Short Term Investments: Best Options In 2024, Alternatives

by Anthony Zhang

If you have some cash in your bank account, short term investments could be part of your investment plan.

A short term investment (temporary investment or marketable security) is an investment that can convert into cash within 5 years. Many people convert their short term investments into cash after only 3-12 months.

In this article, we’ll reveal the features of short term investments, what to look for when choosing one, and 8 short term investment options.

We’ll also explore the differences between short and long term investments and share another super-attractive investment vehicle you should try — wine investment with Vinovest.

What Are The Features of Short Term Investments?

A short term investment is a good option if you’re saving cash for a specific time or event.

You can identify a good short term investment option by these traits:

Low risk: A great short term investment generally has low risk, making it a great way to safeguard your money.
Low transaction costs: If you repeatedly pull cash in and out of investments, you can quickly rack up high transaction costs. The right short term investment will have low fees.
Readily convertible to cash: Short term investments are very liquid, and you can easily cash them in even before they reach maturity.

Short Term Investment Tips and Tricks

If you’re planning to set aside money for a short period, approach it differently than you would if it were a long term investment.

These tips should help you on your short term investment journey:

Identify your goals: Ask yourself how much money you want to invest and gain. Also, figure out if you want the option of accessing your cash before it matures. Once you set your expectations, you’ll better understand what type of short term investments will suit your timeline.
Ensure safety: Will your money be safe until you’re ready to claim it? The option you pick should ensure your money remains secure, so you don’t have to worry about the returns.
Don’t get caught up in extra return: With a short term investment, your return will be low. So it can be appealing to earn a little extra at the expense of more risk. But when it comes to short term investment assets, it’s usually not worth the extra risk, considering the gains are not that big.
Understand the risks: Generally, short term investments are safe, but some run the risk of declining over a short time (like a short term bond fund.) Do your due diligence to understand all the risks and pull out your money at the right time.

Now that you have a better idea about short term investments and what to look for let’s explore some investment options.

8 Short Term Investment Options To Consider

Here are 8 short term investment vehicles to consider when diversifying your investment portfolio:

High Yield Online Savings Account
Money Market Accounts
Money Market Mutual Funds
Corporate Bond Funds
Municipal Bonds
Government Bonds
Liquid Funds
Paying Off High Interest Debt

1. High Yield Online Savings Account

A high yield savings account offers the same features as a standard bank account. The only additions are a high interest rate and annual percentage yields (APYs), according to the Federal Deposit Insurance Corporation (FDIC.)

Pros:

Better interest rates or annual percentage yields (APYs)
Less likely to have monthly maintenance fees
Liquidity

Cons:

Interest rates can fluctuate

2. Money Market Accounts

A money market account is a type of savings account offering a high interest rate.

Pros:

Safe for large amounts of cash thanks to insurance by the Federal Deposit Insurance Corporation
Can easily access funds with a debit card or check facilities
Can quickly cash in your investment

Cons:

High minimum deposits or balances required to open an account
Debit cards (that come with the account) can encourage impulse purchases
Return can be low

3. Money Market Mutual Funds

A money market mutual fund (commonly known as a short term investment fund) differs from a money market account. It’s a type of mutual fund that focuses on cash and cash equivalent security investments. A money market fund invests in US treasuries, certificates of deposit, commercial paper and more.

Pros:

Easy access to funds
Initial investment is low
Fixed return with short maturity

Cons:

Not insured by the FDIC

4. Corporate Bond Funds

A corporate bond fund allows you to invest in high quality corporate bonds that often have a high yield.

Pros:

Safer than equity funds
Offers high returns
Has high liquidity
Less susceptible to fluctuating interest rates

Cons:

Not insured by the government

5. Municipal Bonds

A municipal bond is a debt security issued by the state to finance expenses like building schools, highways, and bridges.

Pros:

Bonds are tax-free
Safe to invest in
High returns

Cons:

Has low interest rates

6. Government Bonds

Government bonds are a type of fixed income security issued by the government. They earn a fixed interest amount each year for the duration of the bonds.

Pros:

Widely traded
Low risk investment
No local taxes
Good liquidity

Cons:

Low returns
Risky when market rates increase

7. Liquid Funds

Liquid funds (a type of debt fund) invest in fixed income securities (like treasury bills and certificates of deposit) that reach maturity within 91 days.

