Short-term investments in a nutshell

Short-term investments can easily be converted into cash, typically within 5 years. Many short-term investments are sold or converted to cash after a period of only 3-12 months.

Short-term investments may also refer specifically to financial assets that are owned by a company. Recorded in a separate account and listed in the current assets section of the corporate balance sheet, these are investments that a company has made that are expected to be converted into cash in the short term.

Why choose short-term investments?

The goal of a short-term investment—for both companies and individual/institutional investors—is to protect capital while also generating a return.

Companies with a short-term investments account on their balance sheet can afford to invest excess cash in stocks, bonds, or cash equivalents to earn higher interest than what they would earn from a normal savings account.

There are two basic requirements for a company to classify an investment as short-term:

1. it must be liquid;
2. management must sell the security within a relatively short period, such as 12 months.

Examples of short-term investments

The most common short-term investments and strategies used by companies and individual investors include: 

• Certificates of deposit (CD).
• Money market accounts.
• Treasuries.
• Monetary funds.
• Peer-to-peer (P2P) lending.

Short-term investments: actual cases

In its 31 March 2018 quarterly statement, Microsoft Corp. reported holding $135 billion of short-term investments on its balance sheet. The biggest component was U.S. government and agency securities, totalling $108 billion. This was followed by corporate notes/bonds worth $6.1 billion, foreign government bonds worth $4.7 billion, mortgage/asset-backed securities at $3.8 billion, certificates of deposit (CDs) worth $2 billion and municipal securities at $269 million.

Apple Inc. also held short-term investments, listed as marketable securities, of $254 billion as of 31 March 2018. The two major investments were corporate securities, which represented $138 billion, and U.S. Treasury/agency securities, which were $62.3 billion.  The company’s investment in commercial paper was worth $17.4 billion and mutual funds were $800 million. Apple also had non-U.S. government securities of $8.2 billion and certificates/time deposits of $7.3 billion. Mortgage/asset-backed securities were at $20 billion and municipal securities at $973 million.