Investing is a long-term strategy, and there is always a certain amount of risk involved. But what do you do when you find yourself in the middle of an unstable market?
You want to keep growing your assets, but also do it in a way that minimizes as much risk as possible. In this situation, it’s a good idea to start focusing on short-term investments in addition to long-term investments.
Short-term investments allow you to grow your money over a matter of months, rather than years, and the income can be turned into cash once it reaches maturity. And with most short-term investments, you can gain access to the money if a financial emergency arises.
There are a variety of ways you can get started, and the strategy that’s right for you depends on your current situation and goals.
The 7 Best Investment Strategies
If you’re looking for the right investment strategy, here are seven short-term and long-term investment strategies you can consider.
1. High-Yield Savings Accounts
A high-yield savings account pays interest rates that are much better than what a standard savings account offers. And most don’t require monthly fees or even require a minimum balance to open the account.
High-yield savings accounts typically offer interest rates between 1% and 2.2%. You’re not going to make a lot of money going this route, but opening a high-yield savings account is a risk-free way to earn a small amount of income on the money you’re saving.
- Offers a better APY than a traditional savings account
- Many online banks don’t charge monthly maintenance fees or require a minimum balance to open the account
- You always have access to your money
- You can get a cash bonus just for opening one
- Not going to be a significant source of income
- Your monthly transactions and withdrawals may be limited to a certain number per month
2. Money Market Accounts
A money market account is kind of like a cross between a high-interest savings and checking account. You’ll receive higher interest rates, and your account will typically come with checks or a debit card.
All money market accounts are FDIC-insured, so you know your money is safe and secure. If you decide to open a money market account, make sure to research several different banks. Look for one that offers generous rates and charges a limited number of fees.
- Receive higher interest rates than a standard savings account
- Easily access funds in an emergency
- All money market accounts are FDIC-insured
- Most money market accounts have minimum balance requirements
- It’s a little too easy for most people to spend the money
3. Certificates of Deposit (CDs)
A certificate of deposit (CD) is offered by banks and credit unions. When you open a CD, your money is held for a certain period of time in exchange for a certain amount of interest. This means that when your CD term is up, you’re usually guaranteed a particular rate of return.
The amount of interest you earn will depend on the type of CD you take out. For instance, most CDs charge a penalty for withdrawing the money early. There are some no-penalty CDs, but the interest rate is usually less favorable.
- Safe place to store your money
- Know how much you’ll earn ahead of time
- Earn a higher interest rate than putting the money in savings
- Your money is locked up for a certain period of time
- Most CDs charge a penalty for early withdrawal
- You’ll pay taxes on any interest that accumulates
4. Short-Term Bonds
A short-term bond is a fund that invests in bonds that mature in five years or less. Once the bond reaches maturity, the bond issuer must pay off the bond. This means you’ll receive your principal investment, as well as any interest that accumulated.
Short-term bonds are not going to be a huge income generator, but it can be a good alternative to CDs and money market accounts. And bonds are less risky than investing in the stock market, so it may be a good move in a volatile market.
- Your money isn’t tied up for long periods of time
- You have the option to reinvest the money once the bond reaches maturity
- Pays less interest than long-term bonds
- You’ll have to work with a professional financial advisor to get started
5. Peer-to-peer Lending
If you have some money to invest upfront and you want a relatively quick return on your investment, you might consider peer-to-peer lending. Websites like Lending Club allow you to lend your own money to individuals and businesses. The borrower will then pay you back with interest.
There are a lot of advantages to this strategy. P2P lending is a growing industry, so your opportunities will likely exponentially increase over time. You can get started with a small minimum investment, and you get to choose the borrowers you want to work with.
With every loan that comes your way, you can choose a partial or full investment. And once the loan is fully funded, the borrower begins making payments on it. A portion of that payment will go to each person that invested in the loan.
- You can get started with as little as $25
- Choose the loans you invest in and your level of risk
- Great way to diversify your investment portfolio
- You could lose money if the borrower defaults on the loan
- Investment isn’t FDIC-insured
- P2P lending is still a relatively new strategy
6. Real Estate
Real estate is a popular investment, and for good reason. It can provide a consistent source of income in the short-term, and can be a lucrative long-term investment strategy.
Many people get started with real estate by purchasing rental property and becoming a landlord. This obviously requires an upfront investment, and you’ll be responsible for maintaining the property.
If you want a more passive strategy for investing in real estate, then you might consider getting involved in a real estate investment trust (REIT). REITs are bought and sold on major stock exchanges, and unlike buying rental property, it’s a liquid investment.
- Can provide a consistent source of income, through rent payments or dividend payments
- Good long-term earning potential
- Riskier than some of the other options outlined in this article
- Will require a larger upfront investment
7. Roth IRA
A Roth IRA is a retirement savings account that is funded with after-tax dollars. This means that you can withdraw the money tax-free at retirement, assuming all the necessary requirements have been met.
The maximum amount you can contribute to a Roth IRA is $6,000 a year, or $7,000 once you’re over the age of 50. You can open a Roth IRA through a bank, brokerage firm, and credit union.
You can access your Roth IRA contributions at any time, as long as you don’t withdraw the earnings. Making early withdrawals from your retirement accounts is never a great plan, but it’s an option if you find yourself in a financial pinch.
- Your savings grow tax-free
- You can withdraw your contributions at any time
- There are limits to how much you can invest every year
- You pay taxes upfront
How to Get Started
If you’re new to investing, then you may feel overwhelmed or unsure of where to start. If that’s the case, here are five steps you can take to move forward.
Cut Down on High-Interest Debt
If you want to maximize your investments, then you’ll want to cut down on any high-interest debt. Getting rid of debt will free up your monthly cash flow, which will give you more leeway in your budget to focus on investing.
Work With a Professional
If you’re not sure where to get started, consider working with a certified financial planner (CFP). A CFP can evaluate where you are financially, talk to you about your short-term and long-term goals, and make investment recommendations accordingly.
Diversify Your Assets
It’s never a good idea to put all of your eggs in one basket. Instead you want to diversify your assets across a variety of investments. This will allow you to grow your assets, without ever putting too much at risk.
Stay Consistent With Your Investments
The best thing you can do for your financial future is to get very consistent with saving and investing your money. Many people will get excited about a particular investment, and attempt to go all in on that strategy, only to get burnt out after a few months.
It’s a much better plan to invest a small consistent amount over a long period of time. The easiest way to do this is by automating your monthly savings. That way, you know a certain percentage of your income is set aside every month without you having to consciously think about it.
Constantly Re-Evaluate Your Priorities
You’ll have different goals at age 45 than you did at age 25. That’s why it’s a good idea to constantly be re-evaluating your investment strategy to make sure it lines up with your priorities.
Investing is a long-term game, but if the market is unstable or you’re just in a difficult season financially then you may want to shift your priorities. The seven strategies outlined in this article will help you continue to grow your money while still allowing you to access the cash if an emergency arises.
You don’t want to feel like you’re guessing when it comes to your investments, so if you’re not sure about the best steps to take, consider working with a financial planner. A financial planner can help you evaluate your situation, talk through your goals, and come up with an investment plan that’s right for you.