If you’re ready to start your investing journey but you don’t want to wait decades to see results. A short-term investment is the best option for you.
The question is: What are the best short-term investments for you?
Well sit back, relax, (maybe with a good cup of coffee) and let me give you the low down on the best short-term investments.
What are Short-Term Investments?
Short term investments can generally be exchanged for cash within 5 years. But there are many out there that allow investors to collect their cash within 3-12 months!
What Types of Short-Term Investments Are There?
There’s a myriad of opportunities out there for short-term investors. Here are the main ones you should start to consider:
Short term Bonds
Short term bonds are a great option for those who require a guaranteed return of investment in a short amount of time.
If you have a lump sum of money that you’re putting towards a large purchase or if you’re lucky enough to have some extra income you’d like to profit from. You could invest part of all in a short-term bond with a relatively low-risk rate and get it back after an agreed time frame with a return.
Most short-term bonds tend to have a term-time of a year to a year half and can be easily obtained from a brokerage or government agencies. Although it’s important to note that many short-term bonds do not allow you to add to your original deposit or withdraw your money early. If you can withdraw early, you’ll usually incur large penalties.
So, before you invest in a short-term bond it’s important that you’re happy with the amount you’re investing and you’re confident that you can do without the money for a fixed amount of time.
Online Savings Account
An online savings account is a wise short-term investment as they can easily be opened and you can withdraw your money at any time. You won’t incur any penalties for withdrawal and withdrawals aren’t limited to a set number.
If you search around you can easily find online saving accounts that offer much higher interest rates compared to traditional bank accounts (up to a 1-2% interest rate per year).
This type of investment results in considerably lower interest rates compared to other investments.
But if the aim for you is to make a very low-risk investment, an online savings account is definitely worth considering.
Certificate of Deposit
Certificate of Deposit is a type of investment generally offered by banks and credit unions.
Investors are offered a fixed interest rate in exchange for leaving a lump sum deposit in an account for a fixed amount of time. Certificate of deposits tends to have terms that last from 3-18 months.
Before investing, you should shop around to find the best possible interest rates, particularly as the best interest rates often come from special promotions.
Similarly, to short term bonds, certificate of deposits only allow you to deposit money once and you withdraw the money early you’ll incur fees.
Peer to Peer Lending
Peer to peer lending is a fairly modern way of investing, as it’s only existed since 2005!
It allows investors to be directly connected with borrowers via a website. The website handles setting up the initial transaction, the terms of the loan and interest rates.
There are plenty of sites to choose from and investors can easily set up an account where they can deposit the money, they wish to invest via loaning it out to peers. Interest rates vary and are linked to the credit rating of the applicants.
Although interest rates tend to be higher than most savings accounts. This makes peer to peer lending a good short-term investment. But you should be aware there is a higher risk of borrowers missing their payments.
Treasury securities also known as gilts are considered an almost risk-free investment.
Gilts are fixed interest securities disturbed by the U.K. government as a means to raise money.
The fact it’s extremely unlikely that the U.K. government will default on payments or go bankrupt makes treasury securities such a low-risk investment.
You can buy gilts either directly from the U.K. Debt Management office or from a secondary market.
Usually, you can expect full payment of your loan with interest within 3-12 months, making treasury securities a favourable short-term investment. However, you should be aware that this type of investment is affected by inflation, which can result in lower real returns over time.
To wrap it up when it comes to short term investments there are plenty of options that can help you yield a considerable return of investment.
When it comes to deciding which type of short-term investment is best for you. As with any type of investment, your capital is at risk.
You should always do thorough research, consider your goals, consider how much risk you’ll willing to take and how long can you afford to be without the amount of money you invest.
With that being said I hope reading this post has brought you a little closer to deciding the best short-term investment for you so you can start to build your pot of wealth.