Short Term Investing

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Category: Investments

A short term investment is money that is invested for a short period of time. Smart investors know, short term investments are simply a better way to grow your money for the short haul.  There are some great, low risk alternatives to a savings account. Of course if you are weak of heart or the principal has to remain in a risk free environment, than a savings account might be the only option. Most banks and financial institutions will offer money market accounts (MMA) they are short term investment vehicles that keep your money relatively liquid for easy access but pay a higher rate of return on your principal investment.

There are normally a set of very specific guidelines that are imposed by the financial institution that delegate how long the money has to stay in the account before it can be removed without penalty, there typically is a minimum deposit amount required and withdrawals are strictly regulated. Some of these types of accounts allow check writing privileges within reason. You may be able to write one or two checks a month, as long as you maintain the agreed upon minimum balance in the account. A money market account is a great short term investment, because it is relatively safe and keeps your cash liquid just in case.

There are short term bond funds that are available that are a great short term investment, because these vehicles are also relatively safe, not as safe as a money market and not as safe as purchasing bonds out right. There is some risk with bond funds, but of course the yield is higher than with a money market account. A short term bond fund is a short term mutual fund that deals only in bonds. Just like a mutual fund, a bond fund is a group of investors that pool their money through a manager and the money is used to buy usually debt bonds, the risk comes in when investors start pulling out. Bonds may have to be sold at less than prime to pay off the investors that are pulling out their money. This reduces the yield of the entire portfolio, which in turn will reduce your personal yield out of the fund.