You have options in long term vs short term for investing money, but which is the best one? Short Term Investment Options include high-risk investments with high yields, no-risk investments with low yields, or investments for turning money into liquid assets. How do you know which option is best for your specific needs?
The short term investment either has high risks or low yields that depends on where you park your cash or money. However, that is considered as important for making profits from your liquid assets and cash savings. In the long term, your savings and cash investments will almost certainly lose value as a result of inflation. Most short term investments options offer lower interest rates than long term financial choices such as buying a house.
The decision of whether to invest in short-term or long-term is made by the investors depending on their goal for the investment. For example, if the investor intends to save money to invest in a reward giving Fast-casual restaurant franchise at a nearby future date, then it will be a good short-term investment. On the other hand, if the investor intends to hold onto his or her investment for a longer period of time, then it will be a long-term one.
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What Is Considered A Short Term Investment?
Short-term investments are securities that are bought and sold in periods ranging from less than one year to about five years. Types of short term investments such as stock, corporate bonds fund, Notes, Bonds, Treasury bills, commercial paper, money market, Mutual funds, certificates of deposit, saving accounts and some foreign equities. A short-term investment does not necessarily mean it is safe, but it certainly means liquid investment.
A short-term investment can be as long as nine months or as short as a few days.
If you wonder why experienced investors discouraged short-term investments, here is a fact: the Federal Reserve drove short-term interest rates down to zero. Meaning, short-term bonds are estimated at zero.
Furthermore, in some European nations, short-term bonds have already been negative! Again, this implies that government agencies, companies, and people are the ones who are paying banks to take care of their cash! So, that’s the reason why short-term investing has been more challenging these days.
The generation when someone’s grandmother can still obtain a savings bond and gain a good income has long been gone. Although savings accounts can still generate drops of money, generally speaking, it yields nothing— given that most nations are experiencing market inflations.
Top 10 Short Term Investment Options
There are more efficient, income-generating, and practical alternatives to your current bank accounts. Although most of these suggestions still involve little risk, at least you can be sure that your money isn’t going to be stuck in there for a very long time with little to no “actual ROIs.” Here are some of the ideal places you could place your short-term investment funds.
1. Crypto wallet
To obtain some returns today or tomorrow, you might even have to undergo riskier trading executions and grab unconventional income sources. That is why you should be particularly curious about having cryptocurrency accounts.
Admit it or not, but you haven’t earned a significant amount in your bank savings accounts since the day you opened it until now. Well, you might have, but you can just spend all those earnings in one purchase, which means it hasn’t significantly moved your financial situation.
Getting a crypto wallet or account deserves to be placed on top of this list for some experts. But in the first place, what is with the crypto industry? Why do some investors consider this as an effective alternative to traditional investments? Currently, the crypto world has been skyrocketing due to several factors.
Regardless, most digital currencies have been performing well ever since the pandemic. It is expected to continue its upward trend as more and more investors are intrigued by its money-generating capability than other opportunities.
You might also want to know why some entrepreneurs, employees, and freelancers have already started parking some of their savings in Blockfi and other crypto wallets, wherein they can have the chance to gain 8.6 percent of their deposits. These types of accounts may not work for everyone. However, they can do better than traditional financial institutions these days.
Although one can’t say that this is the “most stable” source among all, one can’t deny that there are always risks in short-term investment plans. What’s important is that you can make the best out of the limited time you have.
Moreover, this idea seems to be the riskiest and unplanned, but if you still think of it that way, you might not have understood the practical factor of this concept. With a crypto account, you put in some funds by buying digital coins.
Some cryptocurrencies trade 1:1 with dollars; so, buyers can always convert one crypto for one US dollar. Also, the traders’ funds can be accessible at any time; thus, it’s very liquid.
For example, a crypto account like Blockfi makes loans to other entities, as banks do; however, Blockfi’s loans are actually in cryptocurrencies. Block can also pay back its users a maximum of 8.6% annually in stable coins (can be converted into US dollars). By now, you already know that the platform can pay you sixteen times more than how much banks do.
The disadvantage:
Any alternative indeed has a downside. No offer is perfect, especially when it comes to the crypto industry. Having a crypto account isn’t similar to having a bank savings account. There are no FDIC insurances on your funds like with traditional banking institutions. Also, there are several issues regarding digital theft.
Although cryptocurrency exchange platforms have their security system and deposited funds insurance that act as immunity against theft and other problems, it’s not easy to determine the platform’s difference from the Federal Deposit Insurance Corporation insurance. But despite those risks, some experts believe that Blockfi is indeed a feasible alternative to banks.
So, suppose you are interested in starting your journey with the crypto industry. In that case, it is recommended to only deposit a comfortable amount of cash (don’t go all-in). Most experts suggest that users start small and observe how everything goes first, and as you learn over time, you may increase your funds in your account. Simply put, only deposit an amount according to your comfort level.
