Saving your money with a commercial bank’s savings account can be quite demoralizing, especially if you are looking to grow your capital.
Most of these pay a paltry 2% interest at most before tax. If you came up a windfall in tax refunds, retirement package, or a fixed deposit account that matured, the last thing you need is the misappropriation of this cash.
It makes the most sense if you invest this cash in an easily accessible and high-yield but short term plan where you can watch it grow as you figure out the best investment idea.
Remember, that the key here is a short term investment option with maximal returns and low risks. Do such investment options even exist? Yes, there are plenty of high-yield investment ideas that offer attractive short term packages, and a host of others with no investment time limit but allow for easy liquidations. That makes them a great short term investment alternative.
But what should you look for when vetting different investment options to keep and grow your cash for a limited period? And what are some of the most popular options for 2019? Here is everything you need to know about short term investments and our top picks to get you started.
What factors should you consider when vetting short term investment options?
- Consider Return and Risk
Understanding the return and risk is vital to sensible and sound investing. It doesn’t mean you only need to take low risks. It’s all about choosing what you’re comfortable with. Various short-term investments are associated with different levels of risk. For examples, stocks are riskier than bonds. On the other hand, emerging markets are riskier than the already developed market stocks. But you will find that investments associated with high risks tend to offer high returns and vice versa.
- Level of investment diversification
It’s always risky to have all your eggs in the same basket. Most of the short-term investment options are volatile. If you consider an option like peer-to-peer lending, the risk of losing your money can go high without proper diversification. Ensure you diversify in many loans so that when some defaults, others will cover up for the loss. Diversification helps you in spreading your investment risks with the potential of earning higher interests.
- Re-balancing and re-investment options
When it comes to investment, rebalance means ensuring a portfolio gets aligned to its current objectives. Once the portfolio swerves from the original weightings, it’s risk will change too. Rebalancing also involves buying and selling of assets within a given portfolio to retain the weighting.
- Tax-free allowances
Individual Savings Accounts (ISAs), funded investments are an ideal tax-free way to supplement your short-term investments. There is no tax payable on capital income or gains, and you can make withdrawals at any given time.
- Investment risks
Short-term investments are not immune to money market risks. Your funds can go down or up drastically. And looking at an investment product’s past performance is often not enough and can’t be used as a benchmark for future performances. With various short-term investment options, choose what suits you best. Get the basics and seek financial advice from professionals.
What are the pros and cons of short term investment options?
Criteria used to come with the list of best short term investments
- The average annual rate of return on investment
- Investment risks
- Investment provider’s regulation and insurance
- Tax implication on returns
- Ease of access to the invested funds
Best short-term investments
Short term investments are proven to be a safer way to earn better returns on your finances. But you have to invest in the right channel and make the right decisions. A wrong move, especially when trading on stocks can backfire on you severely. Hence, detailed research and basic understanding of what you’re investing in comes in handy
Short-term investments refer to any form of investment that can be easily converted into cash within a period of 12 months.
Short-term investments can be considered as current assets due to their liquidity. They can be converted to cash easily.
Stocks can be described both as short and long term as they usually don’t have a definite maturity time. The fact that they are highly liquid and have a ready market, plus their potential for higher than average returns on investments make them a perfect short term investment.
There are various accepted options, including peer-to-peer lending, high-interest savings accounts, stocks, treasury bills, annuities, CDs, money market funds, and short-term bonds. Each of these options have their fair share of advantages and disadvantages. More so, they’re offered at different interest rates. Research about each of these extensively and contact a professional if possible before investing in one.
In most cases, the investment will only be considered short-term if it matures or is liquidated within three years.
When it comes to choosing investments, you must start with extensive research on your preferred investments. This helps you understand whether you fulfill the investment criteria required by your short term investment service provider. These may range from having the minimum initial deposit required to maintaining the required minimum operating balances.