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Building wealth is a multi-faceted journey that requires balancing different financial goals at the same time. For example, you may be investing for retirement, stashing away money for a new kitchen and saving for college in a 529 savings plan all at once.
Fortunately, there’s nothing wrong with saving to reach varying goals and objectives throughout your life. In fact, doing so is the best way to ensure you reach all your goals in the first place. You just have to approach different savings goals with different methods and make sure you’re using the right investments when you’re investing for the short term, so that you aren’t putting money at risk that you may need soon.
Short-term investments are designed to help you grow your money for a short period of time without risking a loss of your principal. These types of investments are typically geared toward buckets of money you need to access in the next month or year. In some cases, a short-term investment might be used for a somewhat longer period, such as five years, but your timeline can vary.
When it comes to short-term investments, most people look for options that have these attributes:
- Decent liquidity, meaning you can easily and quickly access your money when you need it
- Stability, which means you’re unlikely to lose any part of your initial investment
- Low transaction costs, which help you keep more of your earnings
When you choose a short-term investment, you typically have to accept lower investment returns. That’s because short-term investments require assuming a lower level of risk in order to be relatively certain that you won’t lose your principal. The downside of this strategy is …….