“When you invest, you are buying a day that you don’t have to work.”
– Aya Laraya (Investment Advocate with 25+ years of finance and investment experience)
As per the survey conducted by Dinero (an Indian Neobank), about 64% of the young investors resist investing in financial instruments due to a lack of trust. The younger generation of the era prefers to test and prove before they trust something.
The same logic goes with investing, and since they do not have a lot of excess capital to invest, short-term investment alternatives become the desired go-to option. But, where would you invest your money in case of information overload?
This article points out four short-term investment options and tips for the young who may prefer withdrawal facilities with flexibility and liquidity.
What Are Short-Term Investments?
Short-term investments are the investment instruments that allow you to encash within a short duration, typically between 3-5 years. However, some investments can be for a shorter duration too, depending upon the needs of the investor.
These investment instruments can also be converted into cash within a year, and many times those investments maturing within 3-9 months are called ultra-short-term investment alternatives.
Although short-term money investments may not generate as many returns as the long-term investment alternatives, they are liquid as their conversion to cash is quick and easy.
You can easily park the excess funds you may have earned through bonuses or strike an unexpected fast deal in such investments and gain returns.
6 Tips Every Teen Should Follow While Investing
If you wonder if it is the right time for your teenager to invest, we would like to say yes. The reason is that your children’s expenses begin to grow as they reach their teens, but if you guide them towards investing or saving, they can start streamlining their finances early.
Establish Investment Goals
Assist your youngsters in developing financial goals for which they want to invest. The time frame for the objective might be as short as a year or as lengthy as 30 years. It is critical to invest in line with your goals since it will help you choose the beneficial investment option.
Prepare an Asset-Allocation Strategy
Teenagers have a minimum of 30 to 40 years+ to invest before they need to withdraw their money for retirement purposes, so they can afford to choose aggressive investments at a higher risk but with high growth potential. You may calculate the optimum equity allocation by subtracting your current age from 100. This is an advisable percentage of exposure towards the higher risk assets, as compared to safer options like bonds and gold.
Investigate Investment, Return, and Risks
It would help if you describe how each choice of investment instrument would work and the potential profits and risks they may have. Exploring various alternatives, such as ETFs, debt funds, mutual funds, equities, and real estate, will help you to diversify your portfolio.
Pick Short-Term High Yield Investment
When saving for a short-term duration, it’s critical to choose your investments intelligently and stay up to date on market movements preferably in the low-risk investing area of the market. High-yielding, low-risk investments are your best chance if you need money in three to five years. Managing a short-term portfolio with a few stock investments is one strategy to increase returns.
Create a Diversified Portfolio of Desired Securities
Fixed income investments make suitable short-term investments with interest rates and credit risk. However, when you add ETFs, equity stocks, and other commodities, you are basically minimizing the risk of loss of money by dividing your portfolio into different securities.
Reassess and Rebalance Your Portfolio
Reassessing your portfolio at a regular interval would help you decide whether you need to rebalance your portfolio or not. Rebalancing portfolio refers to re-allocating the funds as a pre-determined asset mix.
4 Short-term Investment Options for Young Investors
And here’s the answer to the question—which investment is best for the short term? We have listed four short-term investments for you.
Short Term ETFs
As the Exchange Traded Funds (ETFs) are passively managed since they track a benchmark index’s performance, you may wonder, are they the right choice for young investors?
They sure are because they are reasonably inexpensive. ETFs can offer liquidity and real-time trading experience, all while offering diversification.
Short-term bond ETFs are an excellent investment when you expect a rise in interest rates as bonds react inversely to interest rates and are less volatile to interest rate movements.
Short Term Liquid Funds
Liquid funds are low-risk, safe short-term investments that provide higher returns than savings accounts. This investment would be helpful to you with some cash to spare, searching for security to deposit your money for the short term.
The manager of the liquid fund then invests your money in high-yielding debt securities that mature in 3 months or less. This reduces the susceptibility of fund returns to interest rate movements and makes liquid funds less vulnerable.
Systematic Investment Plans (SIPs)
You can invest in a direct plan digitally using the websites of the different mutual funds, online platforms of stock exchanges, or diverse digital channels. SIP for mutual funds could be one of the best short-term investment options for young investors since they only require a certain amount to be invested every month at a pre-determined date.
Short Term Bonds
One of the best ways to invest money for the short term for risk-averse investors wanting higher tax-efficient returns than an FD is short-term bonds. Some invest in increased credit risk securities, such as high yield bonds, while others invest in high-risk investments to compensate for the low yield environment. A comparative study enables profitable investing.
Investment Hacks For Students
The first step toward accumulating riches while you are still a student is as follows:
Aim to Create a Solid Financial Foundation
It helps if you have a solid financial foundation, and it does not happen overnight. It would also help you make prudent decisions, so you must have sufficient knowledge. Start by knowing your cash flows and generate a budget accordingly.
Experiment With Your Risk Tolerance
Your youth is the most significant phase for taking higher risks. Determine your risk tolerance by investing goals, income, and degree of comfort. An aggressive investor, or one who has a higher risk tolerance, is ready to risk more money in exchange for the chance of more significant returns than a cautious investor, who has a lower risk tolerance.
Start Little But Be Consistent
Many early investors stay away from investing in the stock market because they believe they need substantial money. You can invest in shares even with ₹100 and create wealth, did you know that? But ensure that you invest in the suitable investments.
Familiarize With Investment and Market Study
Young people sometimes resort to herd mentality and invest in certain investments because their friends or relatives do so without research or market study, resulting in losses. Study the market in general and the investment of your interest in particular before investing.
It is suitable for young investors to nurture a dream of being financially independent by the time they are 30. Suppose you can put your earnings into high return-yielding investments that can help you in the long run.
Being easy-going and spending all you have may make life difficult in the future, especially in retirement. This article encourages healthy spending and saving habits to lead young people to make sound investment decisions.
At WealthDesk, we offer you readymade WealthBaskets consisting of stocks or ETFs reflecting an investment strategy or theme designed explicitly by the SEBI-approved investment professionals and make your investment journey hassle-free.
There is an expectation for RBI to raise interest rates in the months ahead, and short-term debt funds are appropriate for smoothing out uncertainty around rising interest rates.
Equity stocks, ETFs, bonds, and mutual funds can be among the excellent investments for teenagers.
The majority of Indian youth invest directly in the stock market.
If your KYC is complete, you can invest directly in a Mutual Fund, either offline or online.