If you're looking to invest money for the short term, you're probably searching for a safe place to put your cash so it's there when you need it. This could be for a down payment on a house, a wedding, a vacation, or any other goal you want to achieve within the next five years. While long-term investments like stocks and real estate can provide higher returns, they also come with more risk and volatility. Short-term investments, on the other hand, are designed to be quick growth and low risk, with liquid funds so it's easy to get your money back fast.
This is where to safely keep the cash you'll need within five years. The best short-term investments provide decent returns while limiting your risk, and are ideal for money you may need in the next two, three, or five years. Some of the best options include:
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High-yield savings accounts: These accounts offer a higher interest rate than traditional savings accounts and are FDIC-insured for up to $250,000 per depositor. They also have no minimum balance requirements or monthly fees, making them a great option for beginners.
Certificate of deposit (CD): CDs are a type of savings account that offer a fixed interest rate for a set period of time, typically ranging from three months to five years. They are also FDIC-insured and have no risk of loss of principal, but the downside is that you may have to pay a penalty if you withdraw your money before the term is up.
Money market funds: These funds invest in short-term, low-risk debt securities like Treasury bills and commercial paper, and offer a slightly higher yield than savings accounts. They also have no minimum investment requirement and are highly liquid.
Short-term bond funds: These funds invest in bonds with maturities of one to three years, providing a higher yield than money market funds but with slightly more risk. They also offer diversification and professional management.
One of the best short-term investments can be high-flying stocks that see outsized gains over the near term. But picking the best performing stocks is easier said than done, and comes with more risk than the above options. That said, if you have some extra cash and are willing to take on more risk, investing in individual stocks could potentially provide higher returns.
The best investment apps for beginners offer low fees, a range of investment types, account flexibility, and educational resources. Some of the top apps include Robinhood, Acorns, Stash, and Betterment. These apps allow you to invest in stocks, ETFs, and other securities with as little as $5 and offer features like automatic investing and round-up savings.
Check out these safe investment options if you're risk-averse or looking to protect principal. These options include:
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Treasury bonds: These bonds are issued by the U.S. government and are considered the safest investment in the world. They offer a fixed interest rate and are backed by the full faith and credit of the government.
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Municipal bonds: These bonds are issued by state and local governments and offer tax-free income for investors in high tax brackets. They are also generally considered to be low-risk.
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Corporate bonds: These bonds are issued by companies and offer a higher yield than government bonds, but come with more risk. They are also subject to credit risk, which means that if the company defaults, you could lose some or all of your investment.
These investment options are great for those seeking safety of principal while maintaining income potential. Short-term investments can provide a higher interest rate than savings accounts and access to your money when you need it most. By diversifying your investments and choosing low-risk options, you can achieve your short-term goals while protecting your money.
