Best Short-Term Investments in January 2025

Overview

• The lecture discusses the best short-term investment options available as of January 2025.
• The focus is on safety and liquidity to ensure cash availability when needed.
• Interest rates remain attractive despite recent cuts by the Federal Reserve.

Key Points

1. High-Yield Savings Accounts

• Overview: Offers higher interest than traditional savings accounts; FDIC-insured.
• Who are they for?: Risk-averse investors needing short-term funds.
• Risks: Insured by FDIC, minimal short-term risk but may struggle against inflation long-term.
• Rewards: Higher interest rates, easy money access.
• Liquidity: High; allows fee-free withdrawals and transfers with some limitations.
• Where to Get: Offered by online banks.

2. Cash Management Accounts

• Overview: Offered by brokers, similar to savings/checking accounts.
• Who are they for?: Those needing liquidity and competitive interest.
• Risks: Generally safe, can exceed FDIC coverage if not monitored.
• Rewards: Flexible, allowing investments and transfers.
• Liquidity: Extremely high, better than traditional accounts.
• Where to Get: Available through robo-advisors and online brokers.

3. Money Market Accounts

• Overview: Pay higher interest than savings accounts, require higher minimum.
• Who are they for?: Those needing future access to funds.
• Risks: Ensure FDIC insurance for coverage.
• Rewards: Interest earnings with easy access.
• Liquidity: High, with some federal restrictions on withdrawals.
• Where to Get: Available at banks and credit unions.

4. Short-Term Corporate Bond Funds

• Overview: Diversified bond portfolios issued by corporations.
• Who are they for?: Investors seeking diversification without analyzing individual bonds.
• Risks: Not insured but generally safe; less interest rate risk with short-term bonds.
• Rewards: Regular interest payments, diversified risk.
• Liquidity: Highly liquid, tradable on open markets.
• Where to Get: Offered by brokers for ETFs and mutual funds.

5. Short-Term U.S. Government Bond Funds

• Overview: Invests in government securities like T-bills and T-bonds.
• Who are they for?: Risk-averse investors seeking very safe investments.
• Risks: Government-backed but not FDIC-insured; low interest rate risk.
• Rewards: Reliable interest income but lower returns than corporate bonds.
• Liquidity: Highly liquid, tradeable on open markets.
• Where to Get: Available through brokers offering ETFs and mutual funds.

6. Money Market Mutual Funds

• Overview: Invest in short-term securities, different from money market accounts.
• Who are they for?: Those wanting cash access and yield.
• Risks: Not FDIC-backed, but generally safe.
• Rewards: Yield with minimal principal fluctuation.
• Liquidity: Reasonably liquid, with possible check writing.
• Where to Get: Offered by brokers with mutual funds.

7. No-Penalty Certificates of Deposit

• Overview: Avoids fees for early withdrawal, offers higher interest.
• Who are they for?: Those seeking interest with liquidity options.
• Risks: FDIC-insured, limited risk but potential for better rates elsewhere.
• Rewards: Regular interest, returned principal.
• Liquidity: Less than other products, but no withdrawal penalty.
• Where to Get: Available at banks, typically with better returns.

8. Treasurys

• Overview: Safe investments (T-bills, T-bonds, T-notes) backed by the U.S. government.
• Who are they for?: Investors preferring specific bond types and low risk.
• Risks: Not FDIC-backed but very safe; inflation risk.
• Rewards: Safety with lower yield.
• Liquidity: Highly liquid, tradeable on open markets.
• Where to Get: Purchase via TreasuryDirect.gov or brokers.

Conclusion

• Short-term investments focus on safety and liquidity over potential returns compared to long-term investments.
• Good short-term investments should offer stability, liquidity, and low transaction costs.
• High liquidity and low risk are priority features.
• Investors should match their needs with appropriate short-term investment options.