10 Best Short Term Investments in 2020

29 Sep 2020

Investment is a great way to secure one’s future. There are various options like stocks, bonds, shares, mutual funds, etc. that are a popular mode of investments. Well, people invest for a different purpose, some may look for a short-term investment, while others may be targeting at long-term investments. Here, we unfold ten popular short-term investments.

Short Term Investment Plans in the US 2020

1. Lending Club- It’s a great choice for those who are looking for great return in short-term investments. Loans on this platform are for 3 -5 years. Although the returns are high, there is a risk involved. You can start investing in this loan with as low as $25.

Pros: Easy investment

            Higher returns

Cons- Cannot liquidate loans early

             Potential for losses

Expected annual return- 5.00 to 7.00+%

2. Online Savings Account- Another good option that you can choose is an online savings account. Although it may not give you very high returns, you get some benefits without risking anything. The chances of potential losses are very low.

Pros: Easy investment

          Low risk

         Guaranteed return

          High liquidity

Cons-Lower gains

3. CDs or Certificate of Deposits- The CDs are issued by banks and are comparatively profitable than the savings account. The CDs have better interest rates and returns. The tenure of CDs can vary from 3 months to 5 years, so you can choose the timeline accordingly. The better the timeline, the better is the return. After the CD matures, you get the principal amount and the interest on it.

  • Pros: Easy investment

           Low risk

           Guaranteed return

  • Cons- If one needs to take out money before the maturity date, the bank may levy a penalty on it.
  • Expected Annual Return: 3%
  1. Money Market Account – It is an FDIC-insured and interest-bearing deposit account. It offers better interest rates than a savings account, but it requires a higher minimum balance. These are a good choice for emergency savings.
  • Better interest rate than a savings account

           Higher liquidity

  • Cons: Inflation can be a threat to the Money Market Account
  1. Betterment- It offers a great platform for those who are willing to make a short-term investment. Betterment is an online company which carries out investments in stocks and bonds. But, it is not FDIC-insured. Its services include both short-term and long-term investment.
  • Pros- One can withdraw money at any time

            Higher returns

            Low Fees

  • Cons- Non-FDIC insurers

             Capital losses

  • Expected Annual Return: 0 to 10+%
  1.  Government Bond Funds - If you are looking for secured investment options, then you should go ahead with government bond funds.  These are mutual funds that invest in debt securities issued by the US Government and its subsidiaries. Some of the examples include T-bonds, T-notes, mortgage-backed securities, etc. 
  • Pros- Low-risk investment

            Highly liquid bond fund shares

  • Risk- The bonds are subjected to interest rate fluctuations and inflation.
  1.  Short-term Corporate Bonds- Many companies raise money by issuing bonds. Small investors can invest in short-term corporate bonds. They have a maturity period between one and five years.
  • Pros- Less susceptible to changes in the interest

            It gives you the leverage to buy and sell shares every day.

  • These are not FDIC insured

             TCons- here is a probability of capital loss in this case.            

  1. Treasury Inflation Protected Securities- These are also popularly known as TIPS and are government bonds. They have a fixed interest rate. The rate of return starts at 0.5%, but over a period of 5 years, it increases to 2.5%. An important point to note about TIPS is that the interest is taxable, so most of the investors prefer to invest in mutual funds or TIPS ETF.
  • Pros: Government bond

           Good returns over a period of 5 year

  • Cons- The interest rate may start with as low as 0.5%

The bond’s interest is taxable.

  1.   Municipal Bonds- These are the best short term investment for 2020. With respect to other bonds, the only drawback is that these bonds have taxed interest rate.  One of the ways to reduce the tax burden is to go for municipal bonds or munis.   They are free from Federal income tax.
  • Pros-Higher returns

          Tax benefit

          Easy access to funds

  • Cons- Probability of loss

            Not for those who fall in lowe tax slab

            Expected Annual Return: 2 to 5% (after tax)

  1. Wealthfront- It is a kind of online platform that helps you in investing. This is a free-to-use platform for the first $5000, then you will be charged a fee, but it is very low. 
  • Pros-Easy to withdraw money at any time

          Higher returns

          Low Fees

  • Cons- Non-FDIC insures

            Probability of capital loss

                         Expected Annual Return:  0 to 10%

The Bottom Line- If you are planning to make a short-term investment that can give you good returns, then you can consider the options mentioned above. Or else, you can also seek the advice of the brokerage firms that will help you in making the right choices. Alertness and smartness of choices will make you opt for the best short-term investment option.