Markets are unstable, and interest rates are at an all time low. During such times, making short term investments is a better alternative for you. It allows you to invest money for little risk and doesn’t tie your money for long periods. Here are 11 ways to make short term investments -
Peer to peer lending also called as P2P lending, allows investors to lend money to people who are in need of a loan. P2P websites allow investors to buy notes and they receive payment at the end of each month. Depending on the credit criteria, these sites set the interest rates on notes. Since only qualified borrowers can borrow money, the risk of default and other losses are reduced. Investors can lend smaller amounts of money and may increase the amount as their trust in these P2P companies grows.
An Online savings account
Letting your money sit in a savings account can make you earn a profit. You can benefit from a small return on your money by putting it in an online savings account while also having access to the money whenever you want. It is a risk-free investment and offers high liquidity with most banks allowing six withdrawals per month from your account.
Cash back rewards
Cash back rewards can be a savvy short term investment. These reward points or rewards come along with the credit card purchases you make. When you purchase something worth $4,000 from your credit card, you are awarded 50,000 points worth $500, and you can spend these points wherever you like.
To make the most of these offers it is recommended that you buy things you had to buy anyway.
A Roth IRA
Unlike any other type of retirement accounts, a Roth IRA is funded with your after-tax money which allows you to withdraw money without a penalty (apart from the earnings on that money) at any time you want. By investing in Roth IRA, you also get access to other kinds of investments like mutual funds, ETFs at a higher return rate. Keep in mind that while you can file for a SIPC coverage if your brokerage fails, investment losses cannot be covered.
A Certificate of Deposit
A Certificate of Deposit (CD) allows an account holder to invest money for a specified length of time. The period for investment usually varies from 3 years to 5 years. The longer you deposit the money, higher the yield you earn. Some investors prefer to receive the interest payment monthly while most of them let it accrue until term matures. If you withdraw your money before the CD matures, you will have to pay a fee which in most cases is worth three months worth of interest.
A Money Market Account
These allow you immediate access to your money and are based on the account balance and not the length of the time for which you invest your money. These accounts provide you with an ATM card and checks and are currently paying annual percentage yield (APY) close to that of one year long CDs. Investors can also transfer money from their Money Market account (without paying any charges) when the interest rates for CDs start to rise.
An Online Checking Account
Similar to an online savings account, an online checking account is useful for making short term investments and offers much more liquidity as the number of withdrawals are not limited. It provides a small risk-free investment on your money, but the interest rates are pretty low.
If you don’t need access to your money on a frequent basis, then stocking your money in an online checking account might make you miss out on higher return investments.
Short Term Bond Funds
If you want to invest your money for two years or less, you should perhaps know about short-term bond funds. These are products which are managed by financial advisors and are not stable as markets but have a potential to offer high returns. Their payout depends on the market’s condition.
Treasury Inflation Protected Securities (TIPS)
These are five-year long government bonds with fixed interest rates, and their value rises with inflation measured by the Consumer Price Index. Investors earn a small interest on their investment which is paid semiannually. Remember that TIPS is taxable and hence most people tend to invest in a TIPS mutual fund or ETF.
Municipal and Corporate Bonds
While most municipalities don’t default on these bonds, they can be riskier to invest in that TIPS. During low-interest rates, if the rates increase in the market, the value of your bonds decreases. But this is only when you trade them before they mature. Otherwise, you get 100 percent of your investment and the interest you earned on it.
Corporate bonds work similarly but are at a greater risk than municipal or federal bonds as they aren’t backed by either.
Paying Off High-Interest Debt
Doing this can get you a good return on investment and help you save money on costs in the future and improve your overall financial standing. If you have a 15 percent interest on say, $10,000 then paying off this high-interest debt means you are getting 15 percent return on that money.
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