Retail investors (as well as professional investors) have access to short-term investments as a location to deposit their money where it can grow while still being easily liquidated if they suddenly need the money. A short-term investment gives protection from the diminishing value of money during periods of excessive inflation. Additionally, for some buyers, saving the money in a short-term investment keeps them from using it before they need it for a major life event, like education, a wedding, or a new house.
The top 8 quick-term investments
These eight short-term investment alternatives are suggested if you want to invest your money soon:
- Money Market Accounts
A money market account typically needs a minimum investment but offers a better rate of return than a savings account. In the end, the interest rate could be a little lower than inflation, but it won’t matter all that much to someone looking for a safe place to keep their money for a short while. However, if you decide to open a money market account, be sure it is FDIC insured for up to $250,000 in case something unexpected happens.
- High-yield savings accounts
Most customers are often not given the option to profit from a high return savings account by banks. The number of startup banks offering online savings accounts with greater interest rates than what a consumer would find in a conventional brick-and-mortar bank has increased significantly in recent years. This frequently occurs as a result of the online bank’s lower operational costs and a higher rate of return. The bank benefits from this arrangement since your deposit functions as a cash loan to them (just like any account at any bank), enabling them for investing that money and expand their operations.
- Short-Term Bonds
By investing in bonds or other treasury instruments, you are effectively lending the government money. Because the United States government has promised to pay them back, bonds are regarded as the safest investment option with the lowest level of risk.
The US Treasury provides short-term government bonds available for purchase directly on their website. The maturities of Treasury notes, usually referred to as T-bills, range from a few days to 52 weeks. In order to raise money for regional initiatives, your state or local government may also offer short-term bonds similar to municipal bonds. Bonds have a low rate of return despite being safe investments.
- Certificates of Deposit
Unlike a savings or money market account, a certificate of deposit (CD) does not allow for early withdrawal at maturity. In essence, you’re lending the bank that sum of money for a certain amount of time and pledging not to demand repayment before that time, which may be three months, six months, 12 months, or more.
The longer you agree to keep the money in a CD, the higher the interest rate the bank will typically pay. There can be fees if you need to do money transfers or withdraw your money sooner. Although the FDIC insures CDs, they often provide a lesser rate of return than the stock market or even (typically) government bonds.
- Treasury Notes
Loaning money to the government for a longer length of time than that represented by a T-bill is what a treasury note entails (mentioned earlier). Interest is paid on T-notes every six months and has maturities ranging from two to ten years. Although the notes themselves have set maturity dates, they have a high level of liquidity since they may be bought and sold on the bond market like stocks.
- Investment Account
A brokerage account using sites such as IC Markets Review may be a respectable location to generate money over the short term for someone who understands what they are doing when it comes to buying and selling stocks. The stock and ETF holdings can be sold off without incurring a penalty, unlike tax-free retirement accounts like a Roth IRA or 401(k) (unless you make $50,000 in profit when you sell your portfolio). Investors using this method would be careful to piggyback off of successful investors and mimic them, staying away from risky stocks from unknown businesses. Instead, reducing risk involves investing in an index of Fortune 500 Blue Chip businesses like Johnson & Johnson and Coca-Cola.