Best Short-Term Investments in April 2024: Risk is reduced by short-term investments, but at the expense of the greatest long-term investments’ possible higher profits. By doing this, you’ll make sure you have money when you need it rather than wasting it on an uncertain investment. Therefore, safety is the most crucial factor that investors should consider while making a short-term investment.
What is a short-term investment?
Whenever you make a short-term investment, it’s usually because you have an urgent need for the money. The money needs to be available if you’re saving for a wedding or a down payment on a home, for instance. Investing for a duration of less than three years is referred to as short-term.
You may consider investing in stocks if you have a longer time horizon, ideally three to five years, but even longer is preferable. Higher returns could be possible with stocks. The stock market has historically increased by 10% a year on average over extended periods of time, but it has also shown to be very volatile. You can therefore weather the ups and downs of the stock market because to the wider time horizon.
Monthly Income Investing
Given that living expenditures are frequently paid on a monthly basis, it may surprise you to learn that finding investments that generate income on a monthly basis is difficult. In the world of investments, quarterly, yearly, and even longer repayment plans are more common.
And that’s in addition to the fact that a lot of investments only guarantee a final profit due to price appreciation, with no income whatsoever. For example, buying a normal share on the stock market won’t usually bring in any money unless and until you can sell it for a higher price later on.
Treasury bills, or T-bills, are short-term Federal government securities issued with maturities ranging from a few days to 52 weeks. These securities comprise the short end of the Treasury yield curve.
T-bills are sold at a discount to their face value, and when they mature, the government pays the holder the full face value. Essentially, the income investors earn on T-bills comes from the difference between the purchase price and what the government pays back at maturity.
T-bills are considered one of the safest investments, virtually free of credit risk, because they’re backed by the full faith and credit of the U.S. government. This makes them as safe as investments get, appealing to those looking for a nearly risk-free way to earn a return on their cash.
Certificates of deposit, or CDs, offer a way to earn a stable rate of return if you’re able to commit your principal investment for a predetermined period.
“CDs are time deposits offered by banks with a fixed term, typically ranging from a few months to several years,” says Taylor Kovar, CEO and founder at Kovar Wealth Management. “They provide a guaranteed interest rate, making them a safe and predictable investment.”
One of the key benefits of CDs is the ability to lock in a fixed interest rate for the duration of the term. This means that even if interest rates drop, the rate on your CD remains unchanged, allowing you to continue earning a competitive yield.
High-Yield Savings Accounts
For investors looking for a straightforward and secure option for short-term income, high-yield savings accounts, or HYSAs present a viable solution. These accounts typically offer annual percentage yields, or APYs, that exceed those of traditional checking accounts, alongside the advantage of daily liquidity.
What makes HYSAs particularly appealing is the coverage they come with – either by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), depending on whether the account is with a bank or a credit union. This insurance means that even in the event of the financial institution failing, your funds are protected up to $250,000 per depositor.
Another avenue for investors seeking safe, short-term income within a brokerage account is through money market funds such as the North Capital Treasury Money Market Fund (NCGXX).
These unique mutual funds primarily invest in high-quality, short-term debt instruments. These can include commercial paper, T-bills and repurchase agreements, among others. The main objective of money market funds is to offer investors a mix of income, liquidity and capital preservation.
This stability aims to provide a secure environment for investors’ capital, although it’s worth noting that in extreme market events, such as during the 2008 financial crisis, there have been rare instances where money market funds “broke the buck,” meaning the NAV fell below $1.
Ultra-short-term bond ETFs leverage the flexibility of the ETF structure to offer investors a blend of yield and liquidity, similar to what money market funds provide, but with a few key differences.
These ETFs, such as the Vanguard Ultra Short Bond ETF (VUSB), primarily invest in a diverse range of short-term, high-quality bonds to target capital preservation and high present income.
For VUSB, this includes asset-backed securities, government obligations and investment-grade corporate bonds, targeting a dollar-weighted average maturity of zero to two years. It also offers the advantage of monthly income, with a current 5.1%, 30-day SEC yield.
“Short-term bond funds can also be a logical ‘first step’ back into bonds for investors who may have abandoned a traditional fixed-income strategy amidst the losses of 2022,” Croke says.
