If you’re looking to invest money for the short term, you’re probably searching for an investment that you can easily convert to cash. Here are a few of the best short-term investments that are highly liquid and give investors the flexibility to withdraw money quickly, if needed.
Short-term investments are a necessary part of any financial portfolio, but they should never be your only strategy. There are several reasons why you should consider short-term investment strategies, but you need to know how to balance them with long-term investments.
If you want to start right away, you need to approach short-term investing with the following tips.
How to Start Short-Term Investments – Quick Guide
- Determine your level of risk: Based on the degree of loss you are willing to endure within your portfolio, seek for short-term investments with guaranteed returns or short-term investments with better, yet unknown, returns but also the risk of losing money.
- Consider your options: Cash is a desirable asset for managing risk and liquidity. Within the fixed-income universe, bonds may be a good consideration. Equities can be volatile and experience significant price highs and lows, while cryptocurrencies involve taking on a great deal of risk.
- Take your position: Practise using your strategy with a CAPEX.com demo account or open a live account and start investing in over 5,000 stocks and bond funds listed on 10 global exchanges.
Alternatively, you can continue reading our in-depth guide to short-term investments or learn about different strategies with CAPEX Academy’s range of online courses.
What Are Short-Term Investments?
Short-term investments, also known as marketable securities or temporary investments, are financial investments that can easily be converted to cash, typically within 3-12 months. Even though they offer lower paces of return than putting money into a record store over the long term, they are highly fluid speculations that give financial backers the flexibility to bring in cash they can withdraw quickly if necessary.
Short-term investments can be contrasted with long-term investments.
Unlike long-term investments, which are designed to be bought and held for a period of at least a year, short-term investments are bought knowing they will be quickly sold. Typically, long-term investors are willing to accept a higher level of volatility or risk, with the idea that these "bumps" will eventually smooth out over a long period—as long as, of course, the investment is growing in a positive trajectory.
To understand short-term versus long-term investments, it helps to understand the difference between interest rates and investment returns.
For the most part, growing money short-term through interest-bearing accounts is low risk. You go into the agreement knowing how much interest you’ll earn over a preset period. Investing in stocks, on the other hand, is far from certain. After a bear market, it could take months or years to get your money back.
Short-term Investments in virtual currency have produced jaw-dropping returns for some, but the field still presents risks. A safer but potentially less lucrative alternative is buying the stocks of companies with exposure to cryptocurrency.
This demonstrates one of the basic tenets of investing: High returns typically require a willingness to take on more risk, while low returns often come with the comfort of lower risk — or none. So how do you find a balance?
Here’s a guide to some of the best short-term investment options based on your risk aversion.
Top Short-Term Investments in November 2024
Some common short-term investments and strategies used by corporations and individual investors include:
- Saving Accounts
- Fix-income Securities
- Equities
- Cryptocurrencies
1. Savings Accounts
One of the simplest methods to earn interest on the money you have is through a savings account, which is an interest-bearing deposit account held with a bank or other financial institution. They nevertheless make it simple to spend and withdraw money while providing higher interest rates than a standard checking account. Savings account rates, however, are far lower than those offered by other short-term investments, and they also don't keep up with inflation.
Savings accounts may have some restrictions on how frequently you can withdraw funds, but generally offer exceptional flexibility that's ideal for building an emergency fund, and saving for a short-term goal like going on vacation or buying a car.
Interest rates on savings accounts might vary. Banks and credit unions may alter their rates at any time, except for promotions that promise a set rate until a specific date. Institutions may modify their deposit rates in response to changes in the federal funds rate.
Pros of short-term investments in savings accounts:
Cons of short-term investments in savings accounts:
2. Fixed-Income Securities
A fixed-income security is an investment that provides a return through fixed periodic interest payments and the eventual return of principal at maturity. Unlike variable-income securities, where payments change based on an underlying measure, such as short-term interest rates, the returns of a fixed-income security are known.
If an investor is looking for a conservative short-term investment that will not expose you to too much volatility, short-term bonds may be a good option. Also, if interest rates are rising or expected to rise, short-term bonds are even better.
Government bonds
In the US, they’re called Treasury Bonds. While all long-term and short-term investments incur risk, sovereign bonds from established and stable economies are regarded as being low risk. In the UK, government-issued bonds are known as gilts.
