Short Term Investing - Pros - Cons - Tips - Options

While most investment strategies focus on the long-term, there are valid reasons in times when short-term investing strategies make more sense. That could be used as a method for saving up for an impending capital expenditure. Another good reason for short-term investing, is simply the fact that they are the best investment vehicles during a time of recession, or a downturn in good long-term investments. As with any investments, whether short-term or long-term, attention should be paid to the rate of return, relative risk, and liquidity.

While checking accounts may not often be considered short-term investments, they can be used as just such a vehicle. Given that the return is next to nothing among checking accounts, it makes sense to only keep money in them for different short-term expenditures. Their biggest advantages is convenience, the careful attention should be paid to the fine print when comes to fees and how you balances can affect those fees.

Savings accounts are similar to checking accounts in the advantages they offer to short-term investing. As a rule, their interest rates are better than checking accounts, and the fees with respect to minimum balances a more advantageous.

A third option for the short-term investor, are money market accounts. Once again your rate of return, will generally be better than a savings or checking account. On the flip side though, funds are not as easy to access.

Another short-term the coalition be considered, is the money market fund. They offe the best rate of return of any strategy mentioned so far. Most banks and investment houses offer some sort of money market fund. One caveat here though to be considered, is that these funds are not FDIC insured.

Another option is should be considered here when managing your short-term portfolio is your old reliable certificate of deposit. Commonly referred to as CDs for short. CDs do have a specific term maturity date. Any funds withdrawn prior to that date will of course incur a penalty. The good news however it is these are very stable investments and they're also FDIC insured.

And last but not least of our initial recommendation for short-term investing, or the vehicles commonly known as Treasury Securities. Sometimes referred to as bonds, these products offer a fairly respectable rates of return amongst the grouping of short-term products.

Other Places to Stash Your Cash

When considering good places to store your money while you're weathering the storm, don't jump at the first opportunity that presents itself. And don't be stuffing cash in your mattress like grandma used to do. Trust me, there are better safe havens for your money even in these uncertain economic times. You do need to give some thought to how you want to manage your short-term funds before choosing the proper investment vehicle.

First of all, think about how you'd like to access and manage that money. Not all investment products offer the same level of service to their investors. Short-term money often needs to be accessed in a hurry, so ATM's, and online banking are definite bonus here. And of course, the rate of return you get is important. Of course it won't be much as is typical of most short-term investments. Do you need the services of a real live bank teller or manager to help with your short-term portfolio? If not, then there's not much point in paying for those services. Banks and financial institutions, but have no bricks and mortar presence can often offer higher interest rates and lower fees. Speaking of fees, don't forget to read the fine print and factor these little expenses into your investment decision. Penalties for early withdrawal should also be taken into account.

High-Yield Accounts

High-yield accounts are something relatively new in the banking scene and are a specialty of the virtual or online banks. These are basically no-frills banks, but often no physical presence such as branches in your hometown. On the plus side however, their high-yield checking and savings accounts often rival the rates of return on par with the certificates of deposit (CDs) that are offered by the more traditional banks and investment houses.

Do your research however, and be sure you understand the restrictions and services not offered by these no-frills banks. Also ensure, the length of time the rate of returns you've been promised will last for.

Money Market Deposits

Just another one of the many short-term investment vehicles you should explore. The often limit the number of transactions over a period of time but usually offer better-than-average rates of return over other short-term options.

Government Bills

While these don't always offer as high a rate of return as CDs they are considered one of the most secure short-term savings options available. Assuming of course, that the US government remains a viable institution. These are generally available in terms of anywhere from less than a year all the way up to 10 years.

I Bonds

These are government backed savings bonds is real of returning is it just a regular basis based on the rate of inflation. One of the nicer aspects of I Bonds, is their exemption from nonfederal taxes and their ability to be used for expenses incurred in the pursuit of a college or university education.

Corporate Bonds

These are of course, bonds issued and backed by a whole variety of corporations. The rate of return will have an inverse relationship with the credit status of the corporation. Which basically means, the high-risk the company, the better your rate of return. Be extra careful and read the fine print with these bonds as commission fees an early penalty withdrawals can be substantial.

Bond Funds

If you're unsure of what specific bonds you're interested in investing in, then bond funds offer a good alternative. You get to safety of a diversified portfolio of bonds, and a somewhat stable but conservative right of return.