Investing with long-term goals is excellent, especially if it’s to earn for retirement. Short-term investments, however, can bring in extra cash for things like a major home renovation or a milestone birthday trip you’re aiming for in five years.
Short-term investing comes with a different set of guidelines to consider. You may want to consider risk. If the stock market goes down, for example, you may not have the time to recoup losses compared to riskier long-term investments. You’ll also want to keep liquidity in mind and invest in things that you can quickly cash out should the need arise.
With that in mind, here are a few different ways to make money that could fit your short-term goals.
High-yield savings account
With interest rates so low, you won’t be making much if you don’t purposefully put money where it could deliver gains. A high-yield savings account could earn you a little more. Check online and compare interest rates for savings accounts with different banks. With online banking, it’s easy to open an account and transfer your cash in.
One major advantage for short-term investors is that it easily checks the box for liquidity. Your cash can earn interest while it’s in the account, and you can pull it out when you need it. Keep an eye on any potential restrictions that some banks may put in place, such as how your money can be transferred in and out of the account or if a minimum balance is required.
Pro tip: Check out our list of the best savings accounts to find one that suits your goals and financial situation.
Certificates of deposit
Certificates of deposit, or CDs, are options sold by banks that allow you to deposit your money for a specific amount of time. Banks will offer a higher interest rate for CDs because you’re locking that money in, which makes CDs more appealing than a typical savings account.
There are a few advantages — and disadvantages — to short-term investing with CDs. The good news is that you get a specific interest rate when you open a CD that will never change during its duration, but that could be a bad plan if interest rates go up while your particular CD rate doesn’t. You also have to agree to hold on to the CD for a specific amount of time, so liquidity may be an issue.
Pro tip: Shop around to find the best CD accounts for your particular timeframe that may still give you the best rate of return.
Money market account
Money market accounts are also offered by banks and credit unions, and sometimes have a return rate slightly higher than a savings account. These accounts may include investments such as government securities and CDs that have a stable rate of income, while also earning more interest than a typical savings account.
If you’re looking for liquidity, be aware that money market accounts may have withdrawal restrictions, so plan accordingly when considering when you need that money available to you again.
Unlike bank-issued options, Treasury bills are sold to investors through the United States Treasury Department. Think of these bills as loans to the U.S. government that could be used for things like building schools or new highways.
They also have a variety of dates for when they mature — anywhere from a few days to a year. The farther the date, the higher the rate. Investors who want to stick with Treasury bills for more than a year can think about reinvesting their funds when the bills mature. Then you can consider a variety of different maturity options for when you need the money back in your pocket.
Municipal bonds are issued by government entities at a state or local level to fund projects like road construction, new schools, or other community improvement projects. Some people are more comfortable with this kind of investment since they are backed by municipalities.
You can find municipal bonds with term limits that are specific to your investing needs depending on when you need the money back. Consider checking with your local or state government to see if they’ve issued bonds that you can invest in, which also helps you contribute to improvements in your own community.
Pro tip: If you’re interested in adding bonds to your portfolio, you also may want to consider corporate bonds. These are issued by corporations, which makes them riskier, but they’ll usually also have a higher interest rate. If you want more reassurance in your returns, you may want to avoid the corporate route.
Short-term bond funds
A bond fund is a mutual fund that invests only in bonds, such as those offered by government entities or corporations. There are no stocks in bond funds. Bond funds have a good mix of different bonds to give you a more diverse bond portfolio than if you were buying specific ones on the market.
Bond funds also don’t have the same time restrictions that a municipal or corporate bond would have. This makes it a good option if you want to invest in bonds but would like more flexibility with withdrawing money if you need it for short-term issues.
There are plenty of mutual funds out there, so you’ll have to do some research on the best mutual funds for your short-term investing portfolio. Short-term mutual funds have more conservative investments, but that also means you may not make as much of a profit compared to a long-term investor who is willing to take on risk.
Pro tip: Don’t invest in mutual funds if you’re worried about current market volatility, like dramatic stock swings or market forces that may have a negative effect on stocks and bonds. Mutual funds are still beholden to economic volatility.
Even if you limit your investing to short-terms options, there are still plenty of different products for you to choose from. Look over these different options for how to invest money to reach your short-term goals and figure out which ones fit your portfolio’s needs. Let your cash work for you until you’re ready for your next project, vacation, or planning to retire in the next five years.
FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.
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