constant component of our economic world. Hence one should look at different investment ways for different periods of time. Ones cash position makes sense for near-term needs. Short-term to medium-term bond funds or high-income floating rate bank loan funds-which are usually less influenced by fluctuating rate changes than long-term investments-make sense for assets you don’t expect to need for at least a year or two.
Individual securities scores lesser on certain advantages that money market funds, bond funds, and floating rate bank loan funds offer. For example, as interest rates go up, they continually update their holdings to include higher yielding securities, consistent with their credit quality guidelines. That means, if rates go up, money markets and bond funds aren’t committed solely to the lower yields of yesterday. Mutual funds are competently managed, provide branching out at a low initial price, and are generally liquid investments.
Benefits of Short term Investing
Short-term investing is particularly intended to protect capital and minimize or reduce potential downside risk. If this were the goal, then depending on the time horizon, bank CD’s are included, treasury bills, commercial paper, short-term bonds and money markets as possibilities. For example if somebody wants to invest a certain amount of money and the exact time horizon for the investment is known, then short term investing can be planned that will yield the highest potential return. Also, if taxes are taken into account, it may be better to invest in tax-free medium such as municipal bonds. If the objective were to invest short-term for the highest potential return, with no regard for risk, then an allocation of 100% equities is recommended. A selection of individual stocks, indexes, growth mutual funds, etc. would give him the greatest upside potential.
With this type of strategy you will be incurring greater risk. If you prefer to manage risk and be more conservative, then a more balanced allocation of equities, bonds and money market would be advisable. In this case, more information is needed before specific recommendations can be made.
Some short-term decisions are also strategic. There are many short-term methods to investing which can be used to increase your gains, though they also increase your risk of incurring losses. Selling short, buying on margin, and momentum investing are some of the methods. All are based on your assessment of what is likely to happen in the securities markets in the next few days or weeks.
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