You should make a short-term investment if you want a safe place to put your money that isn’t under the mattress and you’ll need it soon. But the fear of inflation and unstable financial markets can make you think it’s not a good time to invest. Learn more, what are the best ways to invest for the short term?
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You can invest your money for a short time in a number of ways, such as in a rental property, a savings account, a money market, short-term bonds, or a certificate of deposit. This way, your money will earn interest, which will help you deal with inflation. The interest rates are higher right now, which makes it a great time to invest with a clear head.
Read on to find out what kinds of short-term investments you can make.
What is Short-Term Investment?
Most of the time, you make a short-term investment because you need the money at a certain time. If you’re saving for a house down payment or a wedding, for example, you need to have the money ready. Investing for less than three years is considered a short-term investment.
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If you have at least three to five years to invest, and even more time is better, you can look into investments like stocks. Stocks give you the chance to make much more money. In the past, the stock market has gone up an average of 10% per year over long periods of time, but it has been very volatile. So, having a longer time horizon lets you ride out the stock market’s ups and downs.
Short-Term Investments: Safe, but the Return is Lower
Short-term investments are safe, but they cost money. You probably won’t make as much money with a short-term investment as you would with a long-term one. If you only want to invest for a short time, you won’t be able to buy stocks or stock funds, which are riskier investments. Here’s how to buy stocks if you can invest for the long term.
There are a few good things about short-term investments, though. Most of the time, they are easy to sell, so you can get your money whenever you need it. Also, short-term investments tend to be less risky than long-term investments, so you may not lose much or anything at all.
Top Investments for the Short-Term in 2023
1. Money Market Accounts
A money market account costs more than a savings account, but the amount is usually the same as the minimum rate. But the interest rate can be a little bit less than the rate of inflation. Also, that’s not a problem for anyone who wants to keep their money safe for a short time.
So, if you want a money market account, make sure it’s FDIC-insured to protect your money in case something unexpected happens, like a bank going out of business.
2. High-Interest Savings Accounts
Most of the time, banks don’t let their customers open high-interest savings accounts. But recently, new banks have started offering online savings accounts with higher interest rates than you can find at a traditional bank.
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Because online banks spend less on running their businesses, they can offer better rates to their customers. How does the high-yield savings account help the bank? With your deposit, you give the bank money. They use this cash to make investments and grow by giving loans to other customers.
3. Short-Term Bonds
If you want a low-risk, short-term investment plan, you should buy bonds. You can loan the government money by buying bonds or treasury securities. This way, you know the government will pay you back.
On the official website of the state’s treasury office, you can buy short-term government bonds. Treasury bills (T-bills) last for 52 weeks, which is the same as a year.
Still, the government sells municipal bonds to try to get money for local projects. Even though bonds are safe, they don’t give you much money back. Find out what the interest rate is right now for buying bonds from your government.
4. Certificates of Deposit
A certificate of deposit (CD) is like a savings account in that you give the bank your money for a certain amount of time. The only difference from a savings account is that you can only cash out at the agreed-upon time, which could be 3 months or longer.
So, as long as you keep your money in a CD, the interest rate goes up. But if you need to get it out sooner because of an emergency, the bank will charge you fees. Even though CDs have lower return rates than government bonds or the stock market, they are usually insured by the FDIC. Because these rates are so low, financial experts recommend looking for other short-term investments with better rates.
5. Treasury Notes
The sole difference between Treasury Notes and T-bills is that you’ll be lending the government money for a longer length of time with Treasury Notes.
T-notes mature in 2-10 years, however, interest is paid every 6 months. Despite the predetermined maturity period, you can buy and sell T-notes on the bond market, just like stocks.
The T-note return rate is lower since it is the price that investors pay to ensure stability. Furthermore, T-note rates frequently change, which can work in your advantage most of the time. T-notes, like T-bills, can be purchased straight from the treasury’s official website for convenience.
6. Brokerage Account
If you’re acquainted with buying and selling stocks, opening a brokerage account can be a great short-term investment. However, if you wish to participate in this approach, you need to do some piggyback investing and learn from stock gurus to avoid investing in hypothetical stocks from unproven companies.
However, because equities are volatile, they are better suited as long-term investment plans because interest rates rise over time.
7. Peer to Peer Lending
Lastly, peer-to-peer loans are great short-term investments because you can only keep your money for 1–3 years at a time. Peer-to-peer lending gives you a higher return on your investment, but there is a risk that the borrower won’t pay back the loan.
A smart peer-to-peer lender shouldn’t give all of their money to one person. Instead, they should give it to several different people. So, if one person doesn’t pay, the interest rates force other people to pay more to make up the difference.
The fact that the monthly payment includes the interest is a big plus of peer-to-peer lending. So, after a few months, you’ll have enough money to lend to more people, which will increase your returns.