2. Online Savings
If you are searching for a zero-risk strategy to gain a significant amount of interest on your deposited money, you might need a high-yielding savings account. These accounts will allow you to earn nominal amounts of interest to encourage you to store your money and keep your hands off it.
Moreover, having online savings means you wouldn’t have to go to the bank (or abide by any over-the-counter processes) just to deposit some savings in your account. All you have to do is access the platform’s website or app and follow the necessary steps.
Aside from registering for an account and storing your funds, this technique also demands almost zero effort from you. The highest-yielding account can offer satisfactory interests without any hidden fees.
3. Market Account
One of the best alternatives to bank accounts, Money Market accounts, gives depositors deposit slips, checks, and ATM cards. Money market accounts are interest-bearing accounts at banking institutions or credit unions.
However, this shouldn’t be confused with market mutual funds because MMDA or money market deposits accounts and money market accounts have several features that aren’t present in other account types. Most market accounts also pay higher interest rates than regular passbook accounts. They usually include a debit card and check-writing privileges.
Moreover, they come with several restrictions, and this results in less flexibility than regular checking accounts. This alternative is based on account balance and not on the time length depositors have stored their funds.
All those factors are why many people have considered incorporating this alternative into their short-term investment plan. While there is still minimal risk involved, users can secure higher return rates.
These accounts are also offered at traditional online banks and even in credit unions. Both of them have their pros and cons compared to other account types. Their pros include competitive interest rates, debit cards, and check-writing privileges, and insurance protection.
Credit unions and banks generally require their clients to agree with their minimum deposit amount to open an account. A minimum amount should also be maintained to keep their account active. Otherwise, they will impose some fees (often monthly fees) to the client when their remaining account balance is already below the minimum.
4. Alternative investments
These investments are components of a diversified and healthy portfolio. Yes, that’s the point. Diversification has always been considered a necessary element in managing risks. And with this strategy, users can diversify their portfolio even outside the most volatile markets. Many alternative investments are not so liquid, and they demand a specific period of holding time (at least two or more years), but not all of them are the same.
For example, the real estate industry is one of the most classic alternatives to high-risk investment. However, many investors can commit to the long journey unless they are flipping houses and business establishments. Why? It is because it’s stable, proven, and has a high income-generating factor.
That’s why people are excited about these modern short-term investment plans (which will be described later). These techniques are still “alternatives” because they have been operating separately from the stock market. The first suggestion for an alternative investment is Fundrise.
Fundraise is an online savings account that offers low-cost real estate ETFs. Each deposit manages and acquires individual properties or real estate properties. Moreover, it requires a minimum deposit of five hundred dollars (with an estimated return rate of eight to twelve percent).
Second, you have the Lending Club. Instead of purchasing company stocks, Lending Club allows you to lend your funds to businesses or individuals. These entities pay your money back with
interest. Moreover, it requires its investors to deposit a minimum amount of twenty-five dollars (with an expected return rate of four to seven percent).
Last but not least, you could go for worthy bonds. If you are willing to invest in starting businesses by buying their bonds, then Worthy Bonds is the right platform for you! Are worthy bonds a good investment? You, as the investor, will receive a fixed five percent interest. The minimum deposit amount is only ten dollars, and again, your expected return will be fixed at 5%.
5. Certificates of Deposit
A CD or Certificate of Deposit is an asset offered by credit unions and banks that provides premium interest rates in exchange for certain agreements. These agreements include that the client should leave lump sums unwithdrawn for a specific time.
Almost all financial institutions can offer a Certificate of Deposit. Still, it is up to them what terms and conditions they’ll apply, how high their rates will be compared to MMPs and bank savings accounts, and what kind of fees they should apply to clients who withdraw early.
With CDs or Certificates of Deposit, the investor deposits their funds for a specific time length while being guaranteed for fixed returns (no matter what happens to that timeframe’s interest rates). Make sure that you can purchase your Certificates of Deposit with an FDIC-insured financial institution. The lengthier the investment time frame is (ranges from three months to five years), the bigger the returns.
Opening CDs can be comparable to opening standard deposit accounts. The primary difference is what the client agrees to when they sign the contract (even though digital means). After the client has shopped and identified which Certificate of Deposit they will open, finalizing the process can lock them into these four things:
- Interest rates – Having locked interest rates is an advantage because they give predictable and transparent returns on the client’s deposit amount over a particular time. Banks who apply locked interest rates cannot change the rates anymore; thus, they cannot reduce your earnings. However, fixed returns may also hurt the client if rates rise substantially later. This means that you, as the client, might lose your chance to make the best out of high-paying CDs.
- The term – The term refers to the time the client or the investor agrees to leave their funds on their account to avoid penalties. It could be a one-year CD, six-month CD, 18-month CD, two-year CD, etc. The time ends on a specific date (maturity date) when the Certificate of Deposit has matured, and the client can withdraw their funds penalty-free.
