- Money talks; hence you must save it.
Money talks, hence we all should plan our finances properly by creating investments. Those of you looking for short term investments must look for cash investments. Such investments will create the foundation of the investment pyramid and represent the least volatile asset category.
Experts say that people looking for short term investments consider cash investments to be the safest and reliable method. They often look it as a tool to strengthen their liquidity position and financial security. Cash investments generate lower return than other investments options. Savings and checking accounts are an example of cash investment or a short term deposit that is good for six months maturity period.
Maximize the performance of short term investments. Money defines your position in the society. You should concentrate on maximizing the short term cash investments’ performance to get the maximum investments.
Short term cash strategies are designed keeping in mind that the investor will need their money in the near future for some emergency needs. Therefore they will invest their money on deposits that have lower risks and are readily available.
Short term cash investments yield greater returns. It can be done by taking advantage of the four structural inefficiencies on the yield curve. The term premiums on the investments can be increased by expanding their portfolio’s duration.
Prefer greater spreads for getting higher liquidity premiums on the bonds. Securities such as floating rate, callable corporate securities, and adjustable rate mortgages are not readily bought in the secondary market and therefore pay their investors higher yield premiums. Since these securities have short durations and comprise only a small portion of the entire portfolio, investors can hold them to maturity with minimum risks. A careful bled of selected bonds into the portfolio increase the possibility of higher yields and lowers risks on account of diversification.
- Money talks, so build it well.
This entry was posted on Thursday, July 10th, 2008 at 6:38 am and is filed under Money and Banking. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
“Securities such as floating rate, callable corporate securities, and adjustable rate mortgages are not readily bought in the secondary market and therefore pay their investors higher yield premiums.”
I understand the idea of taking advantage of market inefficiencies to gain higher returns, however, if there are liquidity problems with these securities making them more difficult to sell, then they are not cash equivalents. Does it make sense then to invest in these instruments with emergency funds then? I’m just asking because I’ve never bought or sold them. Have no idea how quickly you could unload them if need be and how big of a hit you take on a quick sale.
You have to make that decision after analyzing your present financial situation. Every individual situation is different from one another. If you can afford to take a risk and are sure of the return, then you may give a shot. It may be possible that the return you expected on the existing market scenario may or may not give you the maximum return on a certain specified time frame. Since the market is always fluctuating, you should always keep some time in hand.