Best Short Term Investments
Short term investments can be a great vehicle for investors looking for high earnings now. But how do you know which investments are the best return on your money, especially if you’re looking for something short term that won’t tie up your assets for years? Read on, as we cover the top 5 best short term investments for 2021 below.
What are Short Term Investments?
Short term investment options can be ideal for those times when you want the best possible returns on your money in the shortest amount of time - usually no more than three to five years. Short term investing means assets are liquid. They can be easily converted to cash, making this investment strategy a great solution if you’re at all concerned you might need access to your money sooner than later.
But just because you don’t want to invest in a long term strategy (like the stock market, where you typically want to let investments sit for a minimum of five years), doesn’t mean your money can’t still work for you. While it’s true that you’ll often earn a little less interest on short term investments, all hope isn’t lost.
Top 5 Best Short Term Strategies for 2021
Luckily, short term investing can be a viable option that allows you to earn some real income off your investments. Not sure where to turn or start? Don’t worry - we’re going through the 5 best short term investment strategies here.
1. Savings Account
A savings account (or better yet, a high-yield online savings account) is tried and true, one of the safest places you can store your money. But with safety comes a more limited return. Still, with relatively no risk involved, you can count on earning around 0.5% interest on your money.
RISK: As an FDIC-insured account (meaning up to $250,000 of your money is guaranteed and protected should the bank fail), you can “bank” on that ½ percent return. The only true risk investors face by putting money in a savings account is an inability to keep up with inflation over longer periods of time, although since you’re looking for short term opportunities, you should be good here!
2. Corporate Bond Funds
Corporate bonds are exactly what they sound like - bonds that big corporations issue to fund their own investments. Corporate bond funds are just collections of several corporate bonds varying in industry and size. Because they’re diversified, there’s relatively small risk of a single poor-performing bond hurting investors. Corporate bond funds pay regular interest back to investors, often on quarterly or bi-annual intervals. They’re also very liquid assets and can be bought or sold virtually any time (as long as the markets are open of course!).
RISK: Though not insured by the US government, short term corporate bond funds are pretty safe. They aren’t going to be heavily affected by interest rate volatility, either.
3. Money Market Accounts
While similar to a savings account in structure and function, money market accounts tend to pay a higher interest rate than basic savings accounts will. They generally need a higher initial and minimum investment amount, too. Money markets are quite liquid, though there may be some federal laws that restrict withdrawals.
RISK: As long as the money market you’re looking at is FDIC-insured, you can be confident that your money will be safe there short term. There is a similar concern as savings accounts regarding inflation, however.
4. Peer-to-Peer Lending
Peer-to-peer loans are one of the more risky short term investment opportunities out there. In short, peer-to-peer lending essentially means you’re loaning money to another individual who needs quick cash through an alternative lending structure. You can limit some of the obvious risk here by lending to a slightly more “credit-worthy” borrower, but keep in mind you’ll only be limiting some of your risk on the venture. There still isn’t a 100% guarantee that your money is safe when you engage in peer-to-peer lending.
RISK: With peer-to-peer loans, there’s no solid, fool-proof way to ensure you’ll be repaid on your investment. Also, you’ll likely pay some sort of service fee to the platform who brokers the deal, so be sure you account for that when figuring out how much you’ll stand to make on an investment.
5. Short Term Notes
Short term notes can be a good short term investment with higher-yielding returns for investors wanting to get into the world of real estate. A low minimum investment and annual returns of 5.5, 7.25, or 9.0 percent on 6, 12 or 24 month terms makes short term notes an optimal short term investment option. Annual rates on offering listings can be realized without any additional or account fees.
RISK: Short term notes are not guaranteed, so there is some risk involved.
Summary
Short term investments can benefit investors looking to earn a return on their money, but who don’t want to have their investments tied up for long periods of time. Opportunities are plentiful, and with a solid understanding of the different strategies and risk levels, you can make money on any one of these top five best short term investments. But remember, before you take the short term leap, it’s essential that you first identify your investment goals.
Curious about the types of short term investments Connect Invest has offered in the past? Check out some of our funded projects on our investment listings page today!