Short-term investments are those investments that are held for a period of three years or less. This type of investment often involves higher risk than long-term investments, as the potential for gains is greater. The main goal of short-term investments is to quickly bring in returns while minimizing the risk of loss.
Investors typically use short-term investments to achieve a particular goal, such as financial security during retirement or to provide funds for a specific purchase. For example, if an investor wants to purchase a new home in the next couple of years, they can use short-term investments to provide the necessary funds.
When choosing a short-term investment, the first step is to define the goal. Different short-term investments have different levels of risk and return potential. For example, stocks are generally higher-risk investments, while bonds are typically lower-risk. The investor should also consider the time frame of the investment, as some investments may require more time than others to reach the desired return.