A guide to understanding short-term financial investments

No one invests intending to lose. Multiplying the invested capital is the number one priority of any investor. But not the only one. While some invest their money without a withdrawal date, others look for a quick return and prioritize formulas that ensure a quick profit. For these kinds of savers, short-term financial investments are an ideal option.

In line with our solid commitment to ethical investment, at Inversa, we bring our users closer to some of the essential financial concepts. After all, the more knowledge you have, your investment strategy will be wiser.

For this reason, today, we will analyze short-term financial investments. But first, it is essential to understand what a financial investment is. This concept groups together the operations of injecting a certain sum of money into a financial product to receive an economic benefit. A benefit that is derived from the profitability offered by this product.

Depending on the time in which this profitability is produced, it is possible to differentiate between short-term financial investments and long-term financial investments.

What are short-term financial investments?

Short-term financial investments aim to deliver returns to the investor as soon as possible. Generally, the term is less than one year. But with some products, the saver can already withdraw their capital and enjoy the profits within a month.

Long-term financial investments, however, mean that the investor cannot get his money back until at least one year has elapsed. And this kind of investment can even last for decades.

This speed in obtaining profits has made short-term financial investments one of the most popular mechanisms among savers. Moreover, they were born with a universal vocation since they can be framed in any sector or activity.

However, on some occasions, speculation plays a decisive role. Cryptocurrencies are one of the most representative examples: people who bet on this option strive to buy cryptos at a low price, intending to sell them when they have become more expensive. Their profit lies in the value increase between the purchase and the time of sale.

But all currencies have two sides. Not only are these alternatives very risky, but they do not contribute to generating any positive impact on society. Fortunately, there is also a place for ethical investment in short-term financial investments.

So what are the advantages and disadvantages of short-term financial investments?

Advantages of short-term financial investments

One of the main advantages of short-term financial investments is the speed with which the saver can increase their wealth. Therefore, even though the invested amount will not be available during a period, the liquidity will be recovered very soon.

Although it is true that in these operations, the profitability is not usually as high as in those that play with longer terms, there are occasions when there is a risk component and, therefore, the benefit is substantially higher. Why is this so? The entities must compensate for this risk and, encourage investment, offer a higher return.

On the other hand, the total amount invested by the saver does not necessarily have to be very large. In long-term operations, it is common to handle larger volumes of money. But in short-term financial investments, it is possible to allocate even twenty euros. This makes them a very accessible mechanism for all kinds of people, thus democratizing the world of finance.

Finally, it is important to highlight the variety of options available to investors to allocate their assets. There are infinite alternatives, and if any does not convince you of them, you can continue exploring the market until you find another mechanism that meets your needs.

Disadvantages of short-term financial investments

In this operation, the saver must be more aware of the evolution of his assets. For example, people who invest in cryptocurrencies must constantly pay attention to price fluctuations to buy and sell at the right time. A delay of a few hours can be critical in such volatile products.

In addition, the market today is threatened by great instability. Any factor can influence the value of products. This causes the risk of loss to be higher than in other alternatives. The long-term allows markets to recover from their ups and downs, but short-term financial investments do not offer as many opportunities for stabilization.

Finally, it is essential to bear in mind that unless the level of risk is very considerable, the profitability of these operations is not usually very high. They offer quick profits. But they offer little profit.

Types of short-term financial investments

There is no single type of short-term financial investments. On the contrary, new mechanisms are constantly being developed to adapt to social demands.

Financial institutions themselves are interested in attracting more and more customers. In the past, the products they made available to users were rigid. But the emergence of new competitors has forced them to adapt to this trend, in which parameters such as personalization take precedence.

What are the most popular types of short-term financial investments?

• Deposits or remunerated accounts: these types of accounts and deposits offer savers a return in exchange for depositing their money since it remains at the disposal of the financial institution.
• Treasury bills: these public debt securities are issued by governments to finance themselves. Their duration ranges from three to eighteen months, but their interest rate is insignificant.
• Mutual funds: managed by a management company, mutual funds bring together the individual contributions of various subjects and operate on the markets with this sum.
• Stock exchange: companies listed on the stock exchange offer shares for sale, which are bought and exchanged by savers. Savers enjoy profits when the share price increases.
• Crowdlending: not all companies in need of loans turn to banks. Thanks to crowdlending, they can diversify their sources of credit since they have resources at their disposal through contributions from different individuals. In return, they are compensated with the agreed interest.
• Crowdfunding equity: like crowdlending, this participatory financing mechanism gives companies wings. In this case, it does so through donations from a group. If the project is successful, they will receive a series of benefits, although these are not guaranteed.

Invoice financing

But there is another type of short-term financial investment, which has become popular in recent years. An increasing number of savers are opting for crowdfactoring and are taking the plunge into invoice financing.

One of the most attractive advantages of this method is that the time frame in which returns are received can be even shorter than in other short-term financial investments. Many savers recover their investment after only one month from the start of the operation.

In parallel, multiple alternative financing platforms have been developing that serve as a meeting point between investors looking to make a profit and small businesses looking for resources. Inversa is one of them.

One of the main attractions of this platform is that savers do not have to wait months to enjoy the benefits. On the contrary, as soon as the operation is confirmed and the money is sent to the company, the investor already receives the interest.

In addition, Inversa is characterized by a very strong ethical component. All the projects that upload their invoices to the platform are framed within ethical investment criteria. In other words, they must be sustainable initiatives that generate a transformative change in society or the environment instead of exclusively pursuing mere financial gain.

Security, agility, simplicity and transparency are the four pillars on which Inversa is based. Investors simply register and have access to an extensive marketplace of invoices, which third parties independently audit. By selecting one and injecting their capital into it, they not only get a return on their savings but also contribute to creating a better world.