Everyone invests for their future, whether it’s about dream home, education, or establishing a new business. Each of these events become apparent at different times in life and as a result need to be planned within certain time frames. A short-term investment strategy within a well-diversified, long-term investment plan is the key to dealing with financial needs as they occur.

Short-term investment means duration of investments from minimum 3 months to 3 years max. Investors apply a general rule of thumb of three years, and anything under that is measured a short-term investment. Short-term investments have either low interest or high stakes, depending on where you invest your money. It is helpful for making more profit from your cash savings or liquid assets.

Whether it’s about saving funds for next Christmas, accruing the down-payment on a home that you plan to buy in the next year or two, or placing the cash together for a personal business, short-term investments are about making the most of your money in a short span of time with the slightest amount of risk and penalties. Short-term investments can be converted into cash or rolled over into other short-term or long-term investments.

Short-term investments always protect long-term investments. Stocks and real estate have a high interest rate particularly if you keep them for a long period of time. The problem begins when you have a financial emergency where you need instant cash. Without delay, you are forced to liquidate your long-term investments, most of the times at a loss.

The solution is to maintain short-term investments that are easy to liquidate in case of an emergency. Cash itself offers no interest. A savings account is not good at all for short term investments because the amount of yield is almost negligible and whatever is earned goes as tax and other bank charges. It is up to you to plan your investments in accordance with the events in your life. Different events happen at different times and need to be planned for accordingly. In designing your financial chart, map out what you need and when you will need it. Five questions you should ask yourself are as follows:

1. • What are my financial goals?
2. • How much money do I need to invest?
3. • How long can I wait until I need the cash?
4. • How much flexibility do I have within this time frame?
5. • Can I afford to compromise my short term investments?

The drawbacks of short-term investment are high risk and low yield. If you invest short-term in stocks, the risk will be higher because of the cyclical nature of most stock markets. Another problem is tax consequences of investment made for less than a year and no dividends.

Most cautious investors try to play safe with their investments therefore they opt for safer short-term investments in the form of treasury bills a.k.a. T-Bills, certificates of deposit a.k.a. CDs and money market funds. T-Bills and CDs have fixed interest rates and maturity time. The disadvantage of fixed investments is that you are penalized if you take