Many people are aware that having long-term financial goals is great. But how about meeting current financial goals without having your money tied somewhere for a very long time? Which is the short time investments.
However, are there short-term investments with little or no risk that would yield returns?
This article will discuss the best short-term investments you can engage in with good returns.
Table of contents
- What is Short Term Investment?
- How Short-Term Investment Work
- 10 Best Short-Time Investments
- What should I consider before investing?
What is Short Term Investment?
Short-term investment is a type of investment that isn’t intended to be long-term which you can easily convert to cash.
It is one investment you can hold for half a year or for one full year. There are also some short-term investment options where its position can’t be held for more than a day sometimes. One of which is foreign exchange trading.
You can eventually turn an investment into a short-term investment if you can sell it quickly.
If you are an investor in stock and you want to maximize short-term investment, then you will need not hold it for a very long time.
Investors store money temporarily using this term as they wait to transfer to another investment with higher returns.
Examples of short-term investment include the Money market, CDs, Government, Treasury Bills, etc.
How Short-Term Investment Work
The goal of every investor is to generate returns as well as protect their capital.
For a company to classify an investment as a short-term investment, two (2) requirements are needed.
- It must be liquid. Just like a stock that trades frequently listed in the foreign exchange.
- The management should sell the security within a short period, like within 12 months. Marketable securities that mature within a year, like commercial papers, U.S. Treasury Bills, are short-term investments.
Marketable debt securities also include corporate bonds (bonds issued by another company). It should be traded, considered liquid, and have a short maturity time.
10 Best Short-Time Investments
Below are the 10 best short-term investments with low-risk and high returns
#1. Savings Account
A savings account is one of the best short-term investments. When you save your money in your bank, you are giving a loan to the bank. Therefore, you earn interest in your account.
If you are willing to leave your money for 1-5 years, you will accumulate a large amount of money in your savings.
#2. Government bonds
This is like the corporate bond. It isn’t issued by the corporation but by the Government.
Government bonds issued by the U.S. Treasury are considered one of the safest bonds in the world and one of the best short-term investments.
It is considered one of the low-risk investments and, because of this, they pay low-interest rates.
You can invest in Government bonds as it is helpful in funding some programs like parks, infrastructure projects, and other public services.
Also, it’s one of the best short-term investments
#3. Corporate Bonds
This type of security is sold to investors, making it one of the best short-term investments.
It’s similar to a loan. The company pays back the investor for the amount which is paid. And there is a maturity date and interest rate.
Corporate bonds are safer than stocks. In the corporate bond, the investor returns his money with interest, but the stock is riskier because the money may not increase in value.
Corporate stock is the share of the company, which gives an investor a little degree of ownership. Dividends are given to the investor on the stock. And the value appreciates or depreciates in value which depends on the success of the company.
READ ALSO: What Are Securities In Finance? Overview And How It Works
#4. Treasury Securities
Two types of treasury securities are safe. T-bills and T-notes.
T-bills have the shortest maturity terms ranging from 4 weeks to 8 weeks.
T-notes pay interest semi-annually and their maturity terms range from 2 to 10 years. They are both the best securities for short-term investments.
#5. Money Market
This money market is an account that stands between a checking account and a savings account.
To enjoy the flexibility of a checking account with high interest from the high-yield savings account, then opening a money market does it.
A money market account allows you to use a debit card and write a check. It limits you to six withdrawals per month following Government limitations.
Banks and credit unions offer money market account. A money market account has stricter requirements than a savings account, just like a high yield savings account.
It is also regarded as one of the best short term investments.
#6. Certificate of Deposit
This is an account where you keep a large amount of money, leaving it untouched for a certain period of time.
You earn interest for it but will be charged a penalty for early withdrawal.
This could be a good option if you are saving for a longer period.
The best CD rates are better than the money market or savings account.
CD terms vary from the range of 6 to 18 months. Most CD terms fall within the short term investment period.
It could be a way of putting your money to work for you so long you would be disciplined.
#7. Peer to Peer Lending
Here, no middleman is involved as it is where an individual takes a loan from another. It is also called social lending and has been in existence since 2005.
There are sites that facilitate this. You open an account on the site and deposit some amount of money which will be used as a loan.
They will match you up with loan applicants who have created their own accounts. Risk is also involved, so you have to choose your applicants carefully.
There is a high interest rate here, but for a short-term investment, you can grant loans that mature in 5 years.
#8. Cash Management Account
Brokerage firms issue this type of account. Most of the accounts are similar to checking accounts which come with a checkbook and debit card.
This account is good if you are an investor and have an account with brokerage firms. Cash management accounts have services that help maximize your investment profits.
#9. Roth IRA:
It’s a type of account that holds retirement funds. It is known as the Individual Retirement Account (IRA)
It is the opposite of the traditional IRA.
With Roth IRA, your withdrawal is tax-free, but you pay tax on your contributions.
It doesn’t pay interest, but when you open it with a brokerage firm, you earn compound interest.
By maintaining a Roth IRA account in a brokerage firm, you increase your earnings in a short term investment.
Though it’s a long-term investment.
#10. Rewards checking account
Some of the reward checking accounts include:
- Interest-Bearing Checking Accounts:
They offer high-interest rates, but they require a minimum balance.
- Premium Account:
They offer great services like financial advice and discounts. Some of their discounts help save you some money. They also offer high minimum balance requirements.
Short-term investments are beneficial and they generate interest within 5 years. It helps supply you with steady cash flow. And before diving into short-term investments, be aware of the risk and also highlight your investment goals.
What should I consider before investing?
Before investing, you need to determine
- Investment goals
- Risk tolerance
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