Short-term investment strategies

For short-term investors, the safest strategy is to have 100% of their investments in Treasury bills. The “war chest” or “umbrella” fund might be considered a short-term fund (see Chapter 1). Short-term investors are absolute-return investors. Their focus is immediate and they have no need to hedge against risks in the future. Or, at a minimum, they are content to pass up the opportunity to hedge any such risks. Although the textbook benchmark against which success should be judged is the performance of Treasury bills, the reality is that achieving a positive investment return provides a line in the sand that matters above all else to short-term investors.

So what do model allocations look like for short-term or absolute-return investors? Moving strategy away from the safe haven of cash (Treasury bills) brings both the hope of a better performance and the fear of a disappointing outcome. Initially, it is simplest to constrain investment choices to the traditional areas of stocks, bonds and cash.