When you discuss savings and financial goals, the focus tends to be around the long-term. Often, the first thing that comes to mind is saving and investing for one’s retirement. However, there’s more to life than long-term goals alone.
More likely than not, you’ll have plenty of smaller goals and things to save up for throughout your lifetime. Whether that’s for a car, a house, your child’s college, or even a vacation, there are plenty of purchases that shouldn’t be made on a whim, but rather saved up for over a shorter period of time.
That being said, the strategies you use to invest for years into the future aren’t necessarily the same ones you’ll use to invest for short-term goals. If you find yourself with short-term goals, use these six ways to invest.
1. Invest in a Mix
You’ve likely heard the phrase, “don’t put all your eggs in one basket”. Well, the same is true of your money and investing. If your goal is grow savings over a shorter period of time, your best bet is to create an investment portfolio that possesses both index stocks and bonds.
Stocks help deliver a higher return on your money. Bonds help keep your portfolio from suffering from a negative return. Opt for short-term bonds, that won’t be as affected should your interest rates rise, but will still provide you with a fair return for short-term goals.
2. Utilize Mutual Funds
Mutual funds are another great option in terms of helping you acquire good returns in a shorter period of time. They are different from stocks in that its holders don’t have voting rights. Mutual funds represent an array of stocks instead of just one. The benefit to mutual funds is your ability to have a diversified portfolio without having to manage and pick out stocks to invest in. You’ll also find that you have multiple ways to earn off of mutual funds, such as from interest or dividends, or from capital gain when it’s securities are sold; ergo serving to build your money for short-term savings.
3. Consider Using a Company like Betterment
If you’re not investing or financially savvy, figuring out how to invest your money can be a challenging task. Thankfully, companies like Betterment help ease the process by eliminating some of your choices. By creating a portfolio with a company like Betterment, they’ll simply ask what percent of your investment you want in bonds and what percent in stocks. They then do the investing for you by choosing low-cost index options.
Moreover, they also give you the ability to choose the goal your money is going toward. They will then invest your money based on the length and description of that goal. As I said, if picking investments isn’t your forte, utilizing a company or tool like this can help make the process that much easier and have you on your way to saving in no time.
4. Opt for a Money Market Account
A money market account works a little like a savings account, however, tends to have a higher interest rate. Unlike savings accounts, however, money market accounts usually provide higher annual yields by investing you in an array of choices. These can be such things as securities and certificates of deposits. And while you have access to these funds while your balance builds, your access is limited in terms of how many times you can withdraw over a period of time.
All that being said, however, money market accounts usually require a higher minimum balance to open the account in the first place.
5. Use a Certificate of Deposit
A certificate of deposit is a certificate issued by a bank that allows you to invest your money with them until a certain point in time. They also have a fixed interest rate. It allows you put that money aside for however long you’d like, until it reaches peak maturity by restricting your access to those funds. The point behind this is that there’s higher risk and uncertainty when your investment is held for a long period of time, hence the ability to earn more interest. Of course, like with most investments, the longer your fund sits, the higher your yield will be. Furthermore, it’s important to note, that should you need to pull your money out sooner rather than later, you will be forced to pay a fee, usually the cost of three months’ interest.
6. Try a Peer-to-Peer Loan
A peer-to-peer loan consist of you lending others your money for a period of time in return for interest. By using an online platform like Lending Club or Prosper, you can connect with others throughout the country that are based on their creditworthiness. The higher in the credit tier the borrower you choose, the lower risk and lower interest rates, and the lower-credit score borrowers provide the highest interest rate. So, just like in stocks, the higher-risk you take the better the return. Of course, you should also diversify your money with your loans just as you would with stocks as well. While this option can provide significant return, it is one of the riskier investment choices to make.
Unless finances and investment is your forte, you likely find that investing is a complicated process. That’s especially the case, when you’re trying to create a portfolio that provides you with a return in a shorter period of time. It may mean opting for higher-risk investment situations, should you need that money quickly.
Of course, like with all investing, investing smartly usually means diversifying your investments between both high and low-risk options. Even though investing likely elicits thoughts of long-term financial goals, there’s more that you can do besides simply saving or putting your money in a jar to create a lucrative fund for all of your short-term goals as well. By opting to utilize some of these tactics, you can wisely invest and grow your money to reach those short-term goals in a timely manner.
What are some of your short-term goals? Have you invested your money to achieve them? If so, what options have you used?