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Most of the time, when people invest money, they plan to do so over the long term. We put money aside in small amounts for our retirement, looking for growth over years and even decades. Time can be a powerful tool, and the ability to wait can put money in your pocket. As the late Charlie Munger once said, “Waiting helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
While most of our money should be in long-term investments, there are also times when we park funds for a year or less. Some traditional investments like dividend stocks are less useful in cases like this. It is tempting to keep your money where it is in a checking account, but even though it will not be invested for a long time, it can still do much good. If you have $10,000 available and have enough in your emergency fund, having it sit and do nothing may not be your best move. Investing money for the short term typically involves options that prioritize liquidity and capital preservation over high returns.
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Keeping It In The Bank, But Better
The simplest option is likely a high-yield savings account. These savings accounts offered by banks and credit unions offer higher interest rates than regular savings accounts. Current rates tend to be between 4-5% APY. That is a lot better than you can get at most big banks. These accounts are low-risk and offer liquidity, so you can get the money when needed if your time horizon shifts. Another benefit of a high-yield savings account is it is very easy to set up. If you are interested in an account like this, make sure the fees are low and you can withdraw as much as you want without incurring additional charges.
Another option in the banking arena is certificates of deposit or CDs. This type of savings account has a fixed interest rate and a fixed term, ranging from a few months to a few years. In some, but not all cases, you will get higher interest rates than regular savings accounts, especially for longer terms. They are also FDIC-insured. The downside is that you will not have the liquidity of a savings account. You may have to shop a bit for a good rate, and as with bank accounts, you want to keep an eye on fees.
Buffett Likes T-bills, Should You?
Another option for savvy investors is short-term Treasuries or short-term Treasury securities. These debt instruments issued by the U.S. Department of the Treasury have maturities of one year or less. The most common type of short-term Treasury security is T-bills. They are sold at a discount to their face value, and when they mature, the government pays the investor the full face value. The investor’s return is the difference between the purchase price and the face value. They are available in 4, 8, 13, 17, 26, and 52-week maturities and can be bought in $100 increments.
One of the advantages is that they are nearly risk-free because they are government-issued. They can be resold relatively easily in the secondary market. Interest in T-bills is exempt from state and local taxes but not Federal taxes. If you’ve heard about T-bills in the news lately, it’s probably because Warren Buffett’s Berkshire Hathaway has $234.6 billion in short-term U.S. Treasury bills, more than the Federal government. Buffett’s investment in T-bills is a way to park cash and earn a return. T-bills won’t make you rich in the long run and sometimes won’t outpace inflation, but if you need a short-term investment, following Buffett’s lead isn’t a bad idea.
Risk Meet Reward
While the first two options presented are nearly risk-free, there are opportunities to earn more while taking on a little more risk. EquityMultiple’s BaseCamp Alpine Notes is the perfect solution for first-time investors. It offers a target APY of 9% with a term of only three months, making it a powerful short-term cash management tool with incredible flexibility.
There is more of an element of trust here because a bank or the federal government does not back your money. That doesn’t necessarily spell danger. EquityMultiple has issued 61 Alpine Notes Series with over 1,500 investors and has met all payment and funding obligations with no missed or late interest payments. With a minimum investment of $5,000, BaseCamp Alpine Notes makes it easier than ever to start building a high-yield portfolio.
How Short Is Short For An ETF?
Most of the time, when we invest in ETFs, we look to stay invested longer. Short-term ETFs generally have lower interest rate risk compared to long-term bond ETFs. However, even within the short-term category, the specific duration of the ETF can influence its sensitivity to interest rate changes. Government bond ETFs have lower credit risk than corporate bond ETFs, which might offer higher yields but come with slightly more risk. Most short-term ETFs are highly liquid, allowing easy access to funds if needed before the investment period ends.
If your time frame is under a year, one option is the JPMorgan Ultra-Short Income ETF (NYSE:JPST). It invests in a short-term investment-grade fixed- and floating-rate corporate and structured debt portfolio while actively managing credit and duration exposure. You will also earn a small monthly dividend with a yield of over 5%. Schwab has also launched a competitor in the short-term ETF space. The Schwab Ultra-Short Income ETF (NYSE:SCUS) started trading this month and is Schwab’s first actively managed fixed-income ETF. Like the JPST, it invests in investment grade, short-term debt securities issued by U.S. and foreign issuers. Its fee is lower than the JPST but it doesn’t have a performance track record to follow because it is new.
There are other alternatives for short-term investors, but overall, the take-away is that there are plenty of ways to earn a return on your investment. Short-term investments function like long-term ones in that more risk can sometimes but not always bring you a higher return. Depending on your goals for the money you invest after your term, one of the options above may be right for you.
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This article Four Ways To Invest $10,000 For The Short Term originally appeared on Benzinga.com