US Treasury bills (or T-bills) are bonds with a maturity of one year or less and are considered some of the best short-term investments in fix income markets. Whereas most government-issued bonds in the US, UK, and Germany have a fixed interest rate, both offer types that vary the coupon payment based on inflation.
Corporate bonds
Corporate bonds are issued by corporations to secure funding for investment. Although high-quality bonds from well-established companies are seen as a conservative short-term investment, they still incur more risk than government bonds and pay higher interest.
When you buy a corporate bond, you become a creditor and enjoy more protection from a loss than shareholders – ie if the company is liquidated, bondholders are compensated before shareholders. Corporate bonds are evaluated by rating agencies like Standard & Poor’s, Moody’s, and Fitch Ratings.
Some of the most liquid bond funds for short-term investments are:
- Vanguard Short-Term Corporate Bond ETF
- iShares iBoxx $ Investment Grade Corporate Bond ETF
- iShares 1-5 Year Investment Grade Corporate Bond ETF
With CAPEX.com you can receive coupon payments in the form of dividends with a bond ETF.
Pros of short-term investments in fix-income securities:
Cons of short-term investments in fix-income securities:
3. Equities
Short-term investments in equities involve the purchases and sales of stocks, conducted on regular trading exchanges through a stockbroker. Investors obtain partial ownership of corporations in equity markets, while bonds are solely interest-earning investments.
The Nasdaq and the New York Stock Exchange (NYSE) are among the best-known equity markets. All stock markets, no matter the type, can be volatile and experience significant price highs and lows.
In equity markets, the shares of individual companies are sold to the public in initial public offerings (IPOs) and continue to trade on exchanges after that. Most retail investors are comfortable buying and selling stocks in equity markets. Furthermore, many brokerages charge low or no fees for trading stocks. They also offer ways to trade fractional shares, so high-priced stocks are available to small investors. Equity markets are generally very accessible.
The high risks and sometimes spectacular profits in equity markets led to the development of multiple strategies, such as growth investing and value investing. A high degree of success in equity markets usually requires greater amounts of research and follow-up on investments than is necessary for fixed-income investments. There are also widely divergent approaches to trading in equity markets, from high-frequency trading to "buy and hold". Some traders in equity markets try to enhance gains by using leverage, while others try to reduce risks by hedging.
Some of the most popular types of stocks for short-term investments are:
Growth stock
Growth stocks are one of the most exciting areas of the stock market but buying them for profitable short-term investments isn’t as simple as the name suggests. Because high-growth companies can be very rewarding to investors, their prices can sometimes get bid up to overvalued levels. But if you’re able to purchase a growth stock at a compelling price, it might be one of the best short-term investments for those with more risk aversion.
Based on the 2023 performance these growth stocks were some of the most profitable short-term investments:
- Meta Platforms (META) +120%
- Salesforce (CRM) +68%
- Tesla (TSLA) +65%
- General Electric (GE) +63%
Dividend stocks
Dividend stocks are companies that pay out a portion of their profits to shareholders. These payouts can come monthly, quarterly, or annually. To receive the dividend for your short-term investment, you’ll need to be on the company’s shareholder books before the ex-dividend date. If you buy after, you’ll have to wait until the next payment, which could be next month, next quarter, or next year.
Based on the 2023 dividend yield these stocks were some of the profitable short-term investments:
- Texas Instruments Inc. (TXN) 2.8%
- Lockheed Martin Corporation (LMT) 2.7%
- Merck & Company, Inc. (MRK) 2.6%
With CAPEX.com dividends are paid to your account in cash. You’ll be able to see these in your Dashboard and in your Account Statement.
AI Stocks
AI stocks represent shares in companies that are heavily involved in the research, development, and deployment of artificial intelligence (AI). This can encompass a wide range of industries and applications, from autonomous vehicles and healthcare diagnostics to cloud computing and customer service automation.
