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Investments and savings come in many forms. The two broadest categories are long-term and short-term savings. Certain investment endeavors can be both long-term of short-term depending on how they are used. The stock market, for example, may be employed as a decades-long investment endeavor or it could be used for aggressive day trading.

Generally, it would be best to define short-term investments as those vehicles in which the money put into the investments is intended to be used over the course of five years. The stock market could conceivably be utilized in this way since funds put in the market could be withdrawn — sold — at any time.

Doing so wouldn’t exactly be a prudent plan. The stock market goes up and down with such volatility, even with conservative investments, that five years may not be enough to cover potential losses.

Short-term investments should be directed towards endeavors with far less volatility.

The Positives and Negatives of Short-Term Investments

Simple investment options such as savings accounts, money markets, and certificates of deposit are risk adverse. In other words, there really is not much risk associated with putting money into any one of these types of accounts. That alone is highly beneficial to someone who wants to safeguard the initial capital put into the vehicle.

The huge drawback is the low interest paid out on these vehicles. $20,000 might only yield $140 in interest over the course of a year, maybe less.

The Shortest-Term Savings

Money that is likely needed to be accessed in two years or less might be best served being placed in a money market account or another type of easy access account. An online savings account is one newly expanding option that might prove attractive to the fiscally conscious.

Money markets are not all that much different than a checking account. Money markets do come with slightly higher interest rates, a plus. These interest rates are acquired through the money market account’s investments.

Online savings accounts pay interest rates that are low, but still higher than what a local bank would offer. Online accounts, many established by major credit card companies, offer upwards of 1%. Clearly, this is done to maximize competitiveness with local banks. Customers are sure to be more attracted to those ventures that provide better interest rates.

A certificate of deposit would be a viable option for an investment of fewer than two years. The drawback is withdrawals are not allowed without a penalty. The interest rates could be more than 1%.

The Short-Term Bond Gambit

Those who do not believe they need money for two to three years may wish to look into short-term bonds. These bonds pay 1% or more. Finding a short-term bond with a very intriguing interest rate is always a possibility. Generous interest rates definitely do draw in people looking for a solid return on their funds.

A caveat does exist here. These bonds do come with more risk. Actually, that statement needs to be amended somewhat. The more promised interest, the more the risk is sure to be.

Bonds are not likely to be anywhere near as risky as other investments. Buying and selling gold is very easy, but the risk is massive.

A Unique Three to Five Year Plan

Garnering 5% in compounded interest may be acquired through a unique investment strategy. Peer-to-peer lending is an interesting strategy in which an investor works through an established service to lend money to troubled borrowers. The obvious worry here is the troubled borrower could default on the loan. Such is going to be the case with any risky lending endeavor. Investor-borrowers must think carefully about who they will direct funds when self-approving a loan. Lending money should only be done after serious deliberation over the borrower’s ability to pay.

Please be aware not everyone is eligible for this type of investment. Certain income and net worth stipulations are required.

Look at Personal Debt

One thing that positively must be examined when looking at matters related to fiscal health is all current levels of debt. Thoughts regarding long-term investment plans do need to contain an examination of any currently existing high-interest rate loans. No one is going to save money while $10,000 of debt is outstanding on credit cards presenting more than 20% interest.

All that debt needs to be paid off as quickly as possible. Otherwise, all investment strategies end up dragged down.