Investing for short term is quite lucrative for many money savers as it is a safer medium to choose when the market is unstable. Also your money has lesser risks and you are not going to be bound with long time limits. A short term investment means to invest for a period of time that has shorter duration that can vary from few months to few years. Also such investments can be handy when you need them on maturity.
Though it depends on your set goal for investing according to your specific requirement and situation but if you are looking for a short term investment for your hard earned money but do not know where to invest then here are the best 10 schemes to look forward to.
1. Invest in lending clubs or online lending websites
Peer-to-peer lending websites allow investors to broaden their investment portfolio by spreading out the investments and reducing their risk. These websites work as tools to connect investors to qualified consumers in need of a loan and allow investors to become the bank, providing a small percentage of multiple borrowers’ loans. Investors purchase notes and receive a monthly income in the form of loan repayment and interest. In the end, this can easily be a win-win for everyone involved.
One such company, Lending Club, sets the interest rate on notes based on specific credit criteria. Also since they only accept desirable borrowers, they dramatically reduce the risk for default and potential losses for the lenders. Lenders may start out small and increase the amount of money they are willing to lend as their confidence in the company grows. Lending Club offers loans from a few hundred dollars to over $10,000; how much you should invest depends on the level of risk you’re comfortable with as well as your investment timeline.
2. Invest in cash back rewards offers
According to financial experts, if you really want to earn some easy money in the short-term, then “credit card rewards can offer epic returns with almost no effort on your part”. While pursuing rewards may not automatically come to mind when you think of short-term investments, the signup bonuses that credit cards offer can actually be extremely lucrative. However, your “earnings” will be based on your spending instead of the dollars you invest.
As an example when you sign up for the Chase freedom card you earn 5% cash back from Chase on up to $1,500 in combined purchases in bonus categories each quarter you activate. Also you earn 1% unlimited cash back on all other purchases automatically. You also get to earn a $150 bonus after you spend $500 on purchases in your first 3 months from account opening. Also earn a $25 bonus when you add your first authorized user and make your first purchase within three month period. If this sounds good to you, check out Card Ratings to find and compare cards that offer up to 6 percent cash back.
3. Fund your Roth IRA
Though Roth IRA is not an investment but it can also work as a short term investing account. With all other types of retirement accounts – from 401ks to Traditional IRAs – you get hit with an early withdrawal penalty and income tax if you withdraw funds before retirement. Since you fund your Roth with after-tax income, you are free to withdraw any contributions , not earnings on those contributions, at any time you want. It isn’t recommended because you would much rather have the money stay invested, but it does give you the option to set money aside for retirement now but withdraw it if times got tough. If you do not save enough for retirement, you pay heavily for it in your later years so funding your Roth IRA allows to get a huge head start on this.
In using a Roth IRA for short term investing you’ll get the ability to withdraw funds. Transfers take a few days and you may have to sell investments at inopportune times in order to cash out. However, the fact that you can take your actual contributions out without a penalty does stand out as a huge benefit.
Also you get potentially higher rates of return. With a Roth IRA, you get access to other types of investments like mutual funds, ETFs, and bonds to earn a higher rate of return. If the market does well while dollars are invested, you can secure healthy returns and profit from your investment. You can find a great place to open your Roth IRA. Brokerage firms like Scot trade and ETrade are great and also have lots of options to choose from. Thus a Roth IRA can provide a solution for individuals who crave the potential for higher returns but want the ability to withdraw their contributions if they really needed to.
4. Open an online savings accounts
Savings accounts have always been low or no risk investment though you get only little bit of returns. So open an online high yield savings accounts for short term investing. You are guaranteed to never lose principal on your investment as long as you keep your total deposit at the bank below FDIC coverage of $250,000. Deposit your money and walk away knowing that it will be there when you’re ready to cash out. Though current interest rates are very low, and those low returns mean you won’t earn a lot of interest for the time being. However, online savings accounts do offer a risk-free return you will never have to lose sleep over.
Most of the high quality online banks allow 6 withdrawals per month from savings accounts. In other words, you can generally cash out your funds at any time without much hassle or expense involved. Meanwhile, you won’t have to worry about forking over part of your profits to sell your investment since it is safely tucked away in a low-risk savings account. One of such bank is capital one where you can invest without any risk.
