If you are looking for a smart way to grow your money, then get to know this guide. This guide will explain to you the short-term investment methods which are very important. There are different investment types, including savings accounts, retirement funds, bonds and houses, which can be considered as investment options.
So, the people who are seeking a short term investment can consider any of these. But if you are searching for the best short-term investment among them, then get to know about the complete details regarding each type.
What is a Short-Term Investment?
Short-term investment refers to growing your money over a shorter period. It can be up to a maximum of 3 years or less. They are completely unlike the long term assets, which can be considered as an investment option. So, the short-term investment provides high liquidity and low risk as compared to the long-term investment.
Moreover, they are more stable in providing you with financial returns. These short-term investments are considered perfect if you are searching for immediate funds in case of an emergency. Following are some of the examples of short-term investment:
- Government bonds
- Highly profitable Savings accounts
- Houses
- Retirement funds
Purpose of Short-Term Investment
Short-term investment is highly considered among beginner investors. So, they can easily get a profit in a much shorter time as compared to the long term investment. It helps in preserving your capital while providing you with earnings as well.
Furthermore, it also helps in making you stay flexible with your money. In addition to this, short investment also helps you in reaching short-term financial goals. If you are a person who desires to get quick access to your money in terms of any emergency, then a short-term investment will be perfect for you.
Short-Term Investment Options
Here are some of the investment options that you can consider if you are desiring a short-term investment.
1. Bonds
There are some short-term government bonds and corporate bonds which help you in getting good returns from this short investment. They help you in providing a better return as compared to the savings account. This is because there are very few chances of risk as compared to the other savings accounts. However, it is also necessary to remain aware of all the risks and challenges associated with the investment processes.
Along with this, we should always avoid the use of long-term bonds. This is because it can cause you to have a high interest rate, which will not be profitable for you. So, considering bonds as a short-term investment is a good idea for people who have short-term return goals.
2. Retirement Funds
If you are a person who is going to retire in a very short time, then retirement funds are a great option. But the, retirement funds are considered a long-term investment. This is because all your funds will be locked until your retirement age, and you can access them after you are retired.
Along with this, they also impose many penalties if you withdraw them early due to any emergency. If you are a person who is looking for long-term growth, then consider the retirement fund. However, it is not appropriate for short-term investment.
3. Saving Accounts
The savings accounts are known mostly because of their safety and high liquidity. This is because in the savings accounts your money remains accessible anytime you want. So, they are best for the emergency funds. Along with this, they are also very helpful if you are desiring short-term savings.
In addition to this, these savings accounts are also considered as immediate financial security compared to the other investment options. You will be getting a lower interest rate on the savings account.
4. Houses
If you are desiring to invest in real estate, then purchasing a house can be considered an investment. But it is never a short-term investment. This is because the real estate includes high transaction costs. Along with this, the selling years are very prolonged, which can be harmful as well.
Additionally, market volatility can also have a big impact on the real estate market, which can be harmful to the investor. So, real estate is always considered a long-term commitment to your finances. Hence, people desiring a short investment should never choose it as their earning option.
Comparative Analysis
Here is the comparative analysis of savings accounts, short-term bonds, retirement funds and houses based on their liquidity level. This helps in providing you with complete details regarding which short-term investment is best for you to choose.
| Investment Type | Liquidity Level |
| Saving Accounts | Very High |
| Retirement Funds | Very Low |
| Short Term Bonds | High |
| Houses | Very Low |
Risks Associated With Short-Term Investment
Here is a complete description of the level of risk associated with each type of short-term investment. It is based on different types of investments, including saving accounts, bonds, retirement funds and houses. The risks and challenges associated with them are described below.
| Investment Type | Risk |
| Saving Accounts | Very low |
| Short Term Bonds | Low to moderate |
| Retirement Funds | Varies |
| Houses | High |
Potential Return
Considering the potential return on different types of investment, it can be low to high based on the investment type. The return is also based on the amount of investment you have made. Along with this, it also varies according to different factors. So, the following are the return details of different types of investments.
| Investment Type | Return |
| Saving Accounts | Low |
| Short Term Bonds | Moderate |
| Retirement Funds | High |
| Houses | High |
FAQs
1. Can bonds be considered as a short-term investment?
Ans. There are some short-term bonds, including corporate bonds or short-term government bonds. These are considered excellent examples of short-term investments.
2. Are savings accounts helpful in short-term investing?
Ans. If you desire to preserve your money and get good liquidity, then a savings account is a perfect choice.
3. Why are retirement funds not considered a short-term investment?
Ans. Retirement funds include a prolonged period and different penalties associated with early withdrawal. So, it is never considered a short-term investment.
Wrapping Up
When it comes to searching for short-term investments, then short-term bonds and savings accounts are the preferable choices. This is because they provide you with high liquidity and security and maximize the return on your investment over a designated period. As a result, you will be receiving a good financial return on your short-time investment.