Introduction
Businesses of all sizes must make decisions about where, when and how to invest their capital. Companies often work within limited budgets and creating a diversified portfolio requires the judicious use of resources to maximize potential return. While traditional strategies such as purchasing stocks and bonds remain popular, an ever-evolving financial landscape requires new solutions. One of these solutions is to invest money in short-term, liquid and highly liquid assets. Such investments include money market accounts, certificates of deposit and treasury bills.
Money Market Accounts
Money market accounts are essentially savings accounts maintained by financial institutions with high minimum balances and a low rate of return. The main purpose of these types of accounts is to act as a safe and convenient way to save money without paying a high rate of interest. While a money market account may not generate a significant return, this type of account is beneficial for businesses looking to save and earn a consistent, conservative return at a relatively low risk.
Certificates of Deposit (CDs)
A certificate of deposit (CD) is a form of investment that is issued by a financial institution, such as a bank. A CD is a type of loan in which money is deposited into an account for a specific length of time in return for a fixed interest rate. They are generally seen as a safe way to store capital and are popular among those looking to create a low-risk portfolio. The drawback of a CD is that the investor may not access their funds until the agreed-upon term is up, as early withdrawal typically incurs a penalty.
Treasury Bills
Treasury bills, also known as T-bills, are short-term securities issued by the U.S. government with a maturity date of one year or less. They are sold in denominations of $100, $1,000 or $10,000 and are considered to be a low-risk, liquid investment. The main benefit of a T-bill is the high return. Despite their low risk, they offer a return that is considerably higher than most conventional investments.
Conclusion
In today’s economy, investing in short-term, liquid and highly liquid assets can be a great way to diversify a portfolio and increase potential gains. Money market accounts, certificates of deposit and treasury bills all offer different return, risk and liquidity options that can meet the needs of just about any type of investor. While no investment is guaranteed, making sound choices can help increase the chances of success.
