Short Term Investment

A short term investment is money that is invested for a short period of time. Let’s face facts, most savings accounts are a very bad place to keep your money, the interest rates stink because they are so low and they just simply leave your money sitting there with little growth.

Smart investors know, short term investments are simply a better way to grow your money for the short haul.  There are some great, low risk alternatives to a savings account. Of course if you are weak of heart or the principal has to remain in a risk free environment, than a savings account might be the only option.

Money Market Accounts

Most banks and financial institutions will offer money market accounts (MMA) they are short term investment vehicles that keep your money relatively liquid for easy access but pay a higher rate of return on your principal investment.

There are normally a set of very specific guidelines that are imposed by the financial institution that delegate how long the money has to stay in the account before it can be removed without penalty, there typically is a minimum deposit amount required and withdrawals are strictly regulated.

Some of these types of accounts allow check writing privileges within reason. You may be able to write one or two checks a month, as long as you maintain the agreed upon minimum balance in the account.

A money market account is a great short term investment, because it is relatively safe and keeps your cash liquid just in case.

Bond Funds

There are short term bond funds that are available that are a great short term investment, because these vehicles are also relatively safe, not as safe as a money market and not as safe as purchasing bonds out right. There is some risk with bond funds, but of course the yield is higher than with a money market account. A short term bond fund is a short term mutual fund that deals only in bonds.

Just like a mutual fund, a bond fund is a group of investors that pool their money through a manager and the money is used to buy usually debt bonds, the risk comes in when investors start pulling out. Bonds may have to be sold at less than prime to pay off the investors that are pulling out their money. This reduces the yield of the entire portfolio, which in turn will reduce your personal yield out of the fund.

Auction Rate Securities

As a short term investment auction rate securities carry the biggest risks, this really is a speculative practice that should be avoided if you really can’t afford to lose your principal investment. The idea with auction  rate securities is to obviously by low and sell high, which sometimes works out great and you walk away with a large return, sometimes it does not work out so great and you lose your shirt in the process.

A short term investment very rarely will produce the Wall Street millionaire that we aspire to be, but it certainly can add to your portfolio nicely.

Types of Short Term Investments  

There are many different types of short term investments to choose from. Finding the one that best suits your situation is a matter of deciding what goals you have for your money.  In situations where you are trying to keep your money accessible while earning interest in a relatively safe environment there are short term investments options to choose from. If you are a risk taker and really want to grow your money quickly there are options for that as well.  

Formulating your financial goals will be the best indicator of what types of short term investments you should consider.  Having clear goals will help immensely with the selection process.  

Treasury Notes  

Treasury notes or T Notes are considered the most secure short term investments. They are backed by the US Government so unless the government folds your money will be safe. There are notes that are for 6 month investments and notes that are for 60 months. The longer the term on the note the higher the interest that is offered.  

Corporate Debt Bonds  

Corporate debt bonds are a bit more risky but the return is usually a lot higher than with treasury notes.  The term on these bonds will vary but usually range from 1-5 years.  This can be a rather risky venture so you need to approach this from the perspective that you may lose your principal, typically not but you just never know.  

Money Market Accounts and Money Market Funds 

Money market accounts and money market funds are similar types of short term investments. The Money Market Accounts are usually offered by banks while the Money Market Funds are usually offered by brokerage houses.  The MMA usually has a lower rate of return but is safe because eit is backed by the FDIC while the MMF is not. The MMF is usually very secure though because the managers typically  invest in certificates of deposit and mutual funds.  

Certificates of Deposit 

Certificate of deposits are offered by banks and are usually completely safe because they are backed by the FDIC.  They do not pay out the type of return that other types of short term investments but what you do not gain in interest you gain in security. Typically CD’s are offered in terms from six to sixty months.  

Traditional Savings  

There is the traditional savings accounts that are also considered short term investment options. These types of short term investments usually pay the lowest amount of interest but are the safest vehicles.  

Understanding the various terms and conditions of the types of short term investments is important when you are making your choice of which investment to choose. The terms and conditions of the investments vary widely and the variance can make or break your financial goals. If you are unsure of which types of short term investment is right for you, than consult with a financial planner that can best advise you.