Best investments for short-term goals are essential when time is not on your side. Do you know that feeling of racing against the clock? You have a plan, a very clear goal. Whether it’s buying a car, taking a trip or even putting together a good down payment for your first apartment. The point is, time is passing and you need to see your money yield. It is in this context that the best investments for short-term goals come into play as the best alternatives.
But, calm down. Investing in the short term does not mean investing your money in any asset. In reality, the goal is to make smart choices that offer security and liquidity.
By the way, if you want to use this money in up to three years, you should not, or at least it is not a smart choice, play Russian roulette with volatile stocks or the “cryptocurrencies of the moment”.
What to consider before investing in the short term?
Before investing, you must have a strategy. Short-term investments are those with a redemption period of up to 3 years.
In investments, time changes everything. After all, what works for a 10-year goal, is not good for 6 months from now. Therefore, these three points should be considered before starting to invest:
- Time: When, exactly, will you need the money?
- Liquidity: Do you need the money to be locked or the withdrawal to be facilitated?
- Risk: How much can you withstand market volatility? Do you accept risks well or do you prefer safe assets?
These answers will help you choose where to invest, among the options mentioned below. Keep reading.
5 Main investments for short-term goals
1. High-Yield Savings Account (HYSA)
High-yield savings accounts are, in practice, like a savings account.
They basically work like a common bank account, but with a yield of more than 4% per year. While the average traditional savings account is around 0.38%. In addition, they have some advantages:
- They are safe: Safety comes from the FDIC. You will be protected up to US$ 250,000.00 per institution;
- Ease of withdrawal: if you need the money you can withdraw it at any time without difficulty.
In this way, it is clear that HYSA are great alternatives to create an emergency reserve or to leave the money reserved for a future trip.
2. Bank Certificates of Deposit (CDs)
First of all, CDs (Certificates of Deposit) are conservative investments, designed for those who prioritize stability over yield.
How does a bank certificates of deposit work? In it, you are lending your money to the bank for a certain period. This period varies from bank to bank, and can be 3, 6, 12 months or even years).
In exchange, you will receive a fixed and guaranteed interest rate, which usually comes around 3% to 4% depending on the bank. Remembering that this asset is not daily liquidity, at first.
When Do We Recommend Bank Certificates of Deposit? When you are sure that you will not need that money for the time you cannot withdraw the money.
3. Treasury Bills (Best investments for short-term goals)
Treasury Bills are one of the best short-term investments. As a rule, they have a maturity of up to 1 year and are guaranteed by the US government itself.
Therefore, the risk of default decreases drastically as the national government is your debtor.
In practice, it works the same as CDs, the only difference is that instead of lending to the bank, it will be lending to the government.
That means the risk of default here is virtually nil—unless the world ends (and then, honestly, investment will be the least of the problems).
You can access investments at any investment broker or you can buy directly through the TreasuryDirect.gov website.
4. Short-Term Bond Funds
Short-term bond funds are more profitable options than HYSA and, in general, more stable than stocks.
Here, you will be lending money to governments or companies, via specialized funds. They buy and sell Treasury bills constantly, seeking a good yield with moderate risk.
Attention! Here, they do not have FDIC guarantee, so you will have your investment protected in case the broker or bank declares bankruptcy.
You can find this type of investment in brokers such as:
- Public;
- Vanguard;
- Fidelity;
- Wealthfront.
We recommend that you use this option when you have a goal of up to 3 years. However, only use it if you are willing to take more risks, knowing that you can earn more than in HYSA and CDs, e.g.
5. Money Market Accounts (Best investments for short-term goals)
To close, let’s talk about Money Market Accounts, which basically work like a savings account. As a rule, it yields around 2% to 3% per year. Consequently, it is considered a conservative investment.
In addition, it is a long-term investment, with high liquidity. So, if you need to withdraw the money, you will have easy access to the money. Finally, you will have FDIC protection.
But there’s a catch. Many banks require higher minimum deposits and limit the amount of withdrawals per month. So, they are suitable for those who want to leave their money working, but do not have time to analyze the performance frequently.
04 Practical tips that no one tells you
Before you start investing, write down some of the tips that will help you make the classic mistakes of a beginner in investing:
- Don’t put everything in one place: when you do this, you are taking a great risk, because if the asset yields less, due to market fluctuations, you will automatically have your entire portfolio compromised.
- Track your progress: apps like Mint, YNAB help you organize your financial life. It even allows you to track your investments from anywhere, in 5 minutes.
- Always have a reserve outside of investments: unforeseen events happen. Because of this, you must have a reserve of at least 6 months of your living cost before starting to invest.
- Set aside part of your budget to invest every month: this is one of the best budgeting tips for families. To invest, it is recommended that you reserve 20% of total revenue for investments.
Conclusion
If you put the tips mentioned into practice and invest consciously, it is possible to protect your money and still have a good income.
However, it is worth mentioning that the best investments for short-term goals are not the most profitable, as their focus is to protect your assets.
Being recommended for when you understand your deadline, your profile and your goals. Thus, you will have good money saved with a goal in focus.