One of the things we frequently advise for investors is to invest for the long term. Generally speaking, time is one of the most reliable factors in big portfolio gains. We tend to steer people away from short-term strategies, as there are far too many get-rich-quick schemes out there that are happy to take your money and run. However, there are safe short-term investments that can be nice additions to a portfolio.
You’re already aware that some investments come with more significant risks and rewards than others. Investing in the stock market, for instance, can lead to big returns if you have a number of top stocks in your portfolio. However, market corrections and declines can happen, often leading to losses. It’s important to realize that there are some safe havens for your money, as well as investments that are safer than other types of investments. This is the case with stocks and ETFs.
Know the characteristics of safe short-term investments worth targeting
By definition, most strategies around safe short-term investments include investing in “safe” entities for a period of no more than five years. Some investors even consider one year to be the maximum time limit for short-term investing. Either way you look at it, these safe short-term investments discussed below are not the types of investments used by conservative investors for long-term returns over 25 years or more.
Some of the characteristics to look for in safe short-term investments include their historical results, the level of volatility, and the industry in which the company operates.
Historical results: Looking for investments that have historically paid dividends is a great way to begin looking for safer investments. Why? Only successful businesses can pay dividends to shareholders. There’s no way to fake dividends or fudge the numbers on them. Finding companies that have paid dividends while maintaining growth, low debt, and strong management can lead to consistent dividend payments and more wealth over time.
Volatility: Low volatility leads you to low risk. Look for stocks with a low volatility by using beta. A beta with a positive number less than one will show you an investment that comes with low volatility.
Industry: Some market sectors are safer than others. The safest market sectors are ones that consumers need, regardless of the stock market and the economy. Consumer goods and utilities fall into this category. People need to eat, take care of their hygiene, and have heat at home, even when the stock market is down. Investing within these industries can lead to fewer drops, even in declining markets.
Discover the types of safe short-term investments that can make you money
It’s also worth noting that “safe,” to some, does not necessarily mean that it is impossible to lose your principal investment. However, the investment possibilities below will provide returns as long as you follow their requirements.
Treasury Securities: These investments are backed by the United States Government in full faith and are purchased directly from the United States Treasury. There are a variety of different types, ranging from short-term to long-term options. Treasury bills are some of the shortest bond offerings in this category.
Certificates of Deposit (CDs): These investments can be a perfect short-term situation for investors looking for some additional money in as little time as a few months. CDs pay higher returns with longer terms, so they can be used by both short and long-term investors. It is important to allow a CD to mature entirely to get the most from it.
Rewards Checking Accounts: Although the availability of rewards checking accounts has lessened over the years, there are still options available to those who want to earn extra cash each month for using their debit card. Most of the rewards checking accounts have an associated fee and potential penalties if you don’t use your debit card enough each month, but the added money is worth it to those who can abide by these rules.
As with any investment, it’s important to look at the big picture to determine what’s right for you. There is no single “right” way to invest, so always think of your strategy not as individual parts, but a whole that works together for your benefit.
How much of your portfolio do you put towards short-term investing methods?