- The principal – Except for some specialty Certificates of Deposit, the principal is the amount the client or investor agrees to deposit upon opening the CD.
- The institution – The credit union or the bank where the client opens their CD will identify the agreement aspects such as EWPs or early withdrawal penalties and whether their Certificate of Deposit will be automatically re-deposited if they do not give other directions at the date of maturity.
6. ROTH IRA
After-tax funds sponsor this; thus, you’re free to deposit and withdraw your contributions at any time. However, you can’t withdraw your earnings yet. You need to open a ROTH IRA and invest in ETFs, bonds, mutual funds, and many more so you can earn some returns.
This money can grow regardless until you’re already retired. But suppose a person wants their earnings to increase more. In that case, they are still free to get their contributions (if and only if the market’s performance is good, it’ll be worth the value they invested). Here are some of the recommended places you can open an IRA account:
- E*TRADE (promo includes zero trading fees and a maximum of two thousand five hundred dollars bonus; best for active investors)
- Betterment (best for hands-off investors; offers up to one-year free management)
- M1 Finance (promo includes zero trading fees)
7. Online Check Accounts
Like an online savings account, online check accounts also accommodate short-term investments. But investors can get plenty of benefits in an online check account, perhaps due to more liquidity caused by unlimited withdrawals.
Well, the best part of this opportunity is the cash bonuses. This sweet deal can convince investors to flock to these platforms, causing the market’s value even more. Here are some suggestions on where you should open a checking account:
- Chase (best for college students; offer one hundred dollars for new customers)
- Bank Novo (best for businesses; offers fifty dollars for new customers)
- Discover (offers one hundred fifty dollars for fifteen-thousand-dollar deposits; offers two hundred dollars for twenty-five-thousand-dollar deposits)
8. Short-Term Bonds and ETFs
Short-term bonds are assets that professional financial advisors solely manage. They aren’t as stable as other financial markets; however, they offer higher potential yields. These market products will also pay out their customers based on the current condition of the market (fluctuating monthly payouts).
Moreover, short-term bonds often mature within two years or less. This fact alone can make this opportunity an ideal alternative for investors who are comfortable with the given timeline. Here are some recommendations on where you can buy bonds:
- M1 Finance (offers trading executions for free; promo includes a ten-dollar bonus)
- E*TRADE ($6.95 per trade)
- TD Ameritrade (offers up to six hundred dollars cash bonuses)
9. Pay Off Debt
Although this is not a concrete investment plan, this is probably one of the most effective ways to increase the efficiency of your short-term investments. If you are still paying off your high-interest debt from your credit cards, student loans, and mortgage, then you should prioritize them.
Doing so will not only allow you to get great returns on your passive income streams, but you are also sparing more funds for your future expenses. With that, you are investing in your future financial situation. Sometimes, debts are unavoidably necessary, especially when you have just started a sideline business or finished college. As soon as you start generating profits, prioritizing your debt will save you from drowning in high-interest rates.
For example, interest rates for mortgage debt are almost historic lows. Thus, if you have not refinanced this debt yet, having a steady source of income is a fair chance to do so. For your credit cards, make sure to strategize their cut-off schedules and play it well (as much as possible, pay before the due date).
10. Municipal and Corporate Bonds
Many investors like the idea of investing in bonds because these assets offer opportunities to generate steady income streams without the dreaded risk degree that has often characterized the stock market. However, not all bond platforms have equal advantages and disadvantages.
Suppose you are planning to add bonds into your investment portfolio. In that case, you might also want to add corporate bonds and municipal bonds. Corporate bonds are debt instruments that companies issue to multiply capital. In contrast, municipal bonds are bonds issued by towns, states, or cities to generate funds for government projects.
Both bonds are somehow riskier than Treasury investments; however, multitudes of municipalities don’t use default bonds. In this case, the riskier option is the “interest rate risks.”
In environments with low interest rates, rates can affect the value of the bond in a way that when a rate increases, the bond consequently decreases to compensate.
Suppose investors can hold their bonds to maturity. In that case, they can get one hundred percent of their initial investments back on top of the interest amount yielded to them. If they could obtain four percent in municipal bonds today, that is a satisfactory return already.
However, if rates increase and their bonds lose six percent in value, they will suddenly find themselves losing the equation. Nevertheless, the decline in the bond’s value can only impact investors if they sell it before its maturity.
Final Thoughts
If you are searching for an ideal short-term stream to bring home some cash, do not hesitate to be unconventional. Thankfully, the internet is constantly evolving, and both long-term and short-term investors can already choose from a wide range of innovative investment platforms that offer multitudes of services. But always remember that regardless of what path you prefer and pour your cash in, there will always be risks. Thus, learn to strategize and pay att