Short term investing can be very lucrative — but it can also be very risky. This type of investing requires different strategies then long term pursuits for several reasons. With long term investing, it makes sense to favor riskier investments that offer higher returns.
If you are investing in the short term, you’ll want to favor investments that are likely to protect your savings. To succeed at short term investing, you’ll need to understand how to spot a good short-term investment. You’ll also need to choose investments that offer security and stability.
Below, we’ll look at 6 investments that are great for a short term investment strategy.
#1: High Yield Checking Account
A high yield checking account can help you earn a good return without sacrificing security. You’ll have a safe place to keep your money. Plus, you’ll earn good rates on your investment. Some banks offer as much a 5% APY on their high-yield checking accounts. Of course, the requirements are pretty stringent when it comes to high-yield checking accounts. Most require that you maintain a large balance to receive the best APR.
#2: Certificate of Deposit
A certificate of deposit, or CD, is a savings product that offers guaranteed interest. When you invest in a certificate of deposit, you agree to leave your money in the account for a specified amount of time, usually anywhere from 6 months to 10 years. In exchange, you will earn a set interest rate, usually around 1-2.5%. Longer-term CD’s offer higher interest rates. CD’s are federally-insured and guaranteed up to $250,000. However, you won’t be able to access your money until the end of the term. Otherwise, you’ll be stuck paying a hefty penalty.
#3: Money Market Account
A money market account is another great option for a short-term investor. With a money market, you would have immediate access to your funds. Many money market accounts include checks and/or ATM cards as well. Money markets offer an interest rate that is in line with a one-year CD. The advantage of a money market is that you do not face any kind of penalty for withdrawing your money as you would with an early CD withdrawal.
#4: Peer to Peer Lending
Peer to peer lending might sound like a new practice. However, it has been around as long as money itself. With peer to peer lending, investors lend borrowers money. Third-party peer to peer lending sites, such as Prosper and Lending Club, connect investors with qualified consumers that want to borrow money. The investor then takes on the role of a bank by lending the borrower funds. Investors receive a monthly income in the form of interest and loan repayment. To reduce the risk of potential loss for investors, the online peer to peer lending sites set specific criteria to accept borrowers who are not at a high risk of default. Peer to peer lending is great for both investors and borrowers alike. It provides a lucrative short-term investment option for investors and a source of funding for borrowers or entrepreneurs who are in need of cash.
#5: Treasury Bills
Treasury bills are short-term government securities, and are considered to be the safest debt securities. So, if you are looking for security, they are the way to go. Treasury bills typically have a maturity range of anywhere from a couple of days to 52 weeks. They are sold a fraction of their face value. When they mature, you collect the face value amount. One of the biggest advantages of Treasury bills is that they are exempt from both local and state income taxes.
#6: Roth IRA
Although the main purpose of an Roth IRA is not a short term security, it can be used as a place to stash your emergency cash. Contributions to a Roth IRA are tax-free. This means that you can withdraw your investment at any time without paying taxes or an early withdrawal penalty. The amount of interest that you earn on an Roth IRA is taxable. However, if you make mostly short-term investments, the tax consequences will not be too dire if you do need to withdraw the money.
Regards,
Ethan Warrick
Editor
Wealth Authority
