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The 10 Best Short-Term Investments To Consider

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Investing is arguably one of the best ways to build wealth. You can stash your hard-earned money either for the short-term or long-term based on your investing goals. Typically, many people tend to invest for the long term to avoid the noise of volatile markets and maximize their potential returns. 

While long-term investments are great, you also want to have something you can tap into when you need quick cash. That’s where short-term investments come in. Here’s a quick overview of short-term investments and a few good options you may want to add to your portfolio.

What Is a Short-Term Investment?

Short-term investments refer to assets that you can easily or quickly convert to cash, typically in less than five years, with many of them being sold within a year. If you have a project that you intend to convert to cash in a year or so, you already have a short-term investment.

It’s vital to keep in mind that every investor has their own investment goals and risk tolerance. What works for another investor may not work for you.

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10 Best Short-Term Investments To Consider

Here are the ten best short-term investments to consider for 2022. You can pick what works for your investing needs.

1. High-Yield Savings Accounts

Instead of holding cash in your checking account, you can invest in a high-yield savings account. Typically, banks and credit unions offer high-yield savings accounts. Unlike the traditional savings account, this type of account offersinterest rates that are, on average, much higher than the national average savings account rate.

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2. Short-Term Corporate Bond Funds

Major corporations issue corporate bonds to raise investment money and in return pay interest on the principal. Corporate bonds pay interest at specified intervals, often quarterly or biannually.

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3. Money Market Accounts

A money market account is a kind of savings account with a checking feature. Like any other savings account, it has the maximum number of withdrawals, typically six per month. The best feature of money market accounts is that they pay more interest than ordinary savings accounts.

When considering this option, look for an account insured by the FDIC to protect yourself from losing money.

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4. Certificates of Deposit

If you are looking for a short-term investment that allows you to earn high interest, a certificate of deposit might be a perfect choice. With CDs, you can hold your investment for the short-term, maturing in just a few days or months, or one year. However, you can extend your investment to 10 years or longer if you’d like, for example, by creating a CD ladder or opening an account with longer term lengths, if they are available.

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5. Cash Management Accounts

A cash management account lets you make short-term investments with your money by investing, writing checks and transferring money. Online stockbrokers and robo-advisors offer cash management accounts. If you are looking for flexibility in your short-term investments, this might be an ideal option for you.

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6. Short-Term U.S. Government Bond Funds

The U.S. federal government and authorized agencies offer government bond funds from time to time. The investment opportunities often come in the form of T-bonds, T-notes, T-bills and mortgage-backed securities. Buying government bonds is one of the best short-term investments. 

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7. No-Penalty Certificates of Deposit

A no-penalty certificate of deposit allows you to avoid paying typical bank fees if you opt out before the CD matures. In general, CDs offer more returns than money market accounts and savings accounts.

The short-term investment means you agree to keep the money in your account for some time, which can be weeks or years. In return, the bank offers a higher interest rate either regularly or at the end of the CD’s term, in which case you get the money you invested and the accrued interest.

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8. Money Market Mutual Funds

While money market mutual funds sound similar to money market accounts, they’re very different. A money market mutual fund allows you to invest in a pool of securities such as municipal securities or corporate debt securities. These types of investments generally generate more returns than other interest-bearing accounts.

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9. Online Savings Account

If you are looking for a highly liquid short-term investment option, an online savings account is the way to go. This type of account often has higher interest rates than traditional savings accounts. Plus, there’s no penalty for withdrawal, just a limit on the number of monthly transactions.

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10. Peer-to-Peer Lending

Peer-to-peer lending is an alternative kind of personal loan. If you become a P2P lender, you’re essentially acting like a bank by helping people who wouldn’t otherwise qualify for a loan to borrow money. P2P lenders select individuals and extend microloans to them, who will later repay the loans with interest.

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Takeaway

Your investing needs and goals will always have a significant impact on the investment path you choose. While some investments have higher rates of investment, they may be too risky. You need to strike a balance and go with something that works for you. The right way to make a sound investment decision is to research widely and consult investment experts before channeling your money into any venture.

John Csiszar contributed to the reporting for this article.