When we think about savings and financial goals, it’s easy to get caught up in long-term objectives like saving for retirement. But life is full of more immediate goals, too. Whether it’s buying a car, a house, funding your child’s education, or planning a vacation, these big purchases also require thoughtful saving and planning.
Interestingly, the investment tactics for your short-term and long-term goals might need to be different. Here are six strategies to help you save for short-term financial objectives:
1. **Diversify Your Investments**
The saying “don’t put all your eggs in one basket” holds true for investing. If you want to grow your savings over a shorter period, consider putting your money into both stocks and bonds. Stocks can provide high returns, while bonds can shield you from negative returns. Short-term bonds, in particular, are less affected by interest rate hikes and can still offer good returns for short-term goals.
2. **Invest in Mutual Funds**
Mutual funds can be a good choice for short-term savings. Unlike stocks, mutual funds don’t give you voting rights, but they do represent a mix of stocks. This allows you to diversify your portfolio without the hassle of picking and managing individual stocks. Mutual funds can earn you money through interest, dividends, and capital gains when the securities are sold.
3. **Partner with a Company Like Betterment**
If you’re not very familiar with investing, companies like Betterment can simplify the process by eliminating some of the choices you need to make. Based on your preferences, they can manage your portfolio and choose low-cost index options. You can also specify the goal of your investment, which helps the company tailor their strategies to your needs.
4. **Open a Money Market Account**
Money market accounts work similarly to savings accounts but typically offer higher interest rates. They provide diversified investment opportunities and can yield higher annual returns. However, they often require a high minimum balance to open and may limit your access to the funds.
5. **Invest in a Certificate of Deposit**
A Certificate of Deposit (CD) from a bank allows you to invest money for a set period. CDs usually offer a fixed interest rate, with the potential for higher returns the longer your money is invested. Just be aware that taking your money out early can result in penalties.
6. **Consider Peer-to-Peer Lending**
Peer-to-peer (P2P) lending lets you lend money to others in exchange for interest. Online platforms like LendingClub can connect you with borrowers, and you’ll earn interest based on their creditworthiness. As with other investments, higher risks can lead to higher returns.
Investing can be tricky, especially when you’re aiming for short-term gains, which might involve taking on more risk. Nonetheless, smart investing often means diversifying your portfolio. These strategies can help you go beyond long-term goals and build a profitable fund for your short-term needs.
What short-term goals are you working towards? Have you tried any of these investment options to help achieve them?