1. What are short term investments?
The best definition of short term investment is that they are supposed to expire or to be liquidated within the course of one to three years. Usually, people have some short term investments if things go south. The main goal of short term investment is to protect capital with low-risk investments.
As with every other financial type of investment, there are thousands of different short term investments. So, what are some of the best short term investment ideas? Stick around!
I’m going to list my personal pick of top 5 short term investment ideas.
2. Certificates of Deposit (CD)
A certificate of deposit or CD in short is one of the most common types of short term investment. CD works like this; when you put your money into a CD, you sign a contract and agree not to withdraw it for a set period of time. Due to this, your yield will be higher. What are these set period of time you might ask? They range from as little as three months to as long as five years. Moreover, CDs are federally insured within the Federal Deposit Insurance Commission (FDIC) which makes them one of the safest types of short-term investment. Also, they offer a reasonable yield.
3. Money market funds
Money market funds are as liquid as a savings account, but they offer a better yield. On the other hand, there is a downside as money market funds are not insured within Federal Deposit Insurance Commission (FDIC). Since there is no insurance, money market funds are a high-risk/high-reward type of short term investment.
4. Savings account
Savings accounts are the least profitable on this list and they can be treated as short term investment. As they are your savings, that means they are highly liquid and stupid simple. Of course, not everything is that great. Due to their simplicity, low risk and ease of access they offer very low yields. Fun fact; most savings accounts do not even keep up with the rate of inflation and they should not be used to store large amounts of money over long periods of time.
5. Peer to peer lending
These short term investment ideas are very risk but offers a very high reward. Actually, these types of investments have been known to earn 100% (!) interest rate which is enormous. Of course, as they offer a very high reward, some people have experienced a total loss of their investment as these types of short term investments are not insured.
6. Municipal bonds
Municipal bonds represent a bond that has been issued by a local government until or any of its agencies or instrumentalities. Furthermore, it’s been known that some local governments even make their bonds non-taxable. But beware, as a yield on a municipal bond is usually much lower than that of a taxable bond.
Dividends are defined as a distribution of a portion of a company’s earnings. If they are to be paid out, that is for the board of directors to decide. Dividends can be issued as cash payments, as shares of stock, some other property, etc.
8. Other short term investment ideas
If you feel that there should be more short term investment ideas, here you go. You can always check out treasury bonds. They are bonds that are issued by the United States government and they are 100% insured. Also, don’t forget about short term investment funds. These funds allow you to place your funds temporarily on only one investment avenue. Moreover, you can choose foreign currency deposits. These types of deposits involve a foreign currency of any type as long as the market for that particular currency is high.
To sum it all up, your goal is to be rational when it comes to choosing some of these short term investment ideas. The main ideas behind short term investment are saving up your money and getting little yield with the lowest risk possible. So, if you are thinking about keeping your money under you bed, don’t. It would be better if you would keep it in a savings account.
On the other hand, if you are a high-risk/high-reward type of investors, I’d suggest you read up on your potential investment and bear in mind, that there is your money and your time being involved.