8 Best Short-Term Investments
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According to most financial experts, short-term investments are those you will be investing in for less than three years.
8 Best Short-Term Investments
What Are Short-Term Investments?
This definition is a little bit more inclusive than determining the difference between short and long-term investments according to the IRS and their threshold for capital gains tax. Short-term capital gains tax is levied on profits made on assets held for less than one year, while long-term capital gains tax is levied on profits made on assets that were held for more than one year. That said, an investment held for two or three years is still regarded as a short-term investment.
Short-term investments offer retail investors (and professional investors) a place to park their money where it can grow, but where the investment can also be quickly liquidated in case they need the funds. When inflation is high, a short-term investment offers a hedge against the declining value of money. And for some consumers, parking the money in a short-term investment also prevents them from spending it before they need it for a life milestone, whether that’s college, a wedding or a new home.
8 Best Short-Term Investments
If you’re looking to invest your money short-term, we recommend these eight short-term investment opportunities:
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1. Money Market Accounts
A money market account pays a higher rate than a savings account, but usually requires a minimum investment. As it turns out, the interest rate might be slightly less than inflation, but that’s not going to be of much concern to someone who just wants a stable place to park their money for a short period of time. Make sure, however, if you are getting a money market account, that it’s FDIC insured for up to $250,000 in case of any unforeseen circumstances.
2. High Yield Savings Accounts
Banks do not typically offer most consumers the opportunity to benefit from a high-yield savings account. However, in recent years, there are plenty of startup banks offering an online savings account with a higher interest rate than a customer would find in a traditional brick-and-mortar bank. Many times this is because the online bank has fewer operating expenses and can offer a better rate of return. What the bank gets out of this arrangement is that your deposit lends them cash (like any account at any bank), allowing them to invest that cash and grow their business.
3. Short-Term Bonds
Buying a bond, or treasury securities, means you are loaning the government money. Bonds are considered the safest investment vehicle with the lowest amount of risk because they are backed by the promise of the United States government to pay them back.
Short-term government bonds can be purchased directly from the US treasury, right on their website. Treasury bills (also known as T-bills) have maturity rates that range from a few days to 52 weeks. Your state government or local government may also sell short-term bonds, like a municipal bond, to raise money for local projects. Though bonds are secure, their rate of return is fairly low. For instance, at the time of this article, the one-year T-bill rate of return just dipped from 0.06% to 0.04%. That equates to roughly four cents for every $100 loaned to Uncle Sam.
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