Top 3 Short-Term Investments To Look Out For
At home, work or even while commuting, the topic that is dominating every conversation today is Coronavirus and its impact on one’s health, the stock markets and wealth. The coronavirus outbreak has impacted all strata of the financial ecosystem. With a complete halt on the global supply chain and markets undergoing a downward spiral, the world is currently experiencing one of the worst recessions. Amidst such situations, it can become challenging to invest in long-term. The economic repercussion of the pandemic outbreak compelled many investors to realign their portfolio and think of short-term investments.
According to a report published by S&P Global Ratings, the Indian economy is expected to shrink by 5% in 2021, due to the ongoing coronavirus lockdown impacting the economic activity of the nation. The impact of the pandemic outbreak was felt in the money market, as indices across the globe experienced a sharp plunge as the rapid spread of the pandemic hurt investor sentiment as well. Considering the current economic conditions, it is absolutely natural for investors to look for short-term investment options. In light of this, here are the top 3 short-term investments to look out for.
Choose Fixed Deposits
Considering the current situation, it is reasonable to limit the risk factor in an investment portfolio. Typically, a market cycle lasts more than 3 years, so there regularly isn’t a sufficient opportunity to recuperate from a downturn that may happen if choosing higher-risk assets, for instance, equities. Hence, one of the easiest and safest ways to invest in the short-term is by opting for fixed deposits. The general notion about the fixed deposit is that its long-term. However, investors can invest in fixed deposits for much shorter periods as well. Along these lines, you can guarantee that you get fair returns and your venture is secured against market inflation. Moreover, a short-term fixed deposit also acts as a contingency fund. Instead of borrowing, withdraw your FD.
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Liquid funds are a type of mutual funds that invest in short-term government certificates and securities of deposits. Investors can enter and exit at any point of time these liquid funds investments are secure and provide around 4-7% post-tax return. Consider parking your contingency funds in these, as the recovery takes around 2 days.
Considering the current market condition, many investors are looking for alternative investments to diversify their portfolio. Since these assets react differently to market conditions, investors often find alternative funds a great way to minimise market risk. AIFs like invoice discounting is increasingly gaining traction among investors as it offers above-market returns within a short period of time at a reduced risk.
High-yield Savings Accounts
High-yield savings accounts are as safe and as easy to access as your traditional brick-and-mortar savings account at a big bank, but offer a much higher return (both accounts’ APYs are variable rates).
You can rest assured that your money is protected through FDIC insurance up to $250,000 per depositor per bank, and you can make deposits into your account at any time. Keep in mind that although the Federal Reserve removed Regulation D — which limited “convenient” withdrawals and transfers to no more than six per month — banks generally still enforce this restriction.
The high-yield savings accounts below offer above-average APYs and don’t enforce a limit to the number of withdrawals or transfers you can make. Both the Lending Club High-Yield Savings and UFB Premier Savings also provide you with a free ATM card, making it easy to access your savings account on the go.
Money Market Accounts
The third deposit account on this list, money market accounts, or MMAs, are also stable vehicles for your short-term investments because they offer FDIC insurance up to the standard $250,000 per depositor per bank.
With MMAs, you can deposit cash at any time and the same six-per-statement-cycle withdrawal or transfer limit may apply, depending on your bank. MMAs offer variable interest rates and checking account features, such as check-writing privileges, debit cards, ATM access and out-of-network ATM fee reimbursements. Cash withdrawals from an ATM isn’t typically part of any imposed limit, so this allows you always to access your cash directly and immediately.
Treasury bills, or T-bills, are a type of fixed-income security issued by the government with a short maturity term of within a year. T-bills are nearly risk-free and highly liquid, which means they are very safe places to park the cash you’ll need soon.
Keep in mind, however, that T-bill returns typically react inversely with the Federal Reserve benchmark rate; a higher rate set by the Fed means lower returns on T-bills. In contrast, high-yield savings and CDs usually raise their rates as the benchmark rate goes up.
With a reduced interest rate and vulnerability pervasive in the market, investors will need to be aware of the market corrections to be on top of their game. Hence, investing in short-term investments is considered prudent amidst the current circumstances. It is suggested to keep up satisfactory liquidity of at least 25%, and to put resources into the market in a methodical way with enough diversification across assets.