Marcus Marion, CMA™ Do you want to earn extra money or stash excess cash? If so, you may want information about the best short-term investment plans. A small portion (about 10-20%) of your monthly earnings can be funneled into the strategies featured in this article.
There are multiple tried-and-tested techniques to grow your money, some of which could help you create a substantial skill set for generating mass income regularly.
Your future self will thank you for making small investments today, but it’s critical to research beforehand. More people are considering short-term investment strategies since the COVID-19 crisis triggered market volatility and economic downturn worldwide.
If you wait until 45 to start stashing money for future endeavors, you must put aside three times as much as if you start saving at age 25. Rumors are swirling worldwide about a looming economic collapse, so don’t delay in educating yourself about the best short-term investments.
Although short-term methods usually deliver smaller returns than the best long-term investments, there is a lower risks of losing money too. The more you know about how to invest money short term, the stronger a financial safety net you can build.
What is a Short-term Investment?
Before you learn how to invest money short term, you must understand the basics of this money-making practice. Cash converts easily within five years when you go down this investing route.
Otherwise known as “temporary investments,” “marketable securities,” or “short-range investments,” short-term investments are ideal to sell or to use as a cash conversion within 3-12 months.
While the rate of return usually is much lower than other investments, short-term investments offer fantastic liquidity. This translates to faster money access and swift asset conversion.
Types of Short-term Investments
Limiting your short-term investments to just one or two is wise if you are a first-time investor. Once you build experience, you can expand your horizons. Here are a few reasonably straightforward options:
1. Treasuries
Among the most popular short term investment options are Treasuries, with three main varieties: T-bills, T-bonds, and T-notes. The U.S. federal government gives treasuries an AAA credit rating. These short-term investments mature to their peak value anywhere from a few days to 52 weeks.
Treasury bills are a safe option. They are very liquid; you can buy them on any open financial market day. However, the yields may be lower than other short-term investments featured on this list. Buy yours from trusted brokers or directly from TreasuryDirect.gov.
2. Money Market Mutual Funds
Many people seeking short term high-yield investments opt for a money market mutual fund. Unlike a money market account (MMA), which only allows financial deposits, money market mutual funds involve other short-term investments such as securities, municipal and corporate debt, and bank debt securities.
Although these investments are not FDIC-backed, they are a safe option. Funds are readily accessible (usually limited to six monthly withdrawals) and offer reasonable liquidity. You can purchase yours from a broker without much fluctuation in the principal.
3. High-yield Savings Accounts
High-yield savings accounts are undoubtedly one of the most safe short-term investments. A breeze to set up, high-yield savings accounts are available from most banks and credit unions. Find one with a fair interest rate, and you can expect to make a generous profit on your deposits.
A better alternative to a checking account, high-yield savings accounts usually allow for six free withdrawals. The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage for bank savings accounts. In contrast, the National Credit Union Administration (NCUA) covers these accounts at credit unions, so your money is safe.
4. Short-term Corporate Bond Funds
Short-term corporate bond funds are your best option if you need more cash to purchase individual bonds. The best short-term bond funds can be bundled to accomplish portfolio diversity. On top of this, you can swerve the risks associated with fluctuating interest rates.
Major corporations issue short-term corporate bond funds, which are highly liquid investments. Online brokers specializing in bond exchange-traded funds (ETF) and mutual funds also sell corporate bonds.
Corporate bonds pay interest regularly, with most generating interest quarterly or twice annually. Short-term investors can buy and sell bond funds any day the financial markets operate. Government-issued bonds are also available.
5. Short-term Real Estate Investments
Understanding the answer to the question, “How much money do you need to invest in real estate?” depends entirely on which avenue you go down regarding short-term real estate investment options. There are three main options: fix-and-flips, wholesaling, and Airbnb rentals.
With wholesaling, you need to invest less money. The initial step involves researching and analyzing the real estate market before choosing desirable properties. Attend local events, conferences, and join networking forums to find third-party buyers.
For fast income, opt for fix-and-flips. Properties that require repairs sell for discounted prices, enabling you to bag a bargain, complete the renovations, and sell it for an attractive profit. Use apps like Pinterest to get restoration inspiration.
Choose Airbnb rental locations wisely. For example, high returns are probably if you rent out a property in a famous touristic region of the U.S. that welcomes a regular influx of visitors, such as California, instead of a property in an isolated region of eastern Utah.
6. Cash Management Accounts (CMA)
Instead of opening a standard checking or savings account, why not invest in a cash management account (CMA)? These accounts provide ample accessibility, minimal risk, and competitive interest rates.
Typically, CMAs are low-yield but also very flexible and highly liquid so that you can withdraw your earnings anytime. Comparatively, traditional savings accounts usually limit the account holder to monthly withdrawals.
You don’t have to fret about overdraft fees, foreign transaction fees, and monthly service fees when you pour your money into CMAs. Plus, they typically have zero or low minimum opening deposits. Use the account to pay online bills, for online shopping, and even to invest.
Online stockbrokers, robo-advisors, and non-bank financial institutions offer CMAs. You can easily open these multi-functional accounts with a valid form of identification. Background checks may be necessary, as well as credit checks.
7. No-penalty Certificates of Deposit (CD)
A “CD” – not the kind that plays music – is a no-penalty certificate of deposit. This option eliminates the expensive fees associated with cutting a CD short ahead of maturing. Banks impose significant interest rates to conserve funds in a CD, but if you want to dip in without adding to your debt, no-penalty CD’s are the way to go.
Just like growing a tomato plant, it’s best to leave it flourish for a while before pocketing your prize. However, there may come a time when you need money urgently, making this free withdrawal rather attractive. Once you withdraw the money, you can funnel it into a different investment avenue to generate more income.
Since they are FDIC-insured, CD owners do not lose money on these short-term investments. The only risk is that you may miss a better deal elsewhere if you store your funds for a long duration. You cannot make additional deposits once the account is open.
Although CDs are not as liquid as other short-term investments, you can avoid charges for early withdrawal. However, it’s best to wait out and reap the financial rewards a bank provides at the end of the investment term. Visit your local bank to discuss opening a no-penalty CD account.
8. Buy Cryptocurrency and Sell When It Reaches Peak Price
Similarly to long-term crypto investing, short-term crypto investments require you to hold stocks briefly (e.g., hours, days, or weeks) and sell when the market is strong. The most aggressive and profitable form of trading is day trading.
Short- and long-term crypto investors ought to know the risk involved. Are you willing to watch your portfolio fluctuate? Can you financially recover if your digital currencies lose value? These are vital questions worth asking yourself before crypto trading.
Trading days stop at 4:30 p.m. local time. However, the market is open 24/7, making this short-term investment plan flexible for all schedules. Investopedia analysts claim that successful crypto traders stake a maximum of 2% of their account with each trade.
It’s advisable to start with small investments and expand when you gain experience. Top tips include:
- Identifying trends with technical analysis data.
- Waiting for a pullback.
- Purchasing during the uptrend.
- Selling at double or triple the purchase price.
Conclusion
Ensure you have enough surplus money to cover your monthly living costs before investing short-term. With a solid financial foundation, you can confidently delve into the investment sphere and always have something to fall back on if your investment strategy flops.
On the other hand, if you plan correctly and educate yourself well about how to invest and make money daily, there’s a good chance your emergency savings will go untouched.
Stay focused on your goals and persevere. Plant the seed with small goals and gradually expand your horizons as you progress, such as paying your monthly gas bill or saving to purchase a new watch.