AI stocks are considered some of the best short-term investments due to the significant growth potential in this rapidly evolving sector. Based on the 2023 performance these AI stocks were some of the profitable short-term investments:
Pros of short-term investments in equities:
Cons of short-term investments in equities:
Special Considerations on Short-Term Investments in Bonds and Equities
The growth of exchange-traded funds (ETFs) has transformed equity and fixed-income markets while blurring the lines between them. ETFs may hold any combination of stocks or bonds, but they trade on stock exchanges. ETFs often have reasonable prices, below $100 per share, so they are accessible to all investors. That is more important for bonds, as many small investors could not trade them so easily before.
With ETFs, investors achieve instant diversification and can often determine the quality of securities by merely looking at the label. For example, an investment-grade bond ETF would be an easy way to earn more income than in a savings account with limited risk. For stocks, ETFs offer a substantial reduction in idiosyncratic risk and easier access to foreign markets, including frontier and emerging markets.
4. Cryptocurrencies
Cryptocurrencies were some of the most profitable short-term investments for some investors during 2020-2021 and even 2023, while others have lost significant sums. According to experts, it might be okay to add crypto to the 5% or 10% of your portfolio you’re setting aside for alternative assets.
Investing in cryptocurrency means buying, storing and selling digital currencies through an exchange. However, safely storing cryptocurrencies is also more difficult than owning stocks or bonds. Cryptocurrency exchanges make it easy to buy and sell crypto assets such as Bitcoin and Ethereum, but many people don't like to keep their digital assets on exchanges due to the risks of allowing any company to control access to their assets.
Storing cryptocurrency on a centralized exchange means you don't have full control over your assets. An exchange could freeze your assets based on a government request, or the exchange could go bankrupt, and you'd have no recourse to recover your money.
Some cryptocurrency owners prefer offline "cold storage" options such as hardware wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key; without a key, it's impossible to access your cryptocurrency.
While buying cryptocurrency is a major trend right now, it’s a volatile and risky short-term investment choice. If investing in crypto on an exchange or via an online broker doesn’t feel like the right choice for you, here are a few options to indirectly invest in Bitcoin and other cryptocurrencies:
1. Crypto Exchange-Traded Funds (ETFs)
ETFs are extremely popular long- and short-term investment tools that let you buy exposure to hundreds of individual investments in one fell swoop. This means they provide immediate diversification and can be less risky than investing in individual investments.
BITO, the first bitcoin-linked ETF in the United States, has demonstrated its ability to closely track spot bitcoin, despite an extremely volatile period for stocks, bonds, and digital assets during its first year since inception.
After one of the most successful launches in ETF history in October 2021, BITO has continued to perform as designed—and has become the world’s largest and most actively traded cryptocurrency ETF. Meanwhile, hacks of crypto exchanges and lingering questions over whether cryptocurrency brokerage accounts are segregated in the event of bankruptcy, among other issues, have cast a shadow over the spot market's accessibility.
That has thrust bitcoin-linked ETFs, like BITO, into the fore as a potential investment vehicle of choice.
2. Companies Connected to Cryptocurrency
If you’d rather invest in companies with tangible products or services that are subject to regulatory oversight—but still want exposure to the cryptocurrency market—you can buy stocks of companies that use or own cryptocurrencies and the blockchain that powers them. You’ll need an online brokerage account to buy shares of so-called crypto stocks, metaverse stocks, or NFT stocks:
- Nvidia (NVDA) and AMD
- Block and PayPal (PYPL)
- Meta Platforms and Shopify
- Coinbase and CME Group
Pros of short-term investments in cryptocurrencies:
Cons of short-term investments in cryptocurrencies:
Special Considerations on Short-Term Investments in the Crypto Sphere
As with any short-term investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatile—a single tweet can make its price plummet—and it’s still a very speculative investment. This means you should invest carefully and with caution.
How to start short-term investments with CAPEX.com?
- Open an account: Fill in the online form, upload documents to prove your identity, and fund your account.
- Select your short-term investments: Choose between 5,000 stocks ETFs, including Bond ETFs tracking government or corporate bonds and crypto ETFs
- Take your position: enjoy investing through one of the world’s best web-based platforms and mobile trading apps.
The Bottom Line
Short-term investments can be suitable for individual investors and corporations who are looking for both liquid and stable options to diversify their portfolios. The options are plenty: from high-yield savings accounts to bonds which are usually safe and stocks that can be more volatile, it's only up to each investor to do their homework.
Free resources
Before you start short-term investing, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.