7 Best Short-Term Investments To Grow Your Money, #116
With the Federal Reserve aggressively raising interest rates, it’s a great time to consider your options for short-term investments. Whether you have liquid cash or you’re a conservative investor, this episode is for you! Join me as I dive into the seven best short-term investments you can make to grow your money and save for retirement.
You will want to hear this episode if you are interested in...
Exploring money market accounts for short-term investing [2:22]
The benefits of a one-year CD [6:03]
What about short-term bond funds? [7:34]
Taking advantage of Treasury bonds [10:09]
Is a fixed annuity right for you? [11:41]
The best short-term investment you can make [13:00]
Staying liquid
Online banking has been a commonplace practice for many years. But did you know you can use online banks to find a good money market rate? Websites like Bankrate and NerdWallet (linked below) can help you find a competitive rate with several online banking institutions. However, not all online banks are created equal. Some may have stipulations that keep your money tied up for a fixed period, or there are specific limitations about transferring money in and out. That’s why it’s a good idea to know your options and read reviews about the online banks you're considering using for a money market account. Money market accounts are also the most liquid short-term investment option, so it’s worth exploring if that is important to you.
Another money market option for short-term investing is a mutual fund account. Rather than going through a bank or credit union, these money market accounts are obtained through a mutual fund company like TD Ameritrade Institutional, Charles Schwab, and Fidelity. This is a great investment option if you want your stocks, bonds, and mutual funds all in the same place.
Breaking down bonds and annuities
If liquidity is not a priority in your investment portfolio at this time, you may want to consider U.S. Treasury bonds. Typically, a two-year Treasury bond yields less than a ten-year one. Yet right now, the two-year bonds are paying almost 4% interest compared to the ten-year rate of 3.5%. The downside to this investment option is that anytime you sell a bond, the price could go down if interest rates have gone up. However, if you're willing to hold this bond for two years, the worst-case scenario is getting back nearly 4% interest. Treasury bonds are also not subject to state income tax which is another benefit of this strategy.
If you're willing to have even less liquidity with a little bit more yield, you could consider fixed annuities as a good short-term investment. A fixed annuity is an investment made with an insurance company where they invest your money in something else and pay you a higher interest rate because you're giving up some liquidity. For instance, if you want to take your money out early from a three-year fixed annuity, there will most likely be penalties. You may not even be able to make a withdrawal in the first year. Though interest rates for annuities are around 4.4%, they are subject to state and federal income tax, further decreasing your possible yield. Weigh these pros and cons before choosing annuities as a short-term investment. Listen to this episode for more short-term investment options to grow your money!
Resources Mentioned
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