The Best Short Term Investments of 2016
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Investing doesn’t always mean for the long-term. There are even times when short-term investments make sense. You may be able to grow your money quickly and then have the aid of your initial investment and your profits to put toward other expenses in your budget.
If you are considering short term investments, here are the best ones to consider for 2016.
Exchange-traded funds are ideal short term investments tracking the movement of underlying assets like bonds, Index funds, commodities such as oil, gold and silver etc.
ETFs are traded in exchanges similar to traditional stocks and can be purchased or sold in same day like day trading of equities. Small investors prefer ETFs over mutual funds because of the lower fees and higher liquidity. Leveraged ETFs are also very popular among traders which make use of debt and financial derivatives to multiply the returns of an underlying asset or index.
For example, a 2X gold ETF will gain two percent for every one percent increase in gold price. ETFs offer the diversification of index funds and require very less initial capital. It offers the flexibility to short sell and does not have any requirement for minimum deposit.
Also ETFs offer better tax benefits when compared to mutual funds and other investments. Some of the popularly traded ETFs are SPDR which tracks S&P 500 Index, QQQ which tracks Nasdaq 100 Index, IWM which tracks the Russell 2000 Index and DIA which tracks the Dow Jones Industrial Average.
The forex market is one of the biggest and most liquid financial markets with daily trading volumes exceeding more than 3.5 trillion dollars. Forex trading involves exchanging one currency for another to gain profit from the difference in rate of exchange between those currencies. Forex market is accessible to anyone who has a forex trading account and requires a very small initial investment.
The currency market is open on a 24 hour basis and most trading platforms offer more than 50 currency pairs for users to trade with. Users also gain access to live market news and technical analysis tools based on which they can understand the market trends and predict currency price movement. Forex traders can also leverage up to 1:200 which helps them to trade larger positions with less capital. Spreads in forex market are tighter than equities and the commissions are also relatively less.
Short-term mutual funds
Mutual funds are professionally managed investment funds which are financed by shareholders and trades in diversified holdings. There are different categories of mutual funds depending on the underlying asset class which includes fixed income funds, money market funds, hybrid funds and equity funds etc.
Short-term mutual funds are very good investments to consider if you are targeting a moderate capital appreciation and investment tenure of few months. Money market funds are short term mutual funds which invest in money market instruments and used by investors as a substitute for savings accounts in banks. They have shorter maturity period, guarantee fixed income and possess high credit quality.
Short term mutual funds are open-ended investment schemes suitable for retail investors who are looking for a maturity period of 2-4 months and aim for moderate returns with relatively lower risk levels. Mutual fund investors are imposed with several fees including management fees, distribution charges, shareholder transaction fees and fund service charges.
Binary options or digital options are financial derivatives which offer traders with either a fixed payoff or nothing at all depending on the outcome of the trade.
Binary options involve speculating the price movement of underlying assets such as Forex currency pairs, stocks, market indices, commodities like Gold and silver etc. Binary options are relatively short term investments and available for day trading and hourly trading as well.
Traders need to choose an underlying asset and decide the expiry time for the trade. They can either choose a “put” or “call” option depending on whether the asset will move below or above the strike price. If the asset reaches the strike price before expiry time, traders can gain up to 80% of their initial investment as profit.
But if their prediction goes wrong, they will lose the entire money invested on that particular trade. Unlike stocks, investing in binary options does not require high-level market knowledge and beginners can start trading by going through a binary options guide.
Photo courtesy of: NikolayF
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