The following is sponsored by Mountain America Credit Union.
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 fairly quickly.
As with any financial decision, short-term investments should be approached by carefully weighing all the factors—including possible penalties. There are many options available—some can even be started with as little as $500! Here are a few of the most common:
Term deposits A term deposit, sometimes referred to as certificates of deposit (CD), is an account at a financial institution, like Mountain America Credit Union, that has a fixed time period.* The maturity dates typically range from 6 months to 5 years, carrying a penalty if closed prior to that date, and usually offer a higher dividend rate than a traditional savings account.
A popular investment strategy for these deposits is called “laddering.” It’s when you open multiple deposits with varied maturity dates—typically 1, 2, 3, 4 and 5 years. When the 1-year deposit matures, flip it over into a new 5-year account. Same with the subsequent accounts. This creates a train of deposits that mature once per year, giving you access to a portion of your money on a regular basis while still earning good dividends.
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.
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.
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 before settling on this option.
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.
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!
If you want 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 investments for your situation. Make an appointment today to get started!
*Early-withdrawal penalties may apply. Accounts can be opened in terms from 6 months to 5 years. Membership required—based on eligibility. Federally insured by NCUA.