Short Term Investment
“Think about the long term” said every investor ever. Everyone knows that investing money with the future in mind is wise, but sometimes you just do not have decades to wait. Maybe you want to buy a house next year, or you need a vacation or want to get married. There’s a plethora of reasons why you might need money in the short run so let us take a look at some simple short term investments you may not have considered.
1. Short Term Bonds
When most people think bonds, they think long-term. While it is true that the most effective bonds mature over longer periods, short-term bonds are an effective practical option for those needing a decent return on investment in a shorter period, such as a few months, or a few years. There are a range of short-term bonds to choose from, including: federal, corporate, municipal and other. It may be a good idea to speak to a broker about which options may be best for you.
The downside to short-term bonds is that they do not offer the same return-on investment as do the longer-term bonds, but if you are smart, they can come in handy when you need that temporary boost of cash flow to get by.
2. Money Market Funds
Money market funds incorporate a variety of options into one. It may include short term bonds, CD’s and others. The edge that MMFs have on other short term investment strategies is that they offer diversity and less risk in comparison to other strategies and yields consistent returns. The drawback is that the return of investment can be significantly lower. (Remember: the higher the risk, the higher the reward).
This option is ideal for someone who wants to make a decent profit without the risk all their money. It is also a great option for someone who has a massive lump sum of money where any percentage increase results in significant returns.
3. Treasury Inflation Protected Securities (TIPS)
A Treasury Inflation Protected Securities (TIPS ) investment is based on the consumer price index (CPI). As the CPI increases, so does your investment. If deflation severely affects the CPI, your original investment will be returned.
4. Cash Back Rewards Offers
We are bombarded with offers of cash-back rewards by various finance, insurance and credit companies. Many may dismiss these as yet another marketing ploy to get more customers, rather than a solid investment opportunity. It can be worth looking into. Assuming you are going to spend a large sum of money in the next three months anyways, why not filter this cash flow through a credit card or bank card, which offers a significant cash back bonus.
This works for those who are in a position to spend large sums of money. Another option would be to purchase particularly items to resell in your own accord later, in order to obtain the cash-back bonus.
This advantage of this method is that it is a simple, quick and easy way to get cash. The disadvantage is that these opportunities are limited in availability and further options, making it more a matter of luck and chance than a viable investment strategy you can go back to repeatedly.
5. Lending Club
The internet has decentralized so many services these days by making it possible for people from around the globe to interact with each other directly, cutting out the intermediaries, which were previously needed.
We have seen this in personal advertising, sales and money lending is no exception. With a certified lending club, you can be the lender and earn interest by lending your money to others on the platform who requests it. On the other hand, you can borrow from volunteer lenders and pay individuals back, with interest, instead of going through a bank or formal institution.
On these platforms, lenders are assessed and then ranked according to their risk assessment. Candidates who are considered higher risk candidates for a loan (due to factors such as poor credit histories) offer higher interest rates (and thus profits) to those who dare to lend them the money.
There are many certified and trusted lending clubs online to choose from and if you are careful and smart, this could be a quicker way to access money by borrowing, or to make a profit by lending money you have for profit.
6. Certificates Of Deposit (CD)
With a CD, you can earn interest over a period of time, while keeping your money relatively safe. CD’s are available through various institutions such as a credit union, bank and other financial institutions. You can check the various rates applicable against the term and location across all 50 states in USA, by visiting bankrate.com and using their online calculator.
Depending on many factors, and interest rates at the time and place, you can earn 0.20-2.005 interest on your investments.
7. Invest in Silver
Every asset class that you look at it is currently in a bubble. Real Estate is at an all-time high. Government bonds have been in a bull market for 35 years. And stocks are higher than ever. “Buy low and sell high” is the old investment adage. So what else can you invest in?
For those who have a high-risk portfolio and need diversity, consider investing in silver. Analysts have proven that metals are their own market with little to no correlation with any other investment markets. Ray Dalio, billionaire investor and founder of Bridge-water Associates recommends having portfolios with uncorrelated assets thus making silver an ideal candidate. The advantage is that you can easily buy silver such as a 1 oz Canadian silver maple Leaf and have it mailed straight to your house. The disadvantage is that to sell, you have to physically move the product. This can also mean slower movements between metal assets to paper ones.
Overall, investing in the future is extremely important whether long term or short term. However, there are multiple routes you can go to improve your immediate financial situation. There are lots of investment blogs online which are writing a lots of stuff about investment, follow all those and get a perfect way to improve your investment experience.
FAQs- Short Term investments
Q. Are short-term debt funds good enough for short term investments?
Ans- Though short-term debt funds provide more or less stable returns, and several times higher than FDs yet returns can vary within tenure. Also, short-term debt funds are mutual funds with a lock-in period of one year, and the investor cannot withdraw money before lock-in period. If investors prefer short-term debt mutual funds as short term investment mode, then they would do well to be updated regarding MF performance and returns. Many short-term debt mutual funds have been providing returns up to 10 % and hence rank high as short term investment options.
Q. Do company fixed deposits qualify under top short term investment options?
Ans- The company fixed deposits do not have the RBI assurance as bank FDs, RDS, and PODs. The principal and interest can be at greater risk if the company has volatile records. However large and established companies are well known for having offered stable high FD interest rates over time much above bank rates and hence considered as a good short term investment option by many.
Q. How do mutual funds fare under short term investment options?
Ans- Mutual funds especially the equity-based mutual funds or ELSS have lock-in period of three years. If you prefer mutual funds as short term investment option, then opt for the large-cap mutual funds as these offer good returns from one to three year period.
Q. Does taxation of FDs reduce their attractiveness as short term investment option?
Ans- The returns earned from FD are not tax-exempt and need to be added to your total income base while filing your income tax. Your taxable income base is subject to taxation as per the prevailing slab rates. If your total taxable income does not fall in the income tax bracket (is below Rs 2.5 lakh per year up to 60 yrs age group) then you are not taxed. As a senior citizen, you get more concession.
You can reduce your taxable income base by applying for the deductions and exemptions under IT act. If in a particular bank your FD interest is more than Rs 10 K in a year then you can submit form 15G/H to avoid TDS deduction by the bank. TDS paid at source is deducted from income tax amount. So tax once paid need not be paid again and if extra taxes have been paid at source then IT department refunds the tax payer.
Q. What are the other short term investment options?
Ans- As an investor, you may like to know about the other short term investment options. These constitute treasury security, fixed maturity small investment plans, money market accounts. Check out their features and benefits on policy bazaar portal to help you decide.