10 Best short-term investments in 2022

What is a short-term investment?

When you make a short-term investment, you’re usually doing so because you need the money right away. If you’re saving for a down payment on a house or a wedding, for example, you’ll need to have the cash on hand. Investments made for less than three years are considered short-term.

You can consider stocks if you have a longer time horizon – at least three to five years (and even longer is preferable). Stocks have a far bigger potential for profit. Over extended periods of time, the stock market has gained by an average of 10% every year, but it has also shown to be quite volatile. As a result, the longer time horizon allows you to ride out the stock market’s ups and downs.

Short-term investments: Safe but lower yield

Short-term investments have a price to pay for their safety. You’re unlikely to make as much money on a short-term investment as you would on a long-term one. You’ll be limited to specific types of investments if you’re investing for the short term, and you shouldn’t acquire riskier assets like stocks and stock funds. (However, if you’re looking for a long-term investment, here’s how to buy stocks.)
Short-term investments, on the other hand, have a few advantages. They’re frequently highly liquid, allowing you to access your funds whenever you need it. They’re also less risky than long-term investments, so there’s a chance you’ll have little or no downside.

Best short-term investments in March:

Savings accounts with a high rate of return
Corporate bond funds with a short maturity
Accounts in the money market
Accounts for cash management
Bond funds that invest in short-term government bonds in the United States

Overview: Top short-term investments in March 2022

Here are some of the best short-term investments to consider that will still yield a profit.

1. High-yield savings accounts

A high-yield savings account at a bank or credit union is a better option than keeping cash in a checking account, which normally yields relatively little interest. In a savings account, the bank will pay interest on a regular basis.
It’s a good idea for savers to compare high-yield savings accounts because it’s easy to figure out which banks give the best rates and they’re simple to open.

You won’t lose money since your savings account is covered by the Federal Deposit Insurance Corporation (FDIC) at banks and the National Credit Union Administration (NCUA) at credit unions. In the short term, these accounts pose little risk, but investors who store their money for longer periods of time may struggle to stay up with inflation.
Savings accounts are quite liquid, and you can add money to them at any time. Savings accounts, on the other hand, usually only allow for six fee-free withdrawals or transfers per statement cycle. (Banks can now opt out of this rule, thanks to the Federal Reserve.) Of course, you’ll want to keep an eye out for banks that impose fees for things like keeping accounts or using ATMs so you can avoid them.

2. Short-term corporate bond funds

Bonds issued by significant firms to fund their investments are known as corporate bonds. They’re usually regarded as safe and pay interest on a regular basis, such as quarterly or twice a year.
Bond funds are collections of corporate bonds from a variety of corporations, typically from a variety of industries and sizes. Because of the diversification, a poor-performing bond won’t have a significant impact on the overall return. Interest will be paid on a regular basis, usually monthly, by the bond fund.

Risk: Because a short-term corporate bond fund is not backed by the government, it has the potential to lose money. Bonds, on the other hand, are usually pretty safe, especially if you buy a well-diversified portfolio of them. Furthermore, a short-term fund has the least risk exposure to changing interest rates, thus rising or decreasing rates won’t have a significant impact on the fund’s price.
Short-term corporate bond funds are extremely liquid, and they can be bought and traded on any day the financial markets are open.

3. Money market accounts

Money market accounts are a type of bank deposit that often pays a greater interest rate than regular savings accounts, but they also have a higher minimum investment requirement.
Risk: Look for an FDIC-insured money market account to ensure that your funds are protected in the event of a loss, with coverage of up to $250,000 per depositor, per bank.

Money market accounts, like savings accounts, pose a long-term risk since their low interest rates make it difficult for investors to keep up with inflation. However, in the medium run, this isn’t a major worry.
Money market accounts have a high level of liquidity, while federal regulations limit withdrawals.

4. Cash management accounts

A cash management account, similar to an omnibus account, allows you to engage in a number of short-term assets. Investing, writing checks off the account, transferring money, and other conventional bank-like actions are all possible. Robo-advisors and online stock brokers are the most common providers of cash management accounts.
As a result, the cash management account provides you with a great deal of options.

Risk: Because cash management accounts are frequently invested in low-risk, low-yield money market products, there is little risk. Some robo-advisor accounts deposit your money into FDIC-protected partner banks, so if you currently do business with one of the partner banks, make sure you don’t exceed FDIC deposit coverage.
Money can be withdrawn at any time from cash management accounts because they are relatively liquid. They may be even better in this regard than ordinary savings and money market accounts, which have monthly withdrawal limits.

5. Short-term U.S. government bond funds

Government bonds are similar to corporate bonds, but they are issued by the federal government of the United States and its agencies. T-bills, T-bonds, T-notes, and mortgage-backed securities are among the investments purchased by government bond funds from federal entities such as the Government National Mortgage Association (Ginnie Mae). These bonds are thought to be low-risk.
While the FDIC does not back bonds issued by the federal government or its agencies, the bonds are the government’s guarantees to return money. These bonds are considered extremely safe because they are backed by the United States’ full faith and credit.

