Let's observe the best short term investments that give us option to retire rich.
Short Term Investing Explained
First, let's define what a short term investment is. This is money that you will need on a short term basis, within 5 years. You don't want to add a lot of risk to this investment, because doing so could cause you to lose the money when you need it the most. Over a long period of time risk and fluctuations tend to work themselves out and give you a higher rate of return, but we need this money soon, so we should focus on avoiding risk.
Uncovering The Basic Short Term Investment Vehicles
There are a few different options that we have for short term investments that are very safe and you are extremely unlikely to lose any money in, including putting the money in a jar, putting it in a savings account at your local bank, in a high-yield online savings account, or a certificate of deposit.
Under Your Mattress – A lot of people might think this is a very safe place to put money, however it's really a bad idea to leave a pile of cash at home. There's always a chance that a thief could steal it, or it could get destroyed in a natural disaster or a fire. In addition, your money is getting less valuable over time, because of inflation. This is probably the least safe place you can put your money, because you're guaranteed to lose value over time.
Savings Account at The Bank – Your money will be very safe at your local bank, however you won't get much back for it. The national average for savings accounts is about 0.6%. Your money will be readily accessible in your local bank's savings account and you know it will be there. This is probably not the best option because of the low rate of return.
Money Market Account – Operates just like high yield savings accounts, except account minimums are often higher. See High-Yield Savings for more info.
High-Yield Savings Account – This is a great option for short term savings. You can find a much better rate of return than your local bank. It's basically a savings account at an online bank that you can transfer money back and forth between your checking account. I suggest that you use ING Direct for your online savings account. It currently offers 3.4% APY on your money, which is not the highest, but they have great customer service and excellent security features. Another good option is WaMU checking/savings.
Certificate of Deposit – Certificates of deposit offer a little bit better rate of return than high-yield money savings accounts, however they're not ideal for short term investing. Usually when you are saving money, you want to put a little bit in at a time until you save up and have all the money for the purchase. Certificates of deposits are inflexible in the time period that you want to invest the money, and you can only do lump sum investing.
Overall, a high-yield money savings account is definitely the best place to go for your short term savings and investing needs. There's not any risk to speak of (at least until interest yields drop) and you'll get a decent rate of return on your money.
Matthew Paulson writes for Getting Green (feed), a financial blog that exists to make you a better steward of money. Getting Green will provide you with daily wisdom and practical tips to help you grow financially. Be sure to check out Matthew's blog, and watch out for more short term investments.