For many of us, our goal is to live comfortably — especially during the golden years of retirement. However, to do that, wise financial investments are essential.
As we learned from past experiences, like those in 2008 and 2020, our nation’s economy and individual financial stability could be compromised by forces beyond our control, leaving many people scrambling for income.
Fortunately, even in the most extreme circumstances, there are ways to secure your future and achieve added financial flexibility, including making short-term investments, as either a first-time or experienced investor.
Short-term investments are typically held for less than three years. Although some risk is involved, as with other investment opportunities, the goal is to end up with more money than you invested. A variety of opportunities for smart and successful short-term investment options exist for 2023.
Short-Term Corporate Bond Funds
When the topic of bonds is discussed, many people tend to think of government investments. However, many other types of bond funds, including corporate bonds, also provide investors with a variety of benefits.
A short-term corporate bond fund is issued by major corporations with a maturity of less than five years. This form of short-term investment is typically considered safe because it pays interest at regular intervals; however, the interest rate is usually lower than intermediate or long-term bonds.
Investors make money from short-term corporate bonds based on the interest rate. Although the principal investment stays with the company for the duration of the bond, investors receive interest rate payments at predetermined intervals, typically annually or semiannually. Then, the company returns the principal on the maturity date of the bond, ending the investment.
Corporate bond funds typically consist of a collection from different companies across a variety of industries, which helps insulate investors in case one or more of the companies are unable to repay investors. This diversification could keep a poorly performing bond from hurting the investor’s overall return on investment.
Short-Term U.S. Government Bond Funds (Treasurys)
Another popular short-term investment option for 2023 is government bond funds, also known as Treasurys. These bonds are like corporate bonds, but they are issued by the United States government rather than corporations.
There are many types of government bond funds, including Treasury bills (T-bills), Treasury bonds (T-bonds), and Treasury notes (T-notes). The difference between bills, bonds, and notes are the maturity lengths.
- Treasury bills are issued in maturity terms of a single year or less.
- Treasury bonds mature in terms of 10 years to 30 years.
- Treasury notes are issued in maturity terms of two years to 10 years.
Treasury bills, bonds, and notes are sold at auction with a fixed interest rate. During times when demand is high, bidders are likely to pay more than the face value to receive the fixed rate.
The Treasury Department pays interest every six months for notes and bonds, while bills are paid at the point of maturity. These bonds are considered to be low risk because they are backed by the full faith and credit of the United States government.
High-Yield Savings Account
Opening a high-interest savings account with a credit union is an ideal alternative for safeguarding your money beyond putting it in a checking account. There is generally not any risk when putting money into a savings account, and the funds are liquid, meaning investors can withdraw funds at any time.
Customers with savings accounts at Hudson River Community Credit Union (HRCCU) benefit from earning a competitive annual percentage yield (APY) that is on par with current (rising) interest rates. Even though savings account interest rates are often lower than other short-term investments, these accounts are ideal for investors who cannot commit to a multi-year investment option.
High-yield savings accounts at HRCCU are insured by the National Credit Union Administration (NCUA) to guarantee you won’t lose money. When opening a savings account with HRCCU, keeping an eye on your money has never been easier, thanks to our mobile banking app that allows you to check your account without leaving home.
Certificates of Deposit
For investors with the flexibility to tie up their cash without worrying about early withdrawal, high-yield certificates of deposit (CDs) are a safe, effective short-term investment in 2023, especially given rising interest rates.
Because investors promise financial institutions that they will leave their money in CD accounts for a specific amount of time, the interest rates on CDs are usually much higher than savings accounts, but these investments are just as safe. On the downside, investors must pay stiff penalties if they require early withdrawal.
Dividend Stock Funds
Many people see stocks as a risky investment, but when it comes to building wealth, they are one of the best options. Stock funds allow investors to start with a low initial buy-in (sometimes as low as $1) and offer excellent liquidity, making them a great short-term option.
For those new to stock investing, stock market investments may be a bit safer when the stock pays dividends. This occurs when a portion of a company’s profit is paid to shareholders, typically on a quarterly basis. Investors can earn money quickly by taking advantage of these short-term stock payouts, while also making money through long-term stock market appreciation.
As with any stock investment, there are risks involved, but dividend stocks are considered safer compared to non-dividend stocks, so it’s important to carefully build a portfolio. Before investing in stocks, be sure to work with a financial professional to determine the best short-term stock options for your finances and goals.
Cash Management Accounts
Cash management accounts are simple ways to take advantage of short-term investment opportunities in 2023. These accounts, offered through online brokerages as well as traditional financial institutions, allow investors to put money in a variety of short-term investments. Additionally, they act like omnibus accounts, or accounts that hold more than one item.
Cash management accounts utilize a robo-advisor model that allocates deposits into different accounts based on individual needs and preferences, with the goal of maximizing return.
Investors can utilize cash management accounts for investing or transferring money in addition to carrying out other bank-like activities. This form of investment offers a significant amount of flexibility.
There are not a lot of risks associated with this account, as they are low-yield market funds. Investors should protect themselves, however, by working with an FDIC-protected partner bank to ensure proper money management and protection.
Money Market Accounts
Money market accounts are like a hybrid between a savings and a checking account. They allow investors to earn higher interest rates, but they also keep money readily available for spending. Money market accounts typically offer higher interest rates compared to savings or checking accounts alone.
Most money market accounts come with easy-to-use features, such as a debit card and check writing capabilities. However, unlike a typical checking account, a money market account limits a user’s transactions to around six per billing cycle. Users who exceed that amount will incur a fee.
Money market accounts are very safe investments that are backed by the Federal Deposit Insurance Corporation (FDIC) or NCUA for up to $250,000. Therefore, many investors use money market accounts to store emergency funds, because they are easy to access, secure, and accrue a good amount of interest.
Money Market Mutual Funds
Although their names are similar, a money market mutual fund is different from a money market account. Another great short-term investment for 2023, money market mutual funds are investments that pool together a variety of securities like U.S. and corporate bonds as well as bank debt and various cash equivalents.
Regulated by the Securities and Exchange Commission (SEC), money market mutual funds are generally safe investments because of their variety. They also offer tax-exempt options, which means that 80 percent of a given fund includes municipal securities. Money market funds typically only lose money when the market is under intense stress.
Money market mutual funds are also relatively liquid, which means it’s easy to withdraw money from them or use them to hold cash for down payments on a home or vehicle. Money market funds may include a fee for management, however, so it’s important for investors to do their homework and work with a reliable financial advisor in order to maximize their return.
Let HRCCU Help You Find the Best Short-Term Investments of 2023
Still have questions? Check out HRCCU’s investment guide for beginners for additional tips for growing your money. To learn more ways to invest in your future and how to determine the best short-term high yield investments that are best for you, contact our financial advisors today.
We’ll be happy to answer any questions you might have and give you peace of mind about every investment decision you make.
