Short-Term Investing: Your Money, Your Timeframe
- Are you thinking about short-term investments?
- It’s all about finding the right balance between having easy access to your cash, keeping it safe, and making your money work for you.
- Consider the term or timeframe of the investment or when you may want to access your money is essential.
The types of investment products mentioned in this article focus on Australia. Most countries will have similar short-term investment options that are easy to access, aim to preserve your capital, and offer moderate returns.
Short-term investments typically have a timeframe of about two years. Although depending on your goal, you could stretch out the timeline to three or even five years. For instance, you may be saving up for a holiday to Europe in four years’ time. Therefore, it would be smarter to utilise a higher interest account to earn as much as possible without risking your capital. An investment in shares could experience capital values rising and falling. The last thing you would want is for a share market downturn just before you are about to head off to visit the Eifel Tower.
This is where your Timeframe comes into play.
I’m going to use the SMART methodology mentioned in last months’ March Blog. The SMART goal setting method helps you create clear and achievable goals by ensuring they are Specific, Measurable, Achievable, Relevant, and Timeframe.
Knowing your goals will guide your investment choices. I teach the SMART method in my Money Makeover Course. It is the way to go. Do one for each of your goals.
Back to our dream 3-week vacation to France in 4 years’ time. Yay!!!!
| S | Specific | Create a budget for your vacation |
| M | Measurable | A$8,000 |
| A | Attainable | Save A$83 per fortnight |
| R | Realistic | Can you stick to the budget – yes there is a disposable amount each fortnight to cover this savings |
| T | Timeframe | When do you want to achieve your goal- 48 months from now |
Remember to automate your savings by setting up an automatic transfer from your working account to a savings account. To help you stay on track
Features of short-term investments
- The focus is on capital preservation and income generation.
- They produce income but don’t grow in value but they don’t fall in value either.
- The income generated whether it is paid to you or reinvested must be added to your taxable income.
- Generally aim to be lower risk than long-term investment options, meaning you might not see huge returns, but your money is less likely to experience falls in value.
High-interest savings accounts:
Think of these like enhanced savings accounts, offering better interest rates than traditional ones while still letting you get to your money quickly.
Term deposits (TDs):
Similar to certificates of deposit (CDs) in other countries, TDs lock in your money for a set period at a fixed interest rate. There might be a penalty for early withdrawal, so be sure about your timeline.
Cash management accounts:
These combine features of a regular transaction account with some investment options. Basically, you get the ease of a cheque account with the potential for slightly higher returns.
ASIC-monitored money market funds:
These pool your money with other peeps to invest in short-term debt, aiming for low risk and steady returns. Look for the ASIC Money Market label for added security.
Peer-to-peer (P2P) lending:
This can offer potentially higher returns, but it also involves lending money directly to individuals or businesses. There is a higher chance you might not get your money back compared to other lower risk options, so do your research carefully.
In a Nutshell
The best short-term investment for you depends on your goals and how comfortable you are with risk. Here are some things to consider:
When will you need the money? If it’s within a year, a high-interest savings account might be ideal. For a longer timeframe, TDs or money market funds could be options. Back to the holiday in France – here you could use a combination of a high-interest savings account and TD’s that fall within the timeframe of your goal. Because the institution has your money for a known and specific time, the rate of return tends to be slightly higher.
How much risk are you okay with? If keeping your money safe is top priority, high-interest savings accounts or ASIC-monitored money market funds might be best.
Income producing Investments are suited to situations where you need immediate access to your money e.g. your emergency account or what I call my Ooops! Account, or money you will need in the near future to meet your short-term goals. These monies have to be secure not volatile.
Procrastinating is dangerous. Do you have a goal but have not made a plan to achieve it?
Do you have funds in a zero or very low interest account?
It is time!
5 Steps
- Set up your Ooops! account for emergencies.
- Create a Smart plan for each of your short-term goals.
- Identify your disposable income.
- Make a commitment to automate the $ per month into your short-term goal bucket/s.
- Celebrate! Each investment decision you make makes you more competent & confident
Below are some fabulous websites that offer valuable info and provide you with investment product comparisons.
https://www.canstar.com.au/term-deposits/
https://www.finder.com.au/savings-accounts
https://moneysmart.gov.au/managed-funds-and-etfs/peer-to-peer-lending
💬 Have questions? Email me directly or book your free Discovery Call to start a conversation about your goals.
🌱 Ready for a transformation? Check out my Money Makeover Course and take the first step toward financial freedom today!
