How to Choose Investments for Short-Term 

How to Choose Investments for Short-Term  Leave a comment

I am an economist and the founder and owner of Finance Blog Zone

investments for short-term

Are you looking at investments for short term gains? Then you are probably looking for some safe places to stash some money before you need to access it in the not-so-distant future.

The slumping economy and the volatile market may lead the investors to hold the cash because of the tumultuous conditions caused by Covid-19- Therefore, things may remain uncertain as, among other issues, the economy is facing surging inflation. 

Short-term investments generally tend to minimize the risk but at the cost of higher returns available in the best long-term investments. As a result, you need to make sure, instead of squandering the money upon any risky investments, that you will have the cash when you need it. So the most important thing is that investors must look for investments for short-term for safety purposes. 

What is Meant by Short-Term Investment? 

Do you know why people make short-term investments? In order to have money at a certain time. For example, if you are saving a down payment for your dream house or maybe a dream wedding, then you must keep the money ready. Short-term investments are those which you make for less than three years. 

investing portfolio

However, if you have a longer time frame- at least four to five years (the longer, the better) – you can look for other investment options like stocks. The reason is that stocks offer the potential for much higher returns. In recent days, the stock market has historically risen above the average of ten per cent annually over long periods- but it has been known to be quite volatile. Therefore, a longer time frame can give you the ability to ride out the ups and downs of the stock market. 

Short-Term investments: Safe but Lower Yield

However, many benefits that you expect from short-term investments come with a cost. It is possible that you won’t be able to earn as much for short-term investments as you would for long-term ones. If you opt for the short-term, your domain will be delimited to certain types of investments, and at that point, you shouldn’t buy riskier assets such as stocks and stock funds. 

However, short-term investments still have their own perks, and they are often highly liquid, so you can get your money whenever you need the same. At the same time, they also tend to be lower-risk investments compared to long-term investments. Therefore, you may have limited downsides or even none at all. 

Top Investments for Short Term

Here are some of the best short-term investments that you can consider to choose-

High-Yield Savings Account

If you want to hold cash in a checking account, then high-yield savings account at a bank credit union is a good alternative. It typically pays very little interest on the deposit. The bank can pay the interest on a regular basis. 

So, who are they good for? This type of account works best for risk-averse investors and especially for those who are in dire need of money and very much want to avoid the risk that they won’t get their money back. 

Furthermore, savings accounts are highly liquid; therefore, you can add more money to the account. 

Anyway, if you want to explore more such options for investments for short-term, then ask about Mutual funds in India from the bank, and they will help you out. 

Short-Term Corporate Bond Funds

Corporate bonds are known to be issued by major corporations in order to fund their investments. They are usually safe and tend to pay interest at regular intervals, probably twice a year or quarterly. These bond funds are considered good for investors who want a diverse portfolio of bonds without being required to analyze the individual bonds by themselves. They are also good for investors who do not have enough money to purchase individual bonds. 

If you want to know about the risk regarding this bond, then you should know this type of short-term corporate bond fund is not insured by the government, so you can lose money. But bonds tend to be quite safe if you purchase a broadly diversifying collection of them. 

Money Market Accounts

Money market accounts are another type of bank deposit and generally pay higher interest rates than usual or regular savings accounts. Although, they also need higher minimum investments too. 

For people who need their money in the near future and need them without any strings attached, money market accounts are perfect for them.

But keep in mind that you need to find a money market account that is FDIC-insured so that you can protect your money. And just like a savings account, the risk for the money market account happens over time as the interest rates are usually surpassed by inflation in some cases. 

Provided By Tax Software Company, Sovos

I am an economist and the founder and owner of Finance Blog Zone

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