Current financial assets

The properties of a short-term investment should be safety and liquidity

Time is a decisive factor in any investment process. The approach to an investment of just a few years bears little resemblance to when, for example, you are planning for your retirement, which can be spread over as many as four decades. The yield expectations, the assumed risk and the liquidity of the investment will be very different.

While there is no single criterion, there are three types of investments based on the time horizon:

  • Short-term investments: short-term investments are considered to be those with an approximate duration of up to one year.
  • Medium-term investments: in this category we find investments of between one and five years.
  • Long-term investments: those for a period of more than five years.
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Current financial assets

Two criteria usually predominate in this type of investment safety and liquidity. safety and liquidity.

Safety because we do not have enough time to deal with unforeseen events. We should avoid investments with a high volatility that put the invested capital at risk, such as investments in the stock market. These are suitable for long-term investments, in which the volatility is diluted over time and the yield obtained is usually much higher than that offered by more conservative assets. They are not recommendable for shorter terms.

Liquidity is a feature of financial and savings products that defines the ease and speed with which they can be turned into cash. The more liquid a product, the easier it is to cancel it and recover the money. This quality is essential in short-term investments.

Where to invest in the short-term

Some of the vehicles that can channel a short-term investment under the premises described above are:

  • Deposits or remunerated accounts: The yield is fixed in advance. It will be lower in low interest rate environments, but we will benefit from high liquidity and security.
  • Treasury bills: these can be purchased from a nominal amount of €1,000. They are short-term fixed-interest financial securities represented exclusively through account entries and issued for the following terms: 3 months, 6 months, 9 months and 12 months. If you want to withdraw from an investment early by using the secondary market, the variations in price are usually quite small. They are therefore very low risk assets.
  • Conservative investment funds: the investment funds have a high liquidity, as they are usually paid into an account in between one and three days from the sale order. To avoid incurring risks in a short-term investment, the most suitable funds are those that invest in short-term fixed-income assets with low volatility.
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Where should I not invest in the short term?

Stock exchange: short term behaviour on the stock exchange is difficult to predict. Although they are assets with a high liquidity, they also involve high risks, not only in terms of the yield objective, but also for maintaining the capital of the investment intact.

Long- or very long-term fixed-yield securities : given that the objective will not be to keep them until maturity and that we will have to negotiate them on the secondary market, it is important to take into account that the volatility is higher in the price of long-term fixed-yield securities.

Investment funds that invest in risk assets: although we will benefit from the high liquidity of these products, we will also be subjected to the volatility of the assets in which they invest.

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