Pros:

Least risky of all debt funds
Invests in high-quality fixed income securities
High liquidity

Cons:

Low interest rates
No guarantee of returns

8. Paying Off High Interest Debt

A good investment is to pay off any high interest debt (i.e., credit card debt) before investing in anything else.

Pros:

Monthly payments are cleared, and cash is freed up for short term investing
Fewer interest charges
Reduce stress and anxiety
Beneficial to your credit score as it lowers the credit utilization ratio

Cons:

Lose interest earned from investing these funds

Note: Some other short term investment vehicles you can explore include: fixed deposit, bond mutual funds, a national savings certificate, and a lending club.

Short Term vs Long Term Investments: Which One Should You Pick?

When determining what type of investment you should choose, it’s essential to consider your goals and ensure your portfolio is suitably balanced with short and long term investments.

As you’ve seen above, each short term investment has pros and cons. But overall, here’s what you need to know as an investor:

Benefits of short term investments:

Gains from short term investments can be seen directly on your income statement.
You can diversify your income in the event of market volatility.
A short term investment is a stable option as it has less risk.

Drawbacks of short term investments:

If the value of a short term investment drops, it will affect the net income of a business.
Short term investment return rates are low.

Another investment option is long term investments like real estate, fine wine, gold, and more.

Here’s what you need to know:

Benefits of long term investments:

A long term investment can take years to mature — the longer your money stays invested, the more it will grow.
The return on investment is high.
It’s less time-consuming as you don’t have to monitor small daily fluctuations.
A long term investment has fewer transaction fees.

Drawback of long term investments:

A long term investment can be more volatile due to its long investment period.

Keen to expand your portfolio with a long term investment option that’s recession and inflation-proof?

You’ve got to try fine wine investing!

A Powerful Alternative Investment Vehicle: Fine Wine

As you build your investment portfolio, consider adding solid long term investment assets like fine wine.

What makes investing in wine so lucrative?

Here are a few reasons:

Excellent returns: Since 1988, fine wine has enjoyed a compound annual growth rate of 11%. Plus, according to the Liv-ex 100 index, between 2021 and 2022, the average monthly return on wine investment was a remarkable 22%. On the other hand, the stock market’s S&P 500 index produced -5% returns during the same time.
Less volatility: Fine wine bottle prices become less volatile the longer you own them. Why? As wines age, they become rarer and appreciate in value.
Hedges against inflation: When inflation rises, so do the prices of fine wines.

Contrary to popular belief, you don’t need the knowledge of a sommelier to invest in fine wine.

How to Start Investing in Wine

As an investor, the easiest way to dip your toes into this alternate investment is through Vinovest, a world-class wine investment platform.

Figuring out what bottles will appreciate can be tricky. But, Vinovest takes the guesswork out of the process. They’ll help you buy, store, and sell fine wine globally with just a few clicks.

Your bottles will even be stored in temperature-controlled bonded warehouses until you’re ready to sell (or drink!) them. Best part? Vinovest will arrange for the bottles to be delivered anywhere in the world. Fine wine reaches its peak after 5-20 years, so Vinovest will also offer guidance on the best liquidity options. They’ll also help you determine when to sell, so you make a tidy profit, irrespective of the market conditions.

Start investing with Vinovest by following these easy steps:

Step 1: Head to the website and sign up — this will only take a few minutes.
Step 2: Fill out a brief form to help Vinovest understand your investment style.
Step 3: Add a minimum of $1,000 to your account.
Step 4: Based on your answers, Vinovest’s artificialintelligence will recommend some stellar wines.
Step 5: Now, all you need to do is watch your portfolio thrive!

Diversify Your Investment Portfolio The Smart Way!

When determining where to store your cash for the short term, weigh all your options. Your best bet is to have a short term investment plan with options that are easy to liquidate, have little to no withdrawal fees, and have the least risk.

As an investor, it’s also essential to have a balanced portfolio, including a diverse portfolio of long term investments. Investing in fine wine is easily the most risk-free option and is likely to yield high returns. Sign up on the Vinovest website for the most delicious investment yet!