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Investing your money can be a difficult concept to grasp; mostly because there are so many different options and no matter what kind of research you do, you never really feel like you are fully informed. In situations like this, I suggest that you turn to a trusted friend or family member to try and explain the basics to you. You can even turn to a professional to explain your options.
Unfortunately, the term “investing” can also mean different things; mainly short-term investments or long-term investments. In order to get the most out of your money and in order for you to have access to your money when you need it, you’re going to need to know the difference. Today, let’s focus on short-term investments and the best short term investments that you can put your money in right now.
Short-term investments are generally stocks, bonds, and other types of investment accounts that can be liquidated fairly quickly (like within the span of a few years).
When you’re looking for the best short term investment, you’re going to have to look at a few different things including how fast your money can grow, interest rates, how your money accrues interest and on what platform, and the fees involved if you do take your money out before the investment matures.
Let’s take a look at a few of your options.
#1) A Roth IRA
Roth IRA’s are retirement accounts. With most retirement accounts, if you withdraw money before you’re supposed to, you get smacked across the pocketbook with a penalty and income tax. Roth IRAs are different. You are able to withdraw contributions (however, not the earnings that you get from contributions), if you want. This aspect makes a Roth IRA perfect for short term investing.
The stock market can be so unsteady at times, that if you want to use the stock market for short term investment, it can be really risky. In order to get the most out of your dollar, you’re really going to be gambling with your money. The stock market works better for long term investments. Roth IRA’s are great because they can do both.
If you’re interested in investing in a Roth IRA, check out your local brokerage firm (like ShareBuilder or Betterment).
#2) Short Term Bond Funds And ETFs
Short term bonds and exchange traded funds (ETF’s) aren’t as stable as money markets but they are able to produce more money for you (faster), which makes it pretty ideal for a short term investment. They are mutual funds that normally mature in about three to five years. These types of bonds are based on how the market is doing. They also mature in about 2 years or less. If you’re interested in a short term bond fund or an ETF, check out Scottrade or E*Trade.
#3) Certificate of Deposits (CD’s)
Certificate of Deposits (or CD’s) let depositors invest their money for a specific length of time. Like a retirement fund, if you have to take money out before it has fully matured, you’ll get stuck with a fee (which normally equates to about 3 months of interest). They are pretty risk-free as long as you are able to leave your money alone.
#4) Municipal Bonds
Municipal bonds can be risky because if rates rise in a market, the bond decreases to compensate for the different. Let’s say that you get 4% on a municipal bond today. That’s pretty good, right? Well if rates go up and your bond loses, like, 7% of its value, all of a sudden you won’t be getting as much money as you would a few days ago.
Of course, that will only happen if you sell before it matures. If you hot on to it, you’ll get 100% of your initial investment plus the interest that they owe you.
#5) 5-Year Treasury Inflation Protected Securities
5-Year Treasury Inflation Protected Securities (or TIPS) are government bonds that are inflated depending on the index. The interest rate may be fixed but the value of the initial investment rises with inflation (depending on the Consumer Price Index). This is way less risky than the previous investment that I mentioned (Municipal Bonds). You can get TIPS from TreasuryDirect.gov.