Making smart short-term investments is a great way to grow your wealth quickly. Investors might use them to reach a savings goal quickly or as part of a larger mixed investment strategy. However, making the right short-term investments can be challenging, especially if you're used to long-term investing or you've never invested your money before.
These tips will help you make the best short-term investment choices so you can maximize your chances of a strong payout.
Do Your Research
The best decisions in life are usually made after careful research. The Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database from the U.S. Securities and Exchange Commission contains key information about corporate entities.
If you're interested in municipal bonds, consult the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) website. Checking these resources will also tell you whether companies are properly registered.
You should also know who a company's chief executive officer is and his or her business track record; financial figures including revenue, net income, and profit margins; and whether the company has a competitive advantage over others in its industry.
Look for strong recent growth when analyzing stock trends. Over a 10-year period, the stock market typically grows at around 7 percent. However, it takes a substantial time for the market to post such strong growth. Dramatic dips are common, and something short-term investors should be wary of.
Be Cautious About Stocks
Stocks make great long-term investments, but they're much riskier for short-term investors. However, with great risk can come great reward. Penny stock trading is an excellent way to give yourself the chance of a major payoff without risking a substantial amount of your investment dollars.
The stock market can change quickly, so stay plugged in and watch the trends carefully to anticipate the moves you should make and when to make them. Set a stop-loss order to protect yourself against substantial losses.
It can be tempting to hold on and hope that the market swings back the other way, but short-term investors often don't have the time to wait for companies to rebuild. Redirecting money into another stock is usually a better approach.
Keep Your Money at Home
The internet has opened up investors to a wealth of international opportunities. However, investing overseas isn't as straightforward as domestic investing. It can take time to get a handle on an overseas market and the movements of its currencies.
Short-term investors often don't have the time to overcome the learning curve. When you're making short-term investments, it typically pays to simplify your decisions with local solutions.
Choose the Right Investment for Your Timeline
Look for assets that match your investment timeline. If you want to collect on your investment in six months, for example, a short-term government bond or AAA-rated corporate debt bond might suit you best.
If you want to claim your money in 12 months, a laddered certificate of deposit might work better. Investments that are intended for short-term investors often provide better returns in a short-term period than investments meant for long-term use.
There are no certainties when investing, but following these tips will increase your chances of making sound short-term investment choices.