Understanding Your Investment Options
Once you’ve established investment objectives and an investment plan, it’s time to choose individual investments that will help your business reach its goals. An excellent way to begin the investment selection process is to separate short-term and long-term goals, then choose appropriate investments. Always consider your business liquidity requirements when investing.
Short-Time Horizon
The money your business might require tomorrow, or even in the next year, should be held in short-term investments.
For daily needs, consider a traditional savings account, such as a BMO Bank of Montreal® Business Premium Rate Savings Account. A traditional savings account can complement your business operating account by providing competitive rates of return while preserving ready access to your funds.
Beyond immediate needs, consider secure, liquid investments that offer higher returns. Options include short-term guaranteed investments and certain types of mutual funds. For example, BMO Security Funds are designed to help preserve wealth and provide a modest level of income. They offer safety of principal, regular income payments and easy access to money should your business need it. Money market funds are typical security funds. Learn more about GICs and mutual funds.
Longer-Term Horizon
By committing cash for longer periods, you’ll earn higher returns on term investments. Mid-term and long-term GICs are secure options for longer-term investing. Your original principal is guaranteed, and you’ll earn a competitive rate of interest.
If you’re willing to give up guaranteed principal and returns, certain types of mutual funds offer potentially higher investment profits. You can choose from a wide range of funds to meet any investment objective, from conservative Security Funds to Aggressive Growth Funds.
There is a middle ground: investments that provide protection for the money you invest and also offer higher returns potential. These include BMO Progressive GICs, which provide returns linked to those of financial markets but offer 100% principal protection. BMO Progressive GICs are appropriate for investors with a medium-term 3 or 5 year time horizon who are willing to forego liquidity and flexibility.
Liquidity Needs
When liquidity and security of capital are paramount, consider Term Investments that offer flexibility and cashability. Although the rate of return from cashable GICs and similar investments tends to be lower than from GICs that are locked in for specific terms, you’ll have easy access to cash at any time.
Mutual funds also provide a high level of liquidity. Almost all mutual fund investments can be cashed on any business day. However, the nature of the funds’ underlying investments will influence potential returns and shorter-term price fluctuations. The BMO lineup of mutual funds offers options that are suitable for your specific business investment needs.
For example, money market and T-bill mutual funds provide liquidity and are designed to preserve capital. At the other end of the spectrum, growth funds that invest in equities offer greater returns potential. But prices can be volatile, which will influence the value of your investment at the time your holdings are redeemed. However, over the long-term, equity mutual funds typically increase in value.
