27 July 2020
Investing can help you fast track you goals and objectives be it through short or medium term investments, this could include buying a car, investing in a property, or simple staying liquid and growing your capital or savings.
Short-Term (3 months-5 years)
Short-Term investments are investments that can easily be converted into cash, usually within a time frame of 5 years or less, although they are often sold or converted to cash within 3-12 months.
These investments are usually high-quality and highly liquid assets or investment vehicles. some examples include:
Savings Accounts or ‘call’ accounts:
These offer unlimited deposits and withdrawals and these accounts have a low interest rate considering SARB just dropped the interest rates to between 3-3.5% depending on who you bank with, and with inflation being just under 4%, you’re actually not earning any money for having your hard-earned cash sitting in a call account.
Fixed-term deposits are also offered by banks and have a specified term of maturity.These investments offer higher interest rates than call deposits. The term of the deposits can be variable. Like call deposits, the returns are based on the amount deposited.
Unlike call deposits, fixed-term deposits don’t offer withdrawals before maturity. In case of a premature withdrawal, the investor can be penalized, apart from the fact that it may take several days to do so after having notified your bank.
Savings & Fixed term deposits generally have low risk as your deposit is with regulated financial institutions i.e.: banks and your funds are not affected as in case of market investments.
Fixed-income investments pay the investor a pre-decided amount of money (as interest accrued or as dividend payouts) at regular intervals of time, up till the investment reaches maturity.Upon maturity of the investment, the principal amount is returned to the investor. Also, the amount of money received by the investor periodically is pre-decided.
Fixed-income investments include mutual funds (like money market funds) and bonds (like government and corporate bonds).
These can carry different risk profile depending on type of investment, you will need to read the terms and conditions before investing.
Medium-Term (5-12 years)
Medium term is an asset holding period or investment horizon that is intermediate in nature. The exact period of time that is considered medium term depends on the investor’s personal preferences, as well as on the asset class under consideration.
Determining an investments horizon, or term, is often based on the intention behind the investment more than the investment itself, such as when the funds will be used for other goals, or whether a lump sum or an income stream is the desired result. The most common terms are generally considered short, medium and long.
Though the term does not necessarily denote a specific length of time, most consider anything below three years to be short-term; from three to 10 years as medium term; and anything beyond 10 years to be long term. Since these time frames are considered flexible, what may be a medium-term investment for one person may feel like a long-term investment to others, and vice versa.
Tax-Free Savings Plan:
These savings accounts encourage you to save and gives your savings the best chance to grow because all returns on the investment are free of tax. You may choose to invest in a selection of unit trust funds and model portfolios.These investments are suited to individuals who want to save towards a medium to long term goal and protect their investment return from tax. It is not intended for investors who require regular access to their money.
Unit Trusts (Collective Investment Schemes):
A unit trust fund or collective investment scheme is where a large group of investors pool their money together. These types of investments are usually invested in shares, bonds, property and money market (or cash) instruments. The average investor does not have enough money to invest in each of these instruments. With unit trusts, only a small amount of money needs to be invested to gain access to collective investments.
A pure endowment is a pure investment insurance policy – without life cover. The premium after charges is invested in portfolios or a collective investment scheme (unit trusts) – the policyholder then participates in the growth. All endowments have a minimum term of at least 5 years – this is a legislative requirement.There are a huge variety of medium-term investment options that are specified to cater for each and every individuals needs and personality traits, the most basic being your tax-free savings, however there are many options one can consider that will yield a much higher return over the medium term that will take into consideration your age, risk appetite, current financial circumstances, goals and objectives as well as your needs and wants.
Please get in contact with me should you wish to learn more about your short or medium term investment options so we can find a solution that works for you, I would love to help you fast track your path to financial freedom.