As young world citizens, we often find ourselves between a rock and a hard place financially. Our 9 am – 5 pm jobs no longer seem to yield any sustainable income. In addition to that, long-term investment options seem to take forever to start paying off.
Short-term investment plans can help reduce some financial burdens and provide you with rainy day reinforcement resources. Today we will discuss some of the best short-term investments to make to help you.
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What is a Short-term Investment?
According to Investopedia, short-term investments are also called marketable securities or temporary investments. They usually require sacrificing a potential higher return for the safety of having the invested money when you need it.
You can convert them to cash easily, and their duration is usually within five years. After three to twelve months, many short-term investments are converted to money or sold off.
Short-term investments can be used by business-minded individual investors or companies planning to raise their capital for use in the nearest future. The primary purpose of short-term investments is to protect your money while generating returns.
Before an investment can be called a short-term one, it needs to meet a few conditions.
- It has to be liquid so that you can get your money at the time you need it.
- It must have security that can mature and be sold in a short period.
How to Identify a Great Short-Term Investment Option
Typically, investors expect short-term investments to grow for some months to a few years till it is ready for cash out. Short-term investment plans offer you a means to save money you plan to use in the future.
It could be a challenge trying to figure out what qualifies as a short-term investment. So here are three things to watch out for to identify one:
1. A Liquid Nature
An investment with high liquidity allows you to turn it to cash with ease. If an investment is easily accessible and provides room for conversion into cash quickly, it is a great short-term investment option.
A great short-term investment choice is relatively stable. It needs to have minimal risks so that you don’t lose more money than you can gain back in a short duration.
3. Low Cost of Transaction
If an investment plan lets you get into and out of it at minimal costs, it is worth considering. An excellent short-term investment will have a small entry and exit cost that could be as low as zero.
11 Best Low-Risk Short-term Investments
One of the most important criteria for a short-term investment is minimal risk. So, we eliminated short-term investments that are too high a risk.
It is crucial to note that there are numerous short-term investment options. However, the one you decide to choose depends on your preferences, expectations, and other factors.
Here are some of the top 11 low-risk short-term investments you can start today.
A Blockfi account is a cryptocurrency savings account. It uses purchased stablecoin as its legal tender, so you deposit cash by buying them.
It offers loans to other parties in cryptocurrency and gives you an annual generated income of 8.6% in stablecoin. The exchange rate of a stablecoin to USD is 1:1, which means you can always get your money back at any time.
It offers better rates than a bank savings account (about 16 times more). However, there are some risks to using Blockfi.
These risks are:
- The FDIC doesn’t insure cryptocurrency.
- There are concerns about digital theft with cryptocurrencies.
However, these risks are minimal because Blockfi offers insurance for funds deposited with them.
High Yield Online Savings Accounts
Opening a savings account with a bank is an easy and effortless way to make money. It works by adding a nominal interest to your bank account to keep a constant balance.
The best part of these accounts is that you don’t need to do any hard work. All you have to do is open an account and deposit money.
Here are some of the best online high-yield savings accounts from Business Insider to help you narrow your selection.
Money Market Accounts
Money market accounts are often referred to as savings account on steroids. The reason is that their APYs are based on your account balance instead of your investment time frame.
These accounts have high liquidity. They offer ATM cards, checks, and deposit slips. Some of them pay a very close Annual percentage yield (APY) to one-year Certificates of Deposit (CDs).
Cash Management Accounts
Online stockbrokers and Robo-advisors usually offer these accounts. They offer you free reign to do normal bank-like activities like money transfer and writing checks.
It acts like an omnibus account that allows you to put money in numerous short-term investments. They don’t limit monthly withdrawals like traditional savings accounts, and you can get your cash anytime.
Lastly, they have minimal risk because:
- Their investments are safe and low-yield
- Some of these accounts deposit your money in FDIC-protected banks.
Short-term United States Government Bond Funds
Government bonds are the same as corporate bonds, except that it’s issued by the government of the United States. These funds buy investments like T-notes, T-bills, mortgage-backed securities, and T-bonds.
They are highly liquid and can be bought and sold any time the stock market is open. Although these bonds have no FDIC insurance, they are safe because the government promises to repay the money.
Short-Term Corporate Bond Funds
Major corporations that run investments issue corporate bonds to fund their investments. The interest payments usually come at regular intervals (quarterly or twice a year).
Collections of corporate bonds from different companies, typically in various industries, are called bond funds. Due to the diversity, bonds that don’t perform well would not hurt your total return.
Like government bonds, they can be sold or bought anytime the stock market is open. Bonds are a safe investment choice, especially if you are buying a diverse collection. The best part is since they are short-term, there is minimal risk of changing interest rates.
Certificates Of Deposit (CDs)
Banks offer certificates of deposit with higher returns than other bank products. They are also known as time deposits.
So, if you open one, you have to hold the money for a specified, agreed time frame, and the bank will offer you a high-interest rate.
The bank returns your principal and earned interest at the end of the agreed CD term. They are FDIC insured, so the risk is lower, but you may miss out on better rates while they are holding onto your money.
It is important to note that they are not very liquid because there are penalties for ending it early.
Treasurys offer one of the best safe yield options. They come in three variants:
They are backed by the AAA United States federal government credit rating, so they are an alternative to government bond funds. Their liquidity and risk rate are similar to government bonds.
Bank or Credit Union Savings Accounts
Savings accounts are an alternative to holding cash in checking accounts. Banks pay interest regularly.
Some banks offer better interest rates than others, so you will do well to shop around for comparison. They are usually insured by NCUA or FDIC, depending on your type of savings account.
A Roth IRA is a special retirement account that requires you to pay taxes on the money going into your account. However, future withdrawals are tax-free, but you cannot withdraw your earnings except you are prepared to pay a fine.
You can open a Roth IRA and invest in bonds, ETFs, mutual funds, and other investment types to get returns. It can be a long-term investment if you want, but you can withdraw your contributions after growing it for a while.
Like online savings accounts, online checking accounts can serve as short-term investments. They offer the benefits of savings accounts with more liquidity.
They don’t have limited withdrawals, and they offer cash bonuses sometimes.
Pros and Cons of Short-term Investments
Short-term investments are an excellent means of saving money, but they have pros and cons like every investment.
Two significant benefits of short-term investments are:
- Low financial risk
- Better liquidity
The most significant con of short-term investment, however, is that it has lower returns and interest.
When it comes to investments and spending your money, only you know what works best for you. However, we hope this article helped and you enjoyed reading it as much as we loved writing it.
Feel free to let us know which short-term investment plans you are considering in the nearest future in the comments. We will also love to hear what topics you want to see in subsequent articles.
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