Investing isn’t always just a long-term financial strategy. When you want to see returns on your money in a shorter time frame, say a couple years or even a couple months, then implementing a short term investment strategy with the best short term investments is very achievable!
Perhaps you’re saving up for a goal with a relatively close deadline. Maybe you’re accumulating enough funds for a down payment on a home within 5 years, paying off a significant chunk of debt that your current income is dragging on, or taking the family on a vacation overseas. Whatever the reason, you want to have the best short term investments possible to earn a high rate of return on your investments and keep your principal safe.
The best short term investments for your money:
- Short Term Bonds
- Certificates of Deposit (CD)
- Lending Club
- Money Market Funds
- Treasury Inflation Protected Securities (TIPS)
- Checking Accounts
- Pay Off High Interest Debt
- Cash Back Rewards Offers
Best Short Term Investment Options
Regardless of your reason for wanting to invest for short term gains, there are plenty of different options for the best short term investments available. Here are eight of the best:
Short Term Bonds
Known as some of the most reliable investment options out there, bonds are always a good place to start building a short term investment portfolio. You can choose from a variety of bonds – corporate, municipal, federal (Treasury) – with different maturation dates ranging from a few days (in rare instances) to a few decades.
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A short term bond may produce a lower rate of return compared to a long-term bond, but if you’re looking for a secure investment with a consistent rate of return, then adding short term bonds to your portfolio is the way to go.
Certificates of Deposit (CD)
Why hold onto cash investments when you can put that money to work in a certificate of deposit (CD)? Like bonds, CDs offer consistent returns, paid out to investors when the CD reaches maturity (you can choose 2-3 months or 1-2 years in many cases). You can invest in a CD through a bank, credit union, or other reputable financial institution and get your money back with interest once it matures and the money becomes available again.
There are often times minimum deposit amounts required to secure certain interest rates on CDs. Interest rates depend on where you take out the CD and the duration of the CD, but you can expect to receive somewhere between 0.21-2.00%.
Peer-to-peer lending is a newer form of investing that involves everyday people borrowing from and lending to each other. As an investor, you can choose a variety of risk levels for your portfolio, based on factors such as a borrower’s credit worthiness. If a borrower is deemed more likely to miss a payment or default, then anyone investing in that loan would get higher interest rates as an incentive for taking on more risk in their portfolio.
Lending Club is one of the best peer-to-peer lending platforms out there. Loans through Lending Club are ranked from A to G (with A and B offering lower interest rates but substantially less risk than other loans) and you can choose how you want to mix up your portfolio.
You can even ramp up your investment strategy with automated investing, which allows you to choose your target allocations (for instance, only A & B loans) and pull money automatically from your bank account to fund your Lending Club portfolio. Or, you can plow the monthly loan payments you receive back automatically into new loans based on your set criteria with Lending Club’s automated investing system.
Best of all, the Lending Club platform is incredibly transparent. You can see how your investments are performing, how much interest you’re getting (and are projected to get), and what your current portfolio’s investment allocation looks like.
You can see how I use and have written about Lending Club in the past:
- Top 10 Ways to Earn a 10% Rate Of Return On Your Investments
- Truly Passive Investing with Lending Club
- Using Automated Investing with Lending Club
- My Interview on Fox Business about Peer-to-Peer Lending
Money Market Funds
Another option for short term investments is money market funds, which encompass a variety of options including short term bonds, cash equivalent securities, and CDs. The benefit to money market funds is that they come with a lot of diversity and comparatively minimal risk because the funds are put into conservative investment options with consistent returns
Though money market funds have low returns, some money market accounts only offer 0.05-0.10% interest, they are not FDIC-guaranteed. But, given how little risk is involved, this shouldn’t be a major drawback if you’re just looking for a diverse range of short term investments.
Treasury Inflation Protected Securities (TIPS)
Also known as TIPS, Treasury inflation protected securities are tied to the Consumer Price Index (CPI), which means your returns are a little more variable than a CD or a bond. If deflation becomes a problem, then you’ll simply receive your original deposit amount when the TIPS matures.
If the CPI increases, however, then you’ll receive interest based on that increase. TIPS deposit amounts start at $100 and pay out interest twice per year.
Interest Accruing Bank Accounts
When you think of investments, interest-accruing checking and savings accounts probably aren’t the first things that come to mind. However, online-based banks like Ally or MySavingsDirect offer considerably higher interest rates than brick-and-mortar banks, ranging from 1.00-1.35% for interest savings accounts.
These banks also offer online checking accounts that can rack up interest. And, despite their lack of physical locations for these banks, they offer fee-free ATM usage at thousands of ATMs across the country.
Pay Off High-Interest Debt
If you want to jumpstart your investment portfolio and get high rates of returns, then paying off high-interest debt is an investment in your financial future. It might not be as exciting as having a bond or CD mature and receiving interest payments on that, but paying off high-interest loans and credit cards is an investment in and of itself because you’re losing money the longer you wait to pay them off!
Sure, it can feel demotivating to put your money towards something that is only going to get you out of the red, but this should be the first step any short term investment strategy takes before going after interest-accruing options.
Cash-Back Credit Card Rewards
Assuming you have no credit card or high-interest debt at the moment, another short term investment to consider is taking out a credit card with a cash-back bonus. The trick here is that if you were going to spend $1,000 in the next three months anyway, then why not put that money on a card that has an introductory offer that will give you a nice chunk of change for spending a certain level of money within the first 2-4 months of being a cardholder with them?
Some credit card companies offer miles or points in lieu of specifically cash-back offers, but regardless: you could get money back just for using your new credit card (just beware applying for too many cards in a 2-year timeframe and getting lots of hard pulls on your credit report!).
Investing is both a short and long-term financial strategy. While the number of investment options available can feel overwhelming at times, don’t focus solely on long-term goals like rental properties and retirement. You should be investing for short term gains as well. The key is consistent, diverse investments. And, with a little bit of luck and a strategy, you’ll be on track to earning a passive income and meeting your savings goals.
You should be investing for short term gains as well. The key is consistent, diverse investments. And, with a little bit of luck and a strategy, you’ll be on track to earning a passive income and meeting your savings goals.