Easy Short-Term Investments with Just $500
Intentionally making investments is a crucial step to being in control of your finances and properly planning for your future, and we all know that long-term investments typically pay higher returns. But it’s a good idea to have a few short-term investments in your portfolio when you need money quickly. We highly recommend getting some short-term investments in the works to both stay in control of your finances and more effectively increase your wealth.
As with any financial decision, short-term investments should be approached by carefully weighing all the factors. We know that investing can be overwhelming, especially if you've never done it before. But don't stress! There are many options available—some can even be started with as little as $500! In this post, we highlight some of the most common short-term investment opportunities and how they can best benefit you.
Certificate accounts
A certificate account, sometimes referred to as certificates of deposit (CD), is an account at a financial institution that has a fixed term.* The maturity dates, otherwise known as the term length and date you can withdraw funds without being penalized, are fixed and typically range from 6 to 60 months. You'll find that certificate accounts usually offer a higher dividend rate than a traditional savings account.
A popular investment strategy for these accounts is called “laddering.” It’s when you open multiple certificates with varied maturity dates—typically 12, 24, 36, 48 and 60 months. When the 12-month certificate matures, flip it over into a new 60-month certificate. Same with the subsequent certificates. This creates a train of certificates that mature once per year, giving you access to a portion of your money on a regular basis while still earning good dividends.
There are a handful of benefits that come with using certificate accounts. One major plus is that they’re extremely safe—even as the market changes, your certificate is most likely to maintain it’s expected value. They’re also very predictable. One of the reasons so many people hesitate with investments is because there can be a certain level of risk—this is not the case with certificates—and it's a great starting point for someone looking to start investing.
Mutual funds
By definition, a mutual fund is an investment program that consists of money contributed by many investors with the goal of putting it into securities. These programs are managed by professionals who allocate the money in an attempt to produce the best return. Many people are drawn to mutual funds because they are managed by a professional whose job it is to make sure the fund does well—which takes the pressure off you.
Mutual funds are great for beginners because they are easy to understand, easy to buy, affordable and they come in a variety of categories and types—you’re sure to find something that appeals to you. Additionally, you'll find that they are very easy to track and monitor their performance. They often come with low trading costs, too.
Money market accounts
A money market account is similar to a traditional savings account in that you can draw from it, albeit a limited number of times each year. However, the deposit minimums and balance requirements are typically higher than a basic savings account and the interest rates may not be that much better. Be sure to compare rates and get a professional opinion on your options before moving forward with a money market account.
Peer-to-peer lending
Another short-term option is peer-to-peer lending. These platforms put people with extra money together with people or organizations who need to borrow money. Because these lending clubs operate online, they have low overhead and fewer transaction costs. As a result, the 3 or 5-year investments usually garner higher returns. But, with higher returns comes higher risk. Loans can go into collection, or possibly even default, on occasion.
The upside of this type of venture is diversity. By putting small amounts of money into each loan, you minimize the possible damage to your portfolio if one goes bad. You also have the chance to get a higher return on your investment, and many find peer-to-peer lending to be an easier way to access loans than some other traditional options. In addition, interest rates are often lower, making this a fantastic option for many investors.
However, you’ll want to keep in mind that there is no insurance option when using a peer-to-peer lending situation. If the borrower’s default on their loan, it’s left to you to take care of—that means your credit score may take a hit and possibly even leave you in the red. Consider the possible repercussions before moving forward with this option.
How will you invest?
There are so many options available to those looking for opportunities to take control of their finances and increase their wealth. However you decide to invest your money, do your due diligence by vetting each fund, loan and financial institution. The best investment you can make is to thoroughly check everything out—then jump in when it feels right!
If you’re unsure of what to do and want some additional input, a financial advisor can be helpful. Mountain America Credit Union has experienced professionals who would be happy to advise you on the best investment options for your individual situation.
*Early-withdrawal penalties may apply. Accounts can be opened in terms from 6 to 60 months. Membership required—based on eligibility. Federally insured by NCUA.
