A short-term investment plan is a financial strategy wherein you allocate your money for a brief period, usually for a few months to a couple of years, to get high returns. Here, instead of going for slow and steady growth, you focus on getting quick returns over time. But before you make your decision about such investments, let’s understand what should you factor in. It is because these factors can influence the success of your short-term investments.
So, here are the major factors you must consider before going with short-term investment options.
Intentions and Goals
Whether it is for long-term investment plans or short-term investment plans, you should be aware of your investment goals. Understand what you wish to achieve through your investments. Is it a house you are dreaming of or a long vacation you wish to take? Once you are aware of your objectives, it will become easy for you to invest and achieve your goals.
Risk Tolerance
Your risk tolerance tells you how comfortable you are with taking investment risks and bearing losses. If the thought of losing money makes you extremely uncomfortable, then you are certainly risk-averse. In such cases, you must then opt for safer investments like FDs and high-yield savings accounts. But if you can tolerate market fluctuations, then you must explore options like stocks or mutual funds.
Investment Period
The investment period, otherwise called the time horizon, refers to how long you plan to keep your money invested before needing it. Short-term investments usually have a horizon of one to three years. So, if you need the funds in the near future, it is recommended to stick to safe investment options to protect your capital. But if you have a longer time horizon, you can afford to take more risks and aim for higher returns.
Liquidity
Another factor you must consider is liquidity. This refers to how quickly you can access your money without any penalties. For short-term investments, it is important to have easy access to your funds when you need them. Investments like stocks and bonds are relatively liquid and hence, you can sell them quickly if necessary.
Diversification
Diversification refers to spreading your investments across different asset classes to reduce risk. Instead of putting all your money into one investment, you must consider diversifying across stocks, bonds, short-term P2P investment plans, and cash equivalents. This way the risk wouldn’t be on your overall portfolio.
Also Read: Diversifying Your Investment Portfolio with P2P
Tax Implications
Of course, tax implications are important and hence, you should be aware of them before making any investment. Different types of investments are taxed differently, so make sure to understand how taxes will impact your returns.
Market Volatility
When we talk about market volatility, we are basically talking about how much the price of assets like stocks or bonds fluctuate. If something has high volatility, it means its price can swing quite a bit in a short time. However, that also gives you a chance for bigger gains. So, before you jump into investing, take a look at how volatile the investment can be and assess if you are comfortable with the risk.
Conclusion
These are some of the significant factors you must consider before going for short-term investment options. Make sure you have a well-thought-out approach before you invest your money so that you can minimise your risk and maximise your returns.
If you wish to achieve higher returns within a short period, you can also opt for P2P investing. With the 13Karat P2P app, you can enjoy returns of up to 13% per annum.
