Short-term monetary assets are assets that can be liquidated within 90 days. These assets typically produce a small return on investment, but their liquid nature makes them an attractive place to store cash that you may need in the near future. Some common short-term monetary assets include: Savings account interest rates are often lower than other financial investments. However, savings accounts are usually insured by the FDIC and therefore have a small risk of default. Money market account interest rates are typically higher than savings account interest rates since they require a minimum amount to be deposited into the account each month. CDs offer higher interest rates than savings accounts and money market accounts, but you can't withdraw them until a certain time period has passed. These are debt obligations issued by the federal government with less than one year remaining until maturity. Commercial paper is debt issued by companies with less than 270 days remaining until maturity. Short-term monetary assets are attractive to some investors because they provide liquidity and low risk, but their returns on investment rates can be significantly lower than other financial instruments. Having access to short-term monetary assets is important because you never know when you will need to quickly liquidate an asset in order to pay for recurring expenses, unexpected financial emergencies, or life's many curveballs. If you are interested in maximizing your returns on investment, stocks, bonds, or mutual funds may be the best short-term financial instrument for you. Stocks are commonly thought of as risky assets that provide high returns over time. However, through careful analysis of the stock market and individual companies, investors can make informed bets on specific stocks, diversify their investments over many stocks, and still provide reasonable returns given the short time period. Bonds are another asset type often thought of as risky. However, bonds are less risky over shorter periods of time because you know how much you will get back when the bond matures. Mutual funds are groups of investments that allow investors to hold assets in a variety of categories. For example, you can invest in a large-cap stock mutual fund or an international stock mutual fund. By diversifying over many asset types and geographical regions, you can reduce your risk even further while still providing a reasonable return. By understanding all of the different types of short-term investments, you can create a portfolio that works best for your needs and provides the best returns. In order to do so, you should For example, if you decide to invest in a low-risk money market account but it is down 12% this year while the stock market has gone up 6%, you may want to reevaluate your choices. Once you are confident that your new portfolio will work well for you, stick with it. There is no set answer for what a good return on investment is. You should determine how important it is to you to earn the most money possible in the shortest amount of time and then compare all of your options accordingly. For example, if you need $2,000 in three months, it may be worth it to you to put your money in a low-risk investment and the return is lower because you will need the money soon. On the other hand, if you have several years before needing the funds, you probably want a higher return on your investment While there is no right or wrong way to invest your money, here are some tips that may help you make wise decisions. Short-term monetary assets are assets that produce a small return of investments yet are liquid in nature. For example, these assets include money market accounts, savings accounts, and certificates of deposit. These assets are much less risky over short periods of time because you know how much return you will receive at the end. Stocks, bonds, and mutual funds are examples of long-term financial instruments that can be used for short-term investments as well. They are usually riskier but offer a higher return. It is important to have a diverse portfolio of investments and not just rely on one type. For example, if you place all of your money in stocks but the stock market goes down, you will lose money.Examples of Short-Term Monetary Assets
Savings Accounts
Money Market Accounts
Certificates of Deposit (CDs)
Treasury Bills
Commercial Paper
Why Is It Important to Have Short-Term Monetary Assets?
Why You Should Invest in Stocks, Bonds, or Mutual Funds
Stocks
Bonds
Mutual Funds
How to Make Your Investments Work for You
How Do I Know What Is a Good Return on Investment for My Money
Tips on How to Invest Wisely
The Bottom Line
Short-Term Monetary Assets FAQs
Short-term monetary assets are cash savings that earn interest through an account managed by a bank or other financial institution.
The importance of having short-term monetary assets is if you have money in one of these assets, it is available for use when you need it. You know how much interest your money will earn at the end so the amount of risk is minimal.
Investing in stocks, bonds or mutual funds are long-term investments that can be used for short-term investments as well. These are more risky but offer a higher return on investment than an account managed by a bank.
It is important to diversify your portfolio in order to lower risk. For example, if one company has a lot of financial problems, then you will lose your investment if all of your money is invested in that one company's stock. Investing in multiple companies' stocks reduces that risk because there are multiple sources for income. Plus, investing can get you more money depending on how well the market does.
A good return on investment for your money depends on how soon you need to use it. For example, if you need to use your money in a few years, it may be worth investing in stocks or mutual funds for a higher return. If you need the money soon, it may be better off going into an account that is managed by a bank because the amount of risk involved with stocks and mutual funds is much higher over short-term periods.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
