Short-Term Investments are good for people who will need the money within a two year period. Hence the term Short-Term Investments. This type of investment is not good idea for long term wealth unless you need the cash in the near future. They are good vehicles for saving to buy a house, a car or any other item that you wish to purchase in the near future by saving your money in this type of investment. This risk is low and the interest paid is usually below 5%.
Savings Account
Saving Accounts accounts pay very little interest if any. You will see interest rates of 1%-3% in most cases if you’re lucky. However, it’s a safe place to put your money instead of a mattress. One can open an account in any bank as most people do for their day-to-day money management routine.
Certificate of Deposit (CD)
CD’s (Certificate of Deposit) are also purchased at banks and other financial institutions. You deposit your money into a CD account. Banks offer different interest rates. CD’s are invested using short term bonds. Not a bad idea for some folks. However, you will need to park your money for a period of time. CD’s come in 3 months, 6 months and 1 year or two years options. Bank will have boards on display when entering a bank offering CD’s as an investment option. This is a good way to park some money since the banks will pay you the interest in short-term intervals. Upon maturity, you get the initial investment back. It is one of the better short-term investments available since it’s easy to setup. Visit your local bank for more details or see who offers a better rate sometimes advertised in your local newspaper.
Money Market Account
Money Market too are short-term bonds invested similar to mutual funds, but not quite. That is where I keep the majority of my money for immediate emergencies whether personal or household. You can open a Money Market account anywhere especially online. Several online brokerages offer money market accounts, banks and big companies like Vanguard or Fidelity. As always you need a checking account, but if you want to save money and keep it liquid (you can easily withdraw the money) then a Money Market account is the way to go. In some cases CD’s will pay a slightly higher interest rate, but they are not as liquid since you are locked it until the cd expires or matures.
It is always a good idea to keep money handy in case of an emergency. Financial planners will recommend at least 4-6 months of your living expenses at your disposal in this type of short-term investments.
Success is the ability to go from failure to failure without losing your enthusiasm.–Sir Winston Churchill
Emergency Funds
Things happen all the time so it’s better to be prepared. If you don’t have an emergency fund equal to three to six months worth of basic living expenses, you might be in trouble. Start building an emergency fund today because you never know what life will throw at you. Your success in building your emergency fund depends on your ability to stash money away on a regular basis and not tap into it. Short-term investments are your best bet.
An emergency fund is like investing. It’s absolutely necessary because it gives you money to fall back on in case you or your spouse lose your job or become ill with a short or long term illness. Or, you can incur large medical bills or have an unexpected car or home repair that needs immediate attention costing you a large amount of money.
Without an emergency fund you risk using your credit cards incurring large debt that may take you years to payoff. You never want to be in a position to pay for basic living expenses such as rent, mortgage, food and gas with your credit cards with an interest of 18% or more, that dangerous. The minimum one should set aside is three months or more if you’re single and six months if you’re married with dependents.
You don’t know how difficult it’s going to be to find a new job especially during a recession or bad housing market. Although you may collect un-employment insurance it will not cover your monthly expenses so get started now with an emergency fund. Any short-term investment will do, but the key is to start slowly building an emergency fund. You do not need to have it right away, but build one slowly and before you know it, you’ll have a nice chunk of change handy just in case.
Keep your emergency fund separate from a savings account that you use for clothes, vacations, dinners and every day living expenses since its easier for you not to touch. These short-term investment strategies are good places to put your money.
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