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8 Short-Term Investments To Consider in 2022

Sometimes you need to invest your money for a short period of time to save for a certain goal such as buying a house or a car, a wedding, etc. Such financial goals are suitable for short-term investments. These investments can be easily converted to cash, typically within 5 years. Short-term investments offer lower rates of return, flexibility to investors, and are highly liquid. Some of the best short-term investments are treasury bills, money market accounts, government bonds, certificates of deposits (CDs), and high-yield savings accounts.

If you are looking to invest for a relatively smaller investment horizon knowing you will sell your investments quickly, you may consider short-term investments. However, remember that they may carry varying amounts of risk. It is also important that you research thoroughly before you pick an investment. You can consider consulting with a professional financial advisor who can advise you on the best short-term investments to invest in for your specific financial situation.

This article explores some of the best short-term investments that you can invest in 2022.

8 short-term investments for 2022

1. High-yield savings account

High-yield savings accounts offer a higher rate of interest than regular accounts and can be a great source of additional income. However, the interest rate does not change with any market movements and is calculated at a pre-decided rate. If you are a risk-averse investor looking for short-term gains, you can invest your money in a high-yield savings account.

Since high-yield savings accounts are managed by public bodies like the Federal Deposit Insurance Corporation, they are a much safer bet making it unlikely that you would lose your money.

2. Short-term corporate bond funds

Short-term corporate bonds are generally issued by well-known large companies to the general public to fund an initiative or a long-term project. Corporate bonds are safe investments and promise decent returns. These funds can help diversify your portfolio and are highly liquid in nature. You can easily liquidate your holdings if you need money quickly. Additionally, as they are short-term funds, one is not exposed to the risk of changing interest rates, etc.

However, note that these bonds carry a level of risk as they involve private companies operating in a highly dynamic business environment.

3. Money market accounts

If you are looking for high-interest short-term investments, you can choose money market accounts. These are bank deposits where you can earn good interest. However, different banks have different limits on the amounts you can invest in these accounts. Therefore, you must try to reach out to your bank to understand these thresholds and the benefits of putting your money in a money market account. That said, a money market account works like a regular savings account. Here, the prevailing interest rate might not help you beat inflation. Therefore, to generate inflation-beating returns, you should look for other investment opportunities too.

4. Money market mutual funds

A money market mutual fund is one wherein you can invest in short-term debt instruments, cash, and cash equivalents rated as high-quality in nature. These funds are considered to be extremely low-risk and help generate income but little capital appreciation.The downside of investing in a money market mutual fund is that these funds are directly managed by fund managers who charge a hefty amount. These additional charges are passed on to the investor as an expense ratio. Nevertheless, the principal amount you invest in these mutual funds remains safe, and you might continue earning from these investments.

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5. Treasury securities

In the US, treasury securities are of three distinct types: T-Bills, T-Bonds, and T-Notes. T-Bills are debt instruments issued by the US Department of Treasury. They have the shortest maturity period ranging from four weeks, eight weeks, 13 weeks, 26 weeks, and 52 weeks and are considered one of the best short-term investments. The only difference between the T-Bills and T-Bonds is that T-Bonds mature after 20 years. On the other hand, T-Notes are debt instruments issued for 2, 3, 5, 7, and 10 years, and they pay interest every six months until they mature.

That said, treasury securities are not risk-free. The risk component is much lower compared to equity instruments. Further, since these investments are managed by the Government which pays the returns as well, they are much safer compared to other bonds. However, if you are looking to earn high returns in a short period of time, these securities may not be ideal for you.

6. No-penalty certificates of deposits (CDs)

A no-penalty certificate of deposit allows you to withdraw funds before the term ends. Typically, when you invest in a CD, you agree to keep your money invested for a specific period, which may range from several weeks to years. However, a no-penalty CD provides you the flexibility to withdraw or stay invested for a shorter duration.

CDs earn interest throughout the deposit period and you can collect the entire interest and principal amount at the end of the term period. The major benefit of investing in a no-penalty CD is that you can withdraw your money before the maturity period without having to pay an additional charge. Thus, if you wish to have some liquid funds and grow them at the same time, you can invest your money in a no-penalty certificate of deposit. If interested, you can reach out to your bank, as most banks offer CDs as a financial product.

7. Cash management accounts

A cash management account acts as an omnibus account that can help earn returns by investing in various short-term investments. Through it, you get exposure to multiple securities by making one investment. A cash management account is a highly liquid investment.

These investments are relatively low-risk, allowing you to withdraw and transfer cash like a general savings account, making them highly flexible. There are no limits on monthly withdrawals making cash management accounts preferable over money market and general savings accounts. You can reach out to a stock broker if you wish to invest in this short-term investment.

8. Short-term US government bond funds

If you are looking for a short-term investment managed directly by the Government, short-term US government bond funds may be ideal. The Federal Government and other related agencies issue and manage these funds. You can invest in T-bills, T-bonds, and mortgage securities through these funds allowing you to earn steady returns at low risk.

To conclude

Short-term investments are a good way to gauge the market and earn decent returns for individual investors looking for secure and liquid investment options to grow their wealth. There are plenty of alternatives to choose from. However, before picking any short-term investments, it is important to assess your risk appetite and to choose investments based on your unique financial needs. If in doubt, consider reaching out to a professional who can help guide you. Use the free advisor match service to match with vetted financial advisors that can guide you effectively on the best short-term investments to invest in based on your financial requirements. Answer a few questions about yourself and get matched with 1-3 financial advisors that can help you.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.