Furthermore, an investor who invests in a short-term bond fund assumes a modest level of interest rate risk. As a result, rising or falling interest rates will have little impact on the bond prices of the fund.
Government bond funds are very liquid since government bonds are among the most widely traded securities on the exchanges. They can be purchased and traded on any day the stock market is open for business.

6. Corporate bonds

Companies can also issue bonds, which range from low-risk (issued by large profitable enterprises) to high-risk (issued by smaller, less successful companies). High-yield bonds, also known as “junk bonds,” are the lowest of the low.
“There are low-rate, low-quality high-yield corporate bonds,” explains Cheryl Krueger of Growing Fortunes Financial Partners in Schaumburg, Illinois. “I think those are riskier because you’re dealing with not only interest rate risk, but also default risk.”

Interest-rate risk: As interest rates change, the market value of a bond might fluctuate. Bond values grow when interest rates decrease and fall when interest rates rise.
Default risk: The corporation could fail to fulfill the interest and principal payments it promised, ultimately leaving you with nothing on your investment.
Why should you invest? Investors can choose bonds that mature in the next several years to reduce interest rate risk. Longer-term bonds are more susceptible to interest rate movements. Investing in high-quality bonds from reputed multinational corporations or buying funds that invest in a broad portfolio of these bonds can help reduce default risk.

Bonds have a smaller risk risk than stocks, but neither asset class is risk-free.
“Bondholders are higher on the pecking order than stockholders,” Wacek explains, “so if the company goes bankrupt, bondholders get their money back before stockholders.”

7. Dividend-paying stocks

Stocks aren’t as safe as cash, savings accounts, or government bonds, but they’re safer than high-risk investments like options and futures. Dividend companies are thought to be safer than high-growth equities since they provide cash dividends, reducing but not eliminating volatility. As a result, dividend stocks will fluctuate with the market, but when the market is down, they may not fall as much.

Why invest: Dividend-paying stocks are thought to be less risky than those that don’t.
“I wouldn’t call a dividend-paying stock a low-risk investment,” Wacek says, “since there were dividend-paying stocks that lost 20% or 30% in 2008.” “However, it has a smaller risk than a growth stock.”
This is because dividend-paying companies are more stable and mature, and they provide both a payout and the potential for stock price increase.
“You’re not just relying on the stock’s value, which might change, but you’re also getting paid a regular income from that stock,” Wacek explains.

Risk: One risk for dividend stocks is that if the firm runs into financial difficulties and declares a loss, it will be forced to reduce or abolish its dividend, lowering the stock price.

8. Preferred stocks

Preferred equities have a lower credit rating than regular stocks. Even so, if the market collapses or interest rates rise, their prices may change dramatically.
Why should you invest? Preferred stock, like a bond, pays a regular cash dividend. Companies that issue preferred stock, on the other hand, may be entitled to suspend the dividend in particular circumstances, albeit they must normally make up any missing payments. In addition, before dividends may be paid to common stockholders, the corporation must pay preferred stock distributions.

Preferred stock is a riskier variant of a bond than a stock, but it is normally safer. Preferred stock holders are paid out after bondholders but before stockholders, earning them the moniker “hybrid securities.” Preferred stocks, like other equities, are traded on a stock exchange and must be thoroughly researched before being purchased.

9. Money market accounts

A money market account resembles a savings account in appearance and features many of the same features, such as a debit card and interest payments. A money market account, on the other hand, may have a greater minimum deposit than a savings account.
Why should you invest? Money market account rates may be greater than savings account rates. You’ll also have the freedom to spend the money if you need it, though the money market account, like a savings account, may have a monthly withdrawal limit. You’ll want to look for the greatest prices here to make sure you’re getting the most out of your money.

Risk: Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which provides guarantees of up to $250,000 per depositor per bank. As a result, money market accounts do not put your money at risk. The penalty of having too much money in your account and not generating enough interest to keep up with inflation is perhaps the most significant risk, since you may lose purchasing power over time.

10. Fixed annuities

An annuity is a contract, usually negotiated with an insurance company, that promises to pay a set amount of money over a set period of time in exchange for a lump sum payment. The annuity can be structured in a variety of ways, such as paying over a certain amount of time, such as 20 years, or until the client’s death.
A fixed annuity is a contract that promises to pay a set amount of money over a set period of time, usually monthly. You can contribute a lump sum and start receiving payments right away, or you can pay into it over time and have the annuity start paying out at a later date (such as your retirement date.)

Why should you invest? A fixed annuity can provide you with a guaranteed income and return, which can help you feel more secure financially, especially if you are no longer working. An annuity can also help you build your income while deferring taxes, and you can put as much money into it as you like. Depending on the contract, annuities may also include a variety of extra benefits, such as death benefits or minimum guaranteed payouts.

Risk: Annuity contracts are notoriously complicated, and if you don’t read the fine print carefully, you could not get exactly what you expect. Because annuities are illiquid, it might be difficult or impossible to break out of one without paying a hefty penalty. If inflation rises significantly in the future, your guaranteed payout may become less appealing.