The Best Short Term Investments for Savvy Traders

Estimated read time: 5 minutes

Experts will tell you for the best overall performance you should stick with long-term investments instead of short-term, but some people like more thrills than that. The idea of buying and selling can be too tantalizing to resist. If you do it right, you can go from pauper to prince in a short amount of time, or if you're more conservative than that, you can rest easy knowing your money is FDIC insured while still drawing decent interest.

If you're a savvy trader who wants to try to build your fortune in the near future, here are some of the best short-term investments you might want to consider.

By spreading out your investments in a careful mixture, you'll be covered no matter what life throws at you.

Short-Term Investments Overview

Everyone's definition of short-term investments may vary. If you ask a day trader what he thinks a short-term investment is, he may answer in hours. Some people may consider months, while others will still think of several years as a short-term investment.

Depending on the product you're investing in, a short-term investment may be under a year or even up to five years. You can invest short term in many financial products, such as treasury securities, stocks and bonds, money market accounts, certificates of deposit, municipal bonds, and even crowdsourcing or peer-to-peer lending.

Some people use taxation laws to determine what they consider a short-term investment. Capital gains tax rates for 2018 are taxed at a higher rate when they are for assets held less than a year, so if you sell stocks in under a year, you'll be taxed at a higher rate for them. Assets like stocks held for over a year are given a lower tax rate, so some people consider short-term investments as anything under one year, based on that tax rate information.

Why Invest in the Short Term?

If you pay more in capital gains taxes for short-term investing, why would anyone want to do it? Wouldn't it be better to hold on to those assets until you get a tax break on your gains?

In some cases, long-term investing is definitely the way to go. Your house is a long-term investment, as is the 401k you set up at work.

Short-term investing is important, too. Let's look at emergency funds, for instance. It can make more sense to hold at least part of your emergency fund in an investment that has more earning power than a traditional savings account.

It's good to keep some of your investments short term because they provide you with cash you can easily tap into should you need it. Having short-term investments gives you the liquidity you need while also maximizing your earning potential for that money.

Also, you can get instant results. That's important for people who need more motivation than thinking about how much money they'll have after patiently investing for 40 years until retirement.

Best Short Term Investments

If you're looking for something to sink your money into short term, you first need to examine your risk tolerance.


If you decide you're comfortable with higher risk as a trade-off for the potential of greater returns, you might want to sink some of your money in stocks.

You should never invest more than you are comfortable with losing because stocks are wildly unpredictable, but if it's your idea of entertainment — researching stocks and picking your favorites can be addicting.

While stocks traditionally give the best return as a long-term investment, if you pick the right one and it soars quickly, it can feel like hitting the lottery.

Certificates of Deposit

If you're more of a traditional investor and you would rather go old school than mess with new concepts like Bitcoin, certificates of deposit could appeal to you.

This isn't as glamorous as the earning potential of stocks, but you will be FDIC insured up to a certain amount, so there's no risk involved. The rate you'll get depends upon which bank you go through and how long you want to lock your money up.

In March 2019, Capital One 360 was offering a 2.70 percent annual percentage yield on a one-year CD, 2.85 percent APY on a three-year yield, and 3.10 percent APY on a five-year investment. You also don't need to invest a minimum amount to get that deal.

Roth IRAs

Roth IRAs are tricky in that they can be both long-term and short-term investments. While many people like Roths as a vehicle for their retirement money because of the tax advantages, you are able to withdraw your contributions without paying a penalty whenever you want.

That's one of the reasons Roth IRAs are viewed by some as the best of both worlds — an investment that can cover all your needs, both short term and long term.

Money Market Accounts

If you still need to have access to your money for the occasional expense, you might want to opt for a money market account.

While these don't offer as high of an APY as CDs do, they offer more liquidity. Although it can vary, some money market accounts allow you to write a limited number of checks from that account each month if you want. By shopping around, you can still find APYs in the 2 % range.

Peer-to-Peer Lending

If you like the idea of helping out somebody else with their dream while landing a good interest rate, peer-to-peer lending might be for you. There's no shortage of these opportunities, and while they carry some risk, many sites carefully vet out as many risky borrowers as possible.

StreetShares is one such site that is making a name for itself by lending money to veterans who own small businesses. In return for investing in their Veteran Business Bonds, they'll give you a five percent interest rate. Your money will be locked up for a year, and at the end of that term, you can withdraw it with no penalties or keep it growing in the account.

Go Both Short and Long Term

When investing, you need to make sure all your needs are being met. You'll want to keep some money liquid so you can access it if you need it. But you also must be mindful to set aside some long-term funds so you know you're going to have retirement money when that day comes.

By spreading out your investments in a careful mixture, you'll be covered no matter what life throws at you.