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Short-term investments

September 27, 2022

Short-term investments are there to help you achieve your short-term goals. When we think about investment, we often think about saving for long-term goals like retirement. But there are also plenty of short-term investment options that could help you to reach your goals.

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What are short-term investments?

Short-term investments are investments with a time horizon of 3 years or less. They’re great for people who know they need access to their money in the near future. Short-term investors usually have a specific goal in mind.
They know what they want to use their investment for, and they know that they’ll need to have their money available soon.

Read: How To Beat Inflation

Short-term investments are ideal for any goal that you want to achieve in the near future. Some examples are:

Holidays: You can plan in advance for a big trip
Gifts: Do you have a loved one who has a milestone birthday coming up? Short-term investments could help you save enough money for larger presents
Weddings: You can take the stress out of your big day by saving in advance
Car deposits: With good financial planning, you can save for your dream car
Home improvements: Short-term investments could help you fund projects around the house
An emergency fund: You never know when you going to need it. It’s always a good idea to save for a rainy day.

What are the differences between short-term and long-term investments?

The main difference between short-term and long-term investments is how much risk the investor is willing to take.

When you’re investing for a long-term goal, you might be willing to take on more risk. This is because investing for longer periods of time could give your investment a chance to recover from any potential declines in value.

But with short-term investments, your primary goal is not to lose money. This makes most short-term investors opt for low risk short-term investments.

Read: How to save while enjoying life

Do you need a small loan? FASTA and MPOWA can be of help with a short term loan.

Types of short-term investments

Savings account

A savings account is a basic type of financial product that allows you to deposit your money and typically earn a modest amount of interest. You can find savings accounts at banks. You don’t need a large amount of money to open a savings account, and you also have easy access to your money.

A savings account is a good place to keep the money for a later date, separate from everyday spending cash, because of its safety, reliability, and liquidity. These accounts are a great place for your emergency fund or savings for shorter-term goals, like a vacation or home repair.

Money market

A Money Market Account is a deposit account offered by a bank or financial institution, and operates on a similar basis to a normal savings account into which you would deposit money, although the interest rates offered by a Money Market Account are generally higher.

With the higher savings return benefits of a money market account, there may be certain restrictions. Often, money market account savings can require a higher minimum balance than traditional savings accounts.

Fixed Deposit

It’s a financial instrument offered by banks that gives investors a higher interest rate than regular savings accounts until the maturity date.

There are various fixed deposit account types available in South Africa. Set specific goals before investing your money in a fixed deposit account. You will then be able to select the ideal fixed deposit account for your investing goals.

Bonds

An RSA Retail Savings Bond is an investment with the Government of South Africa which earns fixed or inflation-linked interest for the term of the investment. RSA Retail Savings Bonds are available as:

Fixed Rate Retail Savings Bond series consists of bonds with 2-year, 3-year, and 5-year terms. Fixed Rate Retail Savings Bonds earn a market-related fixed interest rate payable on the interest payment dates until maturity. Different interest rates apply to each of the maturities in the series.
Inflation Linked Retail Savings Bond series consists of bonds with either a 3-year, 5-year, or 10-year maturity. Capital amounts invested in Inflation Linked Retail Savings Bonds are inflation-adjusted over the term, and a floating interest rate is payable every 6 months on the interest payment dates.

The minimum amount that can be invested is R500 and the investment may not exceed R5 million. Witg the ability to top up with R100 any time.

Read: What type of investor are you?