How To Improve Yield On Short Term Cash Investments

Today, the returns in the investment market are modest. Hence, one must focus on maximizing the short-term cash investments? performance, to derive voluminous benefits from investments. Investing in short-term cash bonds is a wise option, as they yield higher returns and preserve the investors? capital and liquidity. Moreover, the rising interest rate scenario imparts such an instrument added attraction. This is because in the rising interest rate environment the yields on such bonds more than offset the depreciation associated with the bond price that is driven by the rising interest rates.

Features of Short-Term Cash Strategies:

Such strategies are designed keeping in mind that the investors might need the money in the near future. Therefore, the cash needs to be invested in income securities that have low risks and are readily marketable. Investors have a variety of options to choose from when it comes to investing in short-term cash bonds.

There are negotiable CDs that offer the investors perfect liquidity. They offer the investors flexibility of redeeming their investments, whenever necessary, at face value or at par. This is a great advantage, as the investor may need those assets within a short duration.

Typically, such short-term cash investment strategies are available in the market for one-year duration or even less. Such a duration of the investment means that the net value of the asset does not fluctuate by more than a percentage point for one percentage point fluctuation in the rate of interest.

Short-Term Cash Investment Yield Greater Returns:

Such investment strategies yield higher returns taking advantage of the four structural inefficiencies of the yield curve. Investors can increase term premiums on their investments by expanding their portfolio?s duration. Such a tactics improves the performance of the investors? portfolio and does not possess any risk of negative returns.

Prefer greater spreads for getting higher liquidity premiums on the bonds. Securities such as floating rate, callable corporate securities, and adjustable rate mortgages are not readily bought in the secondary market, and therefore pay their investors higher yield premiums. Since these securities have short durations and comprise only a small portion of the entire portfolio, investors can hold them to maturity with minimum risks.

Credit premium yields ban be improved by diversifying the holdings in such a manner that it consists of both high-quality and low-quality securities. A careful bled of selected bonds into the portfolio increase the possibility of higher yields and lowers risks because of diversification. Investors who can withstand high fluctuations in principals can benefit from volatility premium. They however have the option of paying an excess premium to obtain stable prices.

Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.

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