Key Takeaways:
- A windfall should fit your goals, timeline and risk tolerance before you invest.
- Short-term investments can keep cash earning while preserving access to your money.
- Compare rates, fees, tenors and withdrawal rules before choosing an investment.
- CDs, T Bills and repos offer different levels of return, liquidity and flexibility.
- Protecting your principal matters when investing money needed for future opportunities.
- A financial advisor can help align short-term choices with your long-term goals.
Savvy in the Short Term
Every investor’s journey is different. Occasionally an investor may receive a financial windfall, be it an investment maturity, proceeds from a tender or sale of property or an unexpected inheritance.
When an investor receives a lump sum, they may wonder, “What should I do next?” Before taking any action, they should consider how these funds factor into their long-term financial plans, the timeline in which they may need these new funds and their current risk tolerance.
Why Short-Term Investments Matter
When an investor is unsure of what to do with their funds, it is important to remember that money loses value over time because of inflation. A short-term investment can provide interest and liquidity and lessen the risk associated with having the funds sitting as “cash” in a bank account until a long-term decision is made.
There are a variety of short-term instruments an investor can use to maximize their earnings while formalizing how to do with their windfall. A licensed financial advisor is best to consult when making this decision. Additionally, protecting your funds should be a priority. In an age of increasing cybercrime, leaving large sums in a bank account can carry added risk, particularly as deposit insurance only protects funds up to a specified limit. In Jamaica, that limit is J$1.2 million.
It is also wise to avoid keeping large balances in accounts linked to debit or POS cards, as this could increase exposure to unauthorised access or fraudulent transactions.
Explore Short Term Investments by Sterling.
Questions to Ask Before Choosing a Short-Term Investment
When deciding on your short-term strategy, a few key questions to ask your advisor include the interest rate applicable, the flexibility of tenors and the associated fees with the suggested instruments.
Another important factor to consider is if there are any penalties or restrictions associated with encashing funds or liquidating before maturity. You will want flexibility to move if you find the appropriate opportunity for your funds prior to maturity.
Short-Term Investment Options to Consider
When investing for the short term, you may consider any of the following instruments as suitable additions to your portfolio instead of leaving it in a savings account.
Certificate of Deposits (CDs)For Jamaican dollars you may purchase BOJ CD’s through a primary broker or your bank’s wealth division. CD’s tenors will vary, but generally the longer you are locked in, the higher your return. These will provide a fixed interest rate until you require your funds. |
Treasury bills (T Bills)You may purchase local T Bills or US T Bills to maximize your interest until you are ready to switch to a longer-term option. US treasury bills are considered some of the lowest risk instruments for your funds. The tradeoff for this safety is that yields are lower on these instruments. |
Repurchase Agreement (Repo)When investing in a repo, you can earn more than in a traditional savings account. Tenors on repos generally range from 30, 60, 180 and 365 days. |
Balancing Short-Term Returns With Long-Term Financial Goals
Short term instruments are great vehicles to maximize return until you make a more long-term decision. It is important to preserve your principal while earning interest. Your financial health is important, so never have funds sitting idly. Speak to a licensed financial advisor on how to maximize your returns and how best to place funds for the short term to help achieve your long-term financial goals.
Make Your Short-Term Money Work Harder
A financial windfall can create valuable opportunities, but what you do with the money while considering your next move matters. The right short-term investment strategy can help preserve your capital, generate returns and keep your funds accessible while you work towards your longer-term objectives.
Rather than leaving your money idle, consider how it can continue working for you. Speak with a licensed financial advisor at Sterling Asset Management to explore short-term investment options and determine how they can support your broader financial goals.
From the Sterling Team
Christine Rankine is the Manager of Personal Financial Planning at Sterling Asset Management.
Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual, and institutional investor.
Visit our website at https://sterling.com.jm/
Speak with a Sterling Advisor
Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm
FAQs
What should I do first after receiving a financial windfall?
Before investing, consider your financial goals, when you may need the money and how much investment risk you are comfortable taking.
Where can I put a lump sum while deciding what to do with it?
Short-term options may include certificates of deposit, Treasury bills and repurchase agreements. The appropriate choice depends on your required liquidity, investment period and risk tolerance.
What are the benefits of short-term investments?
Short-term investments can help you earn interest while preserving access to your capital as you decide how the money fits into your longer-term financial strategy.
How long should I invest money in a short-term investment?
The appropriate term depends on when you expect to need the funds. Before investing, check the available tenors and whether penalties or restrictions apply to accessing your money before maturity.