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Short-term Investment for Long-term Financial Goals

Friday, January 19, 2018



Entering 2018, we look towards setting and fulfilling New Year resolutions including financial goals. While financial goals are mainly long-term in nature, using short-term investments to achieve them can be a favorable and worthwhile strategy.

Short-term investments offer several key benefits for investors. This includes increased investment liquidity and flexibility, and potentially lower risks of uncertainty.

A long-term investment strategy may be achieved by constantly rolling over your investment proceeds into new short-term investments. This is akin to compounding, which results in investors potentially earning higher returns through this roll-over strategy versus a single long-term investment, over the same investment duration.


Growth through re-investments

Compounding allows for exponential growth when returns on an investment are re-invested.  An example would be to compare a 3-year investment that offers 36% return against a 3-month investment offering 4.5% continuously rolled over 3 years. Both offer annualised returns of 18%. However, due to the power of compounding, the 3-month rolling investment offers a significantly higher return over a 3 year period. To demonstrate this point, please see the calculation below:


3-year Investment offering 54% return

Year 0: $1,000

End of Year 3: $1,000 X 1.54 = $1,540

3-month Investment offering 4.5% reinvested over 3 years:

Year 0: $1,000

End of Year 3: $1,623 X 1.045 = $1,696

 

Reinvestment Periods (over 12 months)

Reinvest with 24% Returns

Total Returns

0

$1000

-

Year 0.25

$1,000 x 1.045

$1,045

Year 0.5

$1,045 x 1.045

$1,092

Year 0.75

$1,092 x 1.045

$1,141

Year 1.0

$1,141 x 1.045

$1,192

Year 1.25

$1,192 x 1.045

$1,246

Year 1.5

$1,246 x 1.045

$1,302

Year 1.75

$1,302 x 1.045

$1,361

Year 2.0

$1,361 x 1.045

$1,422

Year 2.25

$1,422 x 1.045

$1,486

Year 2.5

$1,486 x 1.045

$1,553

Year 2.75

$1,553 x 1.045

$1,623

Year 3.0

$1,623 x 1.045

$1,696

 

 

 

 

Other reasons to invest short term

The other benefits arising from short-term investments include:

  1. Liquidity: The key advantage of short-term investment is the luxury of liquidity, the ability to have access to the funds in your investment portfolio, should the need arise. The most liquid investment is bank deposit, which can be withdrawn almost immediately via ATMs. However, this may be too liquid for investors seeking decent returns. Banks often offer interest rates that barely protect our savings account against inflation.
     
  2. Flexibility: Short-term investing also provides increased investment flexibility. One can easily move his/her investments to alternative assets upon maturity, should there be a more attractive investment option in the near term. This gives us the comfort of knowing that our cash is not tied-up on a single investment for too long.
     
  3. Lowered risk: When investing in any assets, the return performance for short-term investments are often less volatile versus longer-term ones. A key factor may be that the performance of the underlying assets (e.g. gold prices, company’s financial position) can be determined more accurately over the near term.

 

Crowdfunding as a short-term investment

Crowdfunding investments such as those offered by Kapital Boost (www.kapitalboost.com) provides investors an attractive short-term investment option. Kapital Boost provides investments of 2-6 months for the financing of asset purchase or liquidation of invoices by SMEs in Singapore, Indonesia, and Malaysia.

Kapital Boost provides investment flexibility as investors are free to choose which projects they want to take part in based on their risk profile and preferred industries or countries. With its frequent project offerings, investors can also easily roll-over their investments on maturities to benefit from compounding returns.

While any form of investment comes with a degree of risk, investments via Kapital Boost are structured to be less volatile versus stocks, and offers a significantly higher returns to bond investments. Investment campaigns via the Kapital Boost website also provides transparency and simplicity in the investment process, allowing investors to easily adopt a short-term investment strategy for long-term financial goals. 

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