Regardless of the business plan your company is operating under, managing your budget is crucial for longevity. Having cash reserves is important in the current competitive market to survive. Having these reserves allows for a buffer zone during times that are a bit tougher, financially. But the question is, how do you manage these short-term company investments? There are some key strategies worth exploring.
The Best Investment Strategies
There are several different investment strategies that businesses can use as part of their short-term investment portfolios.
In more recent times, companies have started allocating portions of their portfolios into crypto and digital assets. This approach can be majorly volatile given the highly fluctuating crypto market, but if timed and executed well can be the best bang for your buck.
Finding the right markets in crypto is crucial. Many different platforms cater to the different needs of businesses. The best crypto trading platforms will be suited to the business, including crypto contract platforms and those platforms tailored to wealth management systems. For example, these crypto contract trading platforms are great for emerging businesses and those not looking for much risk, offering services that allow users to speculate on market prices and changes without having to actually own the asset. This reduces the risk for businesses somewhat in an otherwise very risky strategy and is favored by many making crypto investments as a buffer.
For companies looking to use this method of short-term investment, there are some important tools they need to rely on. On a basic level, they will need institutional-grade crypto wallets for holding assets. These include secure storage and multi-person authorization systems. When it comes to trading, companies will want to ensure they are using regulated crypto exchanges for trades or OTC (over-the-counter) desks that allow for corporate and business-level management of digital assets.
Other businesses opt for a more traditional Buy and Hold Strategy. This is a more traditional and conservative approach. The S&P 500 will always, over time, offer profits, with its average annual return sitting at around 10.5%. This kind of investment sees businesses aligning the maturity of their investments with projections of cash flow and growth. Businesses will hold on to their investments, align with their projections, and mature the investments, reinvesting when there is enough of a buffer that they gain a profit not needed for expenses. These types of strategies are predictable and less sensitive to rapid market changes.
For those looking for higher-risk opportunities, more actively managed strategies could be useful. An actively managed portfolio looks for larger profit returns by purchasing longer-term investments and then selling these off prematurely during market changes to try and get the most profit from the investment as possible.
Key Objectives
1. Safety Prevails
Protecting your invested capital and managing the budget of the business is imperative to making sure that you cover unexpected events or business operations that you don’t always anticipate as a business owner. Making sure that you create some safety around your short-term investments is a brilliant way to make sure your investments thrive. Some things, such as vetting counterparty credit quality, using bank deposits that are really safe, and making sure that your portfolio of investments is diverse, will allow for that added safety to your investments that you need.
2. Creating Liquidity
A key to every short-term fund is the ability to turn them around quickly should you encounter any unforeseen circumstances. To make sure that your liquidity of investments aligns with your business plan, you will need to ensure that you are varying your liquidity with the industry you are in and what your company's goals are. Having these liquid assets means that the business can convert assets into disposable cash without any losses. The key to liquidity within your short-term investments as a company is making sure you have accurate data. Using cash forecasting that allows you to make more precise decisions is important to maintain this liquidity, which can vary with your company's cycles, profitability, and market changes.
3. Managing Risk To Reward
Of course, any business wants to make as big yields as possible, but there has to be some nuance around shorter-term investments. Tilting towards safety and liquidity is the answer to shoring up risk. But there needs to be a healthy view towards risk tolerance and adaptability in an ever-changing market. Accepting risk with a willingness allows for higher rewards and better returns, but this can vary throughout industries and businesses. Keeping an eye on interest rates, credit, and exposure are the best factors to consider when you are toying with risk versus reward.
A Balanced Approach
Regardless of what approach you are going to take with your short-term investments, the crucial thing to have is a balanced and well-documented policy regarding your investment portfolio. Setting out your objectives, risk management, and limits is key. For many businesses, tiering their reserves of cash into holdings that match time limits can be a great way of making sure no financial issues are cropping up. This means investments will be stacked and categorised accordingly to 90-day periods, 12-month periods, or year periods, and the investments should reflect the projections over these time periods. This prioritizes liquidity and calculates what your next move should be within your short-term business investment and is the best, balanced approach.
