Short-term investment strategies rely on highly liquid assets and accounts to store money for near-term goals. Typically, these assets generate relatively low-risk returns while keeping your funds accessible.
Short-term investment strategies are ideal for storing and growing cash you need in under five years. They rely on lower-risk assets that offer greater liquidity, like bonds and interest-bearing accounts. Though they don’t generate the outsize returns found in the stock market, they produce some income with less risk and greater flexibility.
Short-term investment assets include bonds, cash and cash equivalents. Many combine features like overdraft programs, checking writing and deposit, bill pay, money transfers and even FDIC or NCUA insurance.
High-yield savings accounts pay higher interest rates than regular bank accounts to supercharge your earnings. These insured, highly-liquid assets frequently carry benefits like check writing, bill pay and money transfers. That said, you may run into monthly withdrawal limits or minimum balance requirements.
Money market accounts combine features of savings and checking accounts like insurance, interest earnings and debit cards. But again, you might face monthly withdrawal or balance requirements. Your interest rate may also vary based on your average balance.
Think of CDs like insured savings accounts that lock up cash in exchange for guaranteed returns. CD deposits earn set interest rates for terms ranging from months to years. (Larger deposits and longer terms usually pay higher rates.) Unfortunately, you can’t access your cash until maturity, and if interest rates rise, you’re out of luck.
Some investment firms provide cash management accounts to bundle investors’ financial services in one location. Many pay higher rates than regular bank accounts and come with check-writing privileges, savings programs and even lines of credit. That said, watch out for maintenance fees and minimum balance requirements.
Money market mutual funds are non-insured products issued by investment firms and brokerages. These funds pool investor capital to buy high-quality, lower-risk securities like bonds, Treasuries and cash equivalents. While you can generally cash out easily, they’re not risk-free investments and management fees can eat into your profits.
Government bonds are essentially loans made to the government in exchange for earning interest. You can select from various maturities and interest rates or sell bonds for a profit (hopefully) on the open market. Or, you can buy into bond funds that own a diversified mix of maturities and interest rates.
Still, bonds aren’t risk-free; when interest rates rise, bond values typically fall. And while corporate issued-bonds pay higher returns, they carry a higher risk of default.
Treasuries are short-term debt instruments that may earn interest or sell below their true value so you can cash in later. While Treasuries don’t generate state or local tax bills, they typically offer lower returns and carry interest rate risks.
Short-term investments provide flexibility, liquidity and profits on near-term cash accounts. They also boost diversification to augment your long-term strategy. But, like with any investment, you’ll want to evaluate each one’s risks within your overall needs.
When you’re ready to save, Q.ai’s Cash Portfolio is here to help you get started.
Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.