The economy might be in the doldrums but you are earning OK and running a tight ship and building your savings sensibly; the million dollar question is what to do with your savings and how to invest it profitably because you don’t know zilch about short term investments. Here’s everything there is to know about short term investments, but you were reluctant to ask!
Checking accounts and bank savings accounts
They are like maneuvering your car into the airport parking lot and catching the flight to a tropical paradise, the parking lot won’t be remembered because it has nothing special to offer! Much the same way savings accounts have very few redeeming features other than the fact that your money is FDIC protected. You can accumulate cash in these accounts purely for issuing checks to brokers for the big daddy of them all-real investments!
Open ended Money market fund or money market mutual fund
These are mutual funds that invest your money in government securities, CDs and commercial papers of good companies. They generate moderate income at very low risk and are OK for the cautious investor who aims for safety of his principal. These funds will maintain shares at a net asset value of $1 per share as their primary goal is to generate a steady income.
Bank Certificates of deposit (CDs)
Issued mostly by banks, these instruments hold your money (a specific amount) for a specified period at a predetermined rate of interest, such deposits are FDIC insured and safe as Fort Knox but you can’t access the money before its term, and if you do you lose interest and pay penalties.
U.S. government bills, notes and bonds
The safest investment ever, bills mature with a year, notes may take two to ten years and bonds will take you the full tour of thirty years and interest rates will be moderate, but you won’t have to pay taxes. Withdrawing money prematurely may not get you all the money back.
Municipal (infrastructure development) bonds
These are issued to raise money for building infrastructure in towns and cities and their sole claim to fame lies in bestowing tax benefits both federal and municipal, but they take the backseat on interest earnings when compared to bank CDs and company bonds.
Corporate debt securities or bonds
These are loans raised by companies for funding business operations. The problem is that the higher the companies are on stock indices like Moody’s and Standard & Poor they lower will be the interest. Small and medium sized companies are more likely to pay higher interest for borrowing your money through short term bonds. These instruments carry the risk of the company collapsing.
Bond funds that invest your money in debt securities
These are simply mutual funds that pool investor’s money for channeling into multiple bonds of differing risk profiles. By doing this the investor is assured that his investment is protected through diversification. This is a safer way of booking higher income than by risking investments in individual bonds that may sink with the parent company.
The entire purpose of these short term investments is to boost earnings and grow your fund in the shorter term so that your money grows in tune with your real time requirements and you can earmark the fund for specific goals like purchasing a car, paying for college fees and tuition, buying a home or saving for a vacation.
No matter how carefully you have built up your savings, you will definitely face emergencies that create a huge demand for money to meet urgent expenses. In such moments you will be in a dilemma whether to divert savings that were originally intended for short term investments. Tackle such situations by availing the trusted car equity loan that finances you instantly by securing your car title as collateral. The auto equity loan will assist you by approving a sum aggregating 60% of your resale price of your own car. These auto collateral loans will charge you interest not exceeding 25% APR which will not strain your existing source of income, and pawn car loan repayments can be modified to match your income streams.