Investment is part of our overall financial planning. If we have some excess or surplus in money or saving after fulfilling our daily needs, we can put in to investment in order to maximize the return. Usually, people invest their money for their future purpose, to generate extra income and also to fulfill their basic needs. With the economy constantly changing, many people are looking for a stable way to invest their hard earned money.
Although there are many different ways of investing money, there are two types of investment which are short term investment and long term investment. This paper would explain more about short term investment. Each of the type has their own pros and con's and it depends on the investors to select which type they want to invest according their need. Short term investment is for the investor which is looking for the quick can in short period.
In short term, they provide investors to put in their money in higher yield interest rate and they can gain return sooner compare to long term investment. Short term investment is suitable for people who are much needed income for the future, for example if they want to buy a house, they can use the return from the short term investment to pay for the down payment of the house. Other than that, investors can use the fund as a replacement for a traditional saving account due to higher rate of return.
Short to say, short term investment is synonym with short period and has higher rate of return compare to other investment tools. In addition, it can give higher return or capital gain in short period, meaning individual does not have to wait for long time to earn the return from the investment.
DEFINITION, TYPES AND ADVANTAGES OF SHORT TERM INVESTMENT
DEFINITION OF SHORT TERM INVESTMENT
Short term investment means investment that mature or is held for 12 month or less. Other definition is, it is any financial plan, investment, or anything that related with the investment that last for one year or less. Short term investment usually involves less in uncertainty compare to long term investment because market trends are more easily to predict within year than longer period.
Short term investment can also refer as a fund that invests in short-term investments of high quality and low risk. The goal of this type of fund is to protect capital with low-risk investments while achieving a return that meet investors' expectation.
TYPES OF SHORT TERM INVESTMENT
SAVING ACCOUNT
Saving account is the least profitable type of short term investment. It is the most liquid, simplest types of short term investment despite it offer low yield and easy to access. Other definition of saving account is deposit account in a bank or credit union that pays interest in customer balance.
Short saving account saving is very beneficial to the investor because it do not reflect with the inflation. Meaning, if the current economic condition is suffering inflation, those who invest in short saving account will not affected the fund or money which were invest in it. The amount of return from the saving is still maintain and do not fluctuate according economic condition.
In the context of savings and investments, investors will earn interest as they deposit the money in saving account. The amount added is known as interest rate they must select the best commercial or financial institution that offer that high interest rates.
Hence, the interest rate is in yearly basis which will increase the amount of individual saving account annually.
CERTIFICATE OF DEPOSITS
Certificate of deposit or CD, is commonly short term investment tools that always being used by investor. The definition of certificate of deposit is special type of deposit account issue by bank or other financial institution to investor which typically offer high rate of interest than saving account.
CD is the safest types of short term investment because of it have lower yield and insured by federal. Beside that, maturities of certificate of deposit are from several weeks up to several years. After the maturities, the investor can withdraw the return from the CD but, if they withdraw the fund before the maturity, they might have to face with the penalties.
In addition why these types of short term investment are most commonly used is because it offers low risk which will reduce the uncertainty among investors. Furthermore, CD's also synonyms with time deposit because the account holder has agreed to keep the money in the account for a specified amount of time up to maturity date.
MONEY MARKET FUNDS
The definition of money market fund is it is an open-end mutual fund which investor would invest only in money market. Unlike other short term investment tool, money market investment offers high yield, liquid but not federally insured by federal.
Because of it is very liquid investment tool, many financial institution and companies use money market funds to store money that is not currently invested. This tool attempts to keep their net asset value (NAV) at a constant $1.00 per share. Example of money market fund instruments that popular being used such as treasury bills, negotiable certificate of deposit, commercial papers and etc.
Despite of being known as one of the safest short term investment, investors should aware with the biggest risk involved in money market funds which is risk of inflation. It is because; once there is inflation occurring in economic condition, it will affect the fund return which will interrupt the purchasing power of the investor's money.
TREASURY BILL
Generally, Treasury bill or T-bill is short term debt investment of the Malaysian government. They pay at set amount at maturity and have no interest payment. T-bill offer extremely low yield with the maturity not exceeding one year.
As being mention before, T-bills have no interest payment but they effectively pay interest by initially selling at discount. It means price lower than amount paid at maturity. For example, if individual buy T-bill in September 2010 at RM5000, a one year T-bills that can be redeemed in September 2011 is about RM10000.
In addition, a treasury bill is most liquid of all short term investment because they are most actively traded by investors including companies and other financial institution.
ADVANTAGES OF SHORT TERM INVESTMENT
The primary advantage of short term investment is obviously to generate growth in such a short period. As we can see, compare to long term investment that requires such long period to gain the return, investors can save much time and used the fund to fulfill their need at particular time. With the variety types of short term investment like T-bills, certificate deposits, saving accounts and etc, individual can actually select the best option based on their preferences and condition of the investment planning.
In addition, even though there is fluctuation risk in many form of short term loans that have to bear by the investor, this investment are more controllable and it usually is not out of your possession for very long.
Another advantage of short term investment is it is liquid and easy to transfer into cash. So, as the investor put on their money in the short term investment, the one objective that they have is making profit from it while maintaining it as the liquid asset. That is one big different between long terms and short term investment.
When the asset (investment) is in liquid, it is easy to transfer into cash which mean the fund can already been used even though it has not yet reach the maximum return. This is important in case of emergency. As the investor, people can not really predict what will really happen in the future, so that is why this investment is important because it can help back the investor in term of money in desperate time.
