The key question on every investors mind is of-course where to invest. There are many types of investment opportunities that you can take advantage of and the choice can be overwhelming to the beginner investor. The type of investment that would suit to depends on the time period that you want to invest for and your requirements for the investment. If you require a short term investment you should choose investments that are liquid i.e. investments that can be easily converted into cash. Here are 3 types of liquid investments that are at your disposal:
1 – Savings Account
A savings account is the most common type of liquid investment. It requires you to deposit a specified amount of money and offers an interest rate on the amount. This interest rate is lower than the market rate but the benefits are that there is no risk of losing your investment, and you can withdraw your money whenever you want. Some banks require you to maintain a minimum balance and charge you a fee if you do not meet their requirements. The only drawback is that this sort of account may have an interest rate that is so low that it does not keep up with inflation, so placing your money in this account would mean that you could lose a little purchasing power.
2 – Certificates of Deposit
Certificates of deposits are usually offered by commercial banks and are deemed as a promissory note by the banks. It entitles the bearer to receive interest. Certificates of deposit come in different maturities and range from one month to ten years. Depending on when you will be needing the money you can choose from different maturities. The interest rate is higher than what is offered by savings and checking accounts. You can withdraw money i.e. convert the certificate to cash before it matures but you will incur a penalty for doing so. Longer maturity certificates offer higher interest rates than short term maturities, but by investing in a long term maturity you will get the promised interest rate at the time of its maturity and you will lose the opportunity of investing at the prevailing market interest rate which might be higher than what you are getting.
3 – Stocks
Stocks are also a type of liquid investment although there is a lot of risk attached to this type of investment. For this reason risk averse investors avoid this type of liquid investment. Investing in stocks is risky and involves a lot of charges. If you are not fully educated on the stock market then you should hire a broker to act on your behalf. You will have to pay your broker and there will also be transaction costs. These fees make this investment costly and because they are riskier as compared to other liquid investments, the majority of beginner investors are deterred. Remember though, with stocks the right company at the right time can bring you great returns!
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