I’ve never been comfortable with short-term investments because they are, by definition, higher risks than long-term investments. You have lots of investment choices but there are also many opportunities to lose your shirt, so you must study your options carefully before picking investments that will run their course over a few hours, days, weeks, or months.
Generally speaking, short-term investments are bought and sold within a year, though they might last as long as two or three years. This is different from a retirement account, for example, because you’re looking for an almost-immediate return, rather than a capital gain over many years.
Go With Your Strengths
I know almost nothing about the stock market, so I avoid it like the plague. But if you are comfortable with stocks or if you have an investment banker you trust, this might be the perfect short-term investment option. Penny stocks, for example.
If I were looking for short-term investments, I would be more likely to go with a fixed term deposit, which is a safer, lower-risk option than stocks or bonds. These are excellent investment choices for those who don’t want their money tied up for long periods of time because you can withdraw whenever you wish (subject to penalties which may be imposed by the financial institution).
I understand fixed term deposits, and they therefore make better investment choices than other financial instruments with which I am less familiar. If you branch out into a new area of finance, it’s easier to get burned on short-term investments and lose all your money.
Don’t Invest Money You Can’t Afford to Lose
If you’re putting your money in short-term investments with high volatility, such as stocks, bonds, and loans, it’s better to avoid investing cash you can’t afford to lose. Imagine flushing that money down the toilet. Will you lose your home? Your car? Your kid’s college fund? If so, you’re better off picking investments that are safer, such as money market accounts or savings accounts.
Many people think of investments as simply a way to make money, but this isn’t accurate. Investments are gambles because you can both make and lose money, which means you’re putting your cash at risk. High-risk short-term investments are only for individuals who can afford to lose the dough.
Hire a Financial Adviser
An investment or financial adviser can be a godsend when choosing short-term investments. They are more familiar with market strategies than any layman could ever hope to be, and picking investments is their main job. They can help you evaluate investment choices and make the best decision for your financial situation.
Investopedia: Fixed Term Deposits