Cash Investments: Ways Your Money Can Grow In The Short Term!

Are cash investments reaching new heights? Is this a safe way to handle money? The global economy is still recovering after the COVID-19 pandemic. Moreover, it is facing a lot of uncertainty. In the US, while specific numbers are looking upward, some Americans are having a hard time shaking off their negative feelings about the state of the economy.

Inflation might be declining, but it remains a source of anxiety for many. The situation affects how people interact with their money. Behaviors are changing, and a new reality is slowly emerging. The accredited investor needs a more robust investment strategy. Despite the uncertainty, opportunity still exists, and some are not missing out. Retail investors are on the rise, and they are changing the game.

Private investments are also not missing a beat and changing the face of some localities. However, institutional investors want to reduce risk and keep a close eye on their money. That is the reason why more people are looking into short-term investments, especially the ones known as cash investments. They can take a different shape, for example, in real estate investing. The credit industry sees the down payment on a property as a cash investment. So, what are the best ways to invest cash? Are there tips about how to invest in cash?

Cash Investments: Are They Good?

Before digging deeper, it is necessary to have a clear definition of what constitutes a cash investment.

What is a Cash Investment?

A cash investment is some kind of short-term investment that usually ends in less than 90 days and cannot go over three years. It is less risky than other investments because the obligation is not set to last a long time.

Typically, the arrangement works well for people who want to keep their money very close or plan to use it in the near future. Since the return is mostly based on interest payments, it tends to be low.

Moreover, thanks to the support of the Federal Deposit Insurance Corporation (FDIC), there is more security around them. Many investors use them as a temporary solution while working on their next big move.

What are the Types of Cash Investments?

There are various types of cash investments. It is important to understand what they are and their role in the industry. That is the only way to make the best short-term investments.

1. Savings account

Many see this one as a decent substitute for liquidity. Savings accounts offer a minimal return in terms of interest rates. However, there is a way around the issue. It is possible to use a local bank and put your money in a high-yield savings account.

In this particular case, online banks deliver better results than the others.

The higher rate of return is appealing, and you can still have access to your cash pretty quickly.

2. Money market

This kind of liquid investment has different results when it comes to interest rates. The main certainty is that it will reach maturity in under one year.

Money market accounts have something going for them: they offer higher interest rates than savings accounts.

3. Certificate of deposit (CD)

A certificate of deposit (CD) is more or less a type of savings account offered by credit unions or banks. The money is locked up for a period of time. Any withdrawal before the maturity date will lead to a penalty fee.

However, CDs from a brokerage follow different rules, and withdrawals are possible before maturity.

Examples of Cash Investments

Treasury bills: These are short-term debt securities that have the full backing of the US federal government and its great credit rating.

Savings: It is the amount that was deposited into a savings account. There are no special rules preventing withdrawals.

Certificates of deposits (CDs): These so-called time deposits have a fixed rate and a fixed term.

Commercial papers: They are unsecured promissory notes with fixed interest rates and fixed maturity dates.

Term deposit investments: Investors can only have access to the cash here at the end of the term.

Pros and Cons of Cash Investments

While they have a lot of positives on their side, cash investments also have a few negatives to take into account.

Pros of Cash Investments

Liquidity: These are assets where the funds can be accessed in a quick manner. This puts the investor in the driver’s seat.

Safety: By all accounts, these investments have a great deal of security. There is no price for your peace of mind.

Diversity: It is important to have an investment portfolio with different elements.

Stability: Cash investments require very little maintenance. The returns are stable, and you know that fluctuations will not affect them.

Cons of Cash Investments

Low returns: Cash investments are low-risk and low-reward. In other words, what you gain in security and stability, you lose in return.

Inflation: These investments can lose some of their value if the economy is going through an inflationary period.

Lack of cash flow: Since the returns are minimal, increasing your wealth in a timely manner does not seem in the cards with these investments.

In short, if you are investing for growth, there might be other avenues to get greater returns. Likewise, investing with debt might also not deliver under this scenario.

8 Best Ways to Invest Cash

Here are some of the best ways to invest cash.

1. Cash Management Accounts

These accounts make it possible to set up an omnibus account that puts different short-term investments under just one umbrella. Cash management accounts give you access to liquidity and your money when you feel like it.

Robo-advisors and online brokers can help set up an account.

2. Money Market Accounts

Money market accounts require a bigger investment than regular savings accounts. These bank deposits offer higher interest rates. While there are some restrictions on withdrawals, you can still have access to your money pretty quickly.

Inflation does affect their cash power.

3. Short-Term Corporate Bond Funds

Big corporations are behind those bonds that pay interest at least twice a year. The fact that they come from major businesses means that they are generally safe as investments.

However, the government does not insure them. So, there is still a little risk for your money. But, with a diversified portfolio, you can reduce that risk to close to zero.

4. High-Yield Savings Accounts

If you are looking for a way not to leave money sleeping in a checking account, this might be your opening. You will receive interest regularly from the bank.

Before you make the call, it would be wise to compare returns from different offers. You can go with the bank that offers the highest returns.

5. Money Market Mutual Funds

The name may sound familiar, but there are differences with money market accounts. One specific area that separates them is the fact that money market accounts are insured by the FDIC, which means they are safer.

On the plus side, investors will earn yield, and those mutual funds resist market fluctuations. While you have access to your money, you cannot make more than six withdrawals per month.

6. Treasurys

There is some insurance with this kind of investment. The US government backs their safety, which is a great thing. However, they are better suited to people who know which bond to support.

The lower yields might be a problem for some investors.

7. Short-term U.S. Government Bond Funds

Just like major corporations, the US government does issue bonds. They are safe and work well for investors who are trying to avoid risks in the short term.

Most online brokers have them, and they are available anytime the market is open for business. The price of the bonds tends to stay stable.

8. No-Penalty Certificates of Deposit

Unlike with a traditional CD, you can withdraw your money before maturity without paying a penalty. It is important to look at the interest rate because inflation may affect your margins.

However, the return is still higher than with other cash investments.

FAQ’s

Bottom Line

There are different investing formulas, and it is not simple to identify the one that can really work for you. However, research and experience can lead you in the right direction. While cash investments are safe, it is up to you to pay attention to details so that you can get the best return possible for your investment. Due to the short-term nature of these investments, it is always possible to make a move in the other direction if you feel like things are not going the way you want. To be clear, it is your money, so you are making the calls.