The same goes if the individual also invest in long term investment, let say stocks or bond. Short term investment here would protect their long term investment within their investment portfolio. As anyone know, long term investment is not liquid as short term investment and they can not being easily transfer to cash or take out the fund before its maturity date, the good investor would think smartly to invest in both; short and long term. In case of these happen, which is emergency, the short term investment would cover up the long term investment.
REAL ISSUE
GOLD AS GOOD SHORT TERM INVESTMENT
Gold has been in this world for very long time before. It has its own value which is been used to measure currency for countries long time ago. Since the beginning of early civilizations, gold has been a favored metal. It has been used as a form of payment while nations trade between each other. It has also been something that people would kill for.
Today, gold has been used as one of the investment tools in the world specifically in the short term. Invest in gold is important for investor as if they want make a well diversified portfolio investment. Gold also is the best choice of metal compare to the other metal in term of the price stability. Although the price of gold is often fluctuate, but it is better than other metal.
Most Malaysian today is particularly known and aware that gold investment is one of the good investments, but the problem is they do not really know how the exact way to invest in gold. Here, there is three main ways to invest in gold so far. First, individuals can invest in gold through Kijang Emas Gold Bullion Coins. It has been introduce by Bank Negara in 2001. It is the first Malaysian Bullion Coins and issued by Bank Negara. The Kijang Emas now joins the ranks of other international gold bullion coins.
Second option is Maybank Gold Savings Passbook Account (GSPA). This method is introduces by Malayan Bank Berhad. This is more like a savings passbook, but the investor 'buy' gold instead. They do not get the physical gold, but just a passbook to state the current grams they own. And the third ways is Public Bank Gold Investment Account. This method is pretty similar with the previous method because it is also introduces gold in account.
Although the price of gold can be volatile in the short-term, gold has maintained its value over the long-term, serving as a hedge against the erosion of the purchasing power of paper money. Gold is an important part of a diversified investment portfolio because its price increases in response to events that erode the value of traditional paper investments like stocks and bonds.
Because of that there is no doubt to invest in gold, because it is profitable option and it can be easy to transfer to cash just in case whenever the investor prefer it be. It is just like short term investment. It also very convenient as people can easily carry it around unless it is in big quantity. One more thing is performance of gold market is directly proportional to stock market so it becomes easy to make a calculation.
As short term investment, investor should invest in gold when the price is low then, and then sell it back when the price is high. Because of the gold can change in quickly, the investor can always find the suitable time when the rate is low and hold onto the shares of gold, then wait until the rate goes up again. The more money the individual invest in gold, the more stable it will be or the less fluctuate it will be for the value/price of gold. Hence, it wills the investor to make significant of money as the return from the investment.
THE IMPLICATIONS, EFFECTS OF THE REAL ISSUE
DEMAND FOR GOLD WILL INCREASE
As gold become one of the short term investment tool in Malaysia, off course the demand for gold will raise as a result many investors want to invest in gold. After knowing gold is good in investment people would curious and thus want to try to invest in gold. But not all people like to take a risk. After watch the good result from gold investment from the other investor, then many other people would have a gut to invest in gold.
And just like that, people would gain a confident to invest in gold; the demand for gold would increase over a time. In addition, the fact that gold can be use as future investment, it just adding the variety used of gold, besides as currency, jewelry, and etc. when the demand for gold increase, the mine sector in Malaysia would also increase and it will enhance development in economic as well as make it balance over the time.
VARIETY CHOICES OF SHORT TERM INVESTMENT
One more effect of the uses of gold in investment sector is investors would have many choices now to invest their money. Although in the previous pages, there are many types of short term investment in Malaysia, but now gold can be add in one of it. Even though using gold as an investment is still not fully aware among the investors but as the time pass by people would actually notice gold as choices in short term investment.
As one of the types in short term investment, gold as long as other types like T-bills, money market fund, certificate deposit, it also have the pros and con while use it as investment tools. But, it all depend on the investors to choose the best types of short term investment that suit with their goal and objectives of investment. How to choose the best types of investment? Investor should study well enough and come out with best planning strategies or investment plan.
One more thing, as being mention before, gold also can be the best to be invested as to make a well diversified portfolio investment. Meaning, in good portfolio, there must be a couple of investment tools that have been plan by the investor to ensure that they gain the good return in investment.
DO THE INVESTORS CAN GAIN BENEFIT BY GOLD BEING ONE OF THE SHORT TERM INVESTMENTS?
Off course investors can get benefit by investing in gold. Even though the price of gold is often fluctuate over the time, but is not the big deal as long as the investor keep watch over it and do the right thing, like when the price is low they buy, and vice versa. The investor would have more choices in making investment which is a good thing to see in investment sector and also in financial sector. It means that our country also having many opportunities in doing investment because of the wide variety on making the investment. Short to say our country is moving ahead along with other develop countries because they already make using gold as investment tools. Furthermore, we can attract foreign investors to come Malaysia to invest here because our country has many ways to do the investment.
DOES THE INVESTMENT SECTOR HAVE THE GOOD EFFECT FROM THIS ISSUE?
Yes it is, investment sector in Malaysia will gain the positive result as the gold being one of the short term investments. many choices in investment will resulting to many people would want to invest in Malaysia, which is it will make the fund or money to keep flow in and stabilize our investment and also financial sector in Malaysia.