5. Invest in money market account
Money Market accounts like the Everbank provide depositors with ATM cards, checks and deposit slips. Money Market accounts are based on the account balance, not the length of time you invest your money. When CD rates begin to rise, clients can move their money from the Money Market without paying a penalty for early withdrawal. Many people consider money market accounts as a type of “savings account on steroids.” While there isn’t much risk involved, you can potentially secure a higher rate of return.
6. Invest in certificate of deposits (CD)
Banks offer a variety of terms for their deposit accounts, ranging from 3 months to 5 years. Which length of CD will work best for you depends on your timeline and how long you want your investment out of your hands. CD’s allow depositors to invest their cash for a specific length of time. The longer the term of investment, the higher the yield will be. A client wishing to receive monthly interest payments can elect to do so at the time of application. However, most individuals who buy CDs let the interest accrue until the CD matures.
The only downside to a Certificate of Deposit is the fact that, if you need to pull money out before the maturity date, you will pay a fee. The fee is usually equivalent to 3 months worth of interest, and that can take a huge bite out of your earnings. You can get the highest interest rates for Certificates of Deposit at online banks like Compass Bank and Discover Bank.
7. Open an online checking accounts
Just like online savings accounts, an online checking account can also serve short-term investment needs. You get many of the benefits of an online savings account with even more liquidity because the number of withdrawals isn’t limited. Since you would be storing your money in a checking account rather than a savings account, you do take a hit on the interest rate. But note that interest rates are so low that the difference isn’t as significant as it could be.
For short term investment you are guaranteed to never lose principal on your investment as long as you keep your total deposit at the bank below FDIC coverage of $250,000. Current online checking interest rates are very low. You probably won’t earn enough to keep up with inflation, but it is a risk-free return. You get unlimited withdrawals via transfer, debit card, or ATM use with online checking accounts. Get your money out at any time without paying a fee as long as you use a no-fee ATM. Even though you don’t earn a lot of interest with this strategy, you won’t have to endure much of a hassle, either. Opening an online checking account is a fairly painless process that won’t stress you out or take up too much of your time.The best online checking accounts for interest rates are currently available from Ever Bank and BBVA.
8. Invest in short term bond funds and ETFs
Short-term bond funds are products that are usually only managed by a professional financial advisor. Bonds are not as stable as money markets, but they do offer the potential to earn a higher yield. These bonds are a product of the market and will pay out according to the market’s current condition in fluctuating monthly payments. Short-term bonds usually mature in terms within 2 years or less, which can make them an ideal choice for investors with that type of timeline. You’ll need a brokerage account like Betterment, Scot trade or ETrade to be able to trade bond funds and ETFs.
9. Invest in 5 year treasury inflation protected securities
Treasury Inflation Protected Securities, also known as TIPS, are government bonds that are indexed to inflation. The interest rate on a TIPS is fixed, but the underlying value of the security rises with inflation as measured through the Consumer Price Index. You might only get 0.5% in interest paid semiannually, but over 5 years the value of the bond might increase 2.5% per year. The end result is, at the end of the term, your initial investment will be worth as much as it was when you first invested. However, you will earn a small bit of interest on top of it.
You can buy TIPS directly from the government at TreasuryDirect.gov. However, due to TIPS interest being taxable, most investors prefer to invest in a TIPS ETF or mutual fund. To purchase shares of an ETF or mutual fund you will need a brokerage account. Again, Scottrade or ETrade are good places to start if you want to open a new brokerage account.
10. Invest in municipal bonds and corporate bonds
Municipal bonds are slightly more risky than TIPS and other Treasury investments, yet a majority of municipalities do not default on their bonds. The more significant risk is “interest rate risk.” In a low interest rate environment, if rates rise in the marketplace, the value of the bond decreases to compensate. If you’re looking for short-term investments, you could buy a bond from someone else that was closer to maturity through a major brokerage firm.
Likewise, corporate bonds are even more risky than municipals and Treasury bonds because they are not backed by a state, local, or Federal government. As always, increased risk can mean an increase in your rate of return. The same interest rate risk issue applies to corporate bonds; holding to maturity will eliminate this one piece of risk. You’ll need a brokerage account like Scot trade or Etrade to be able to trade individual bonds, bond mutual funds, and bond ETFs.
Besides these 10 short term investments you can also find few other ways to accumulate your assets like putting your money is Systematic Periodic Investment Plan to Mutual Funds where you can take advantage of dollar cost averaging by buying more shares when prices are low by allocating pre-determined periodic investments into mutual funds. Ultimately it is your choice how much risk you can take on your money.