Money-TalksMaking new investments can be intimidating. Deciding whether to invest in stocks, bonds or cash investments is a challenge. First-time investors feeling a bit overwhelmed by all of the investments out there may want to consider starting off with a short-term investment.

Short-term investments are good for first-time investors because they offer a very low-risk as well a short maturation period. The interest earned is low, but the money is generally guaranteed.

There are a variety of short-term investments to choose from, each fitting different needs and different stages of life. Exploring the types of bonds and cash investments can help the investor choose the perfect fit.

Things to Consider With New Investments

Liquidity: The ease at which an investment can be bought or sold is often referred to as liquidity.

Some short-term investments, like a savings account at a bank, offers the highest liquidity, meaning money can be taken out of the investment at any point. The interest is calculated based upon the principal balance, but that balance is variable.

Bonds, on the other hand, are investments that must reach a pre-determined maturation period before the principal is paid back to the investor. This period of time can be as short as 90 days or as long as 30 years. Some bonds pay investment interest semi-annually, but the principal investment money cannot be pulled out until the maturation date without a fine.
Safety: If you want a 100 percent guarantee to receive your entire principal investment plus interest, an insured investment is the best idea for you.

Cash investments such as banking or money-market accounts are completely secure and offer small interest. Treasury Bills are backed by the U.S. treasury while some other cash investments are FDIC insured.

Many bonds are considered low-risk. A bond is similar to a loan that is paid back with set interest. The types of bonds issued by the U.S. government or municipalities are considered to be very low-risk, as the country, states and cities are highly unlikely to go bankrupt.
Interest: Generally, high-risk investments yield high rewards. Investors who choose to have high liquidity and 100 percent security will have to sacrifice a better interest rate. While short-term investments are, in general, considered low-risk, there are a few options that yield the highest interest.

In general, bonds generate higher investment interest than cash investments. Corporate bonds can yield a high interest depending on the terms set with the issuer. Bonds with a longer term and lower liquidity pay more investment interest.

Too_Boring_For-CNBCAnother consideration for interest is Municipal bonds. Because these bonds are not charged a federal tax, the money saved can be considered a higher return.
Short-term investments offer many benefits to investors. These investments offer a great deal of security. Because cash investments and bonds do not rely on the stock market, the interest and principal does not rise and fall.

Short-term investments are also a great way to store extra cash so it can earn a little bit of investment interest, rather than remaining stagnant. A short-term investment is a place to keep funds while expanding your investment portfolio.

Savings accounts, money-market accounts, short-term bonds including municipal and corporate bonds are all great investing choices. Assess your needs and investing desires, then choose the short-term investment that will best grow your capital and increase your assets.
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  • Avoid emotionally driven decisions.
  • Minimize errant investment activity motivated by media hype and the investment “gurus”.
  • Eliminate poor market timing decisions resulting in missed opportunities.
Do you want to know more about short-term investments? We recommend these Winship blog posts:
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