How to Invest Your Money for Short Terms

Anyone interested in investing has probably heard many times that long timeframes are key to successful investing. But that wisdom does not benefit investors who are not willing or able to leave their money tied up for many years or even decades.

For example, you may want to use part of your money for a major purchase in the near future. Or you may be looking to earn returns on your emergency fund.

The moneyland.ch guide tells you which kinds of investments are suitable for terms of just a few months to a few years.

Which investments should I use for a short-term portfolio?

Savings accounts

Savings accounts are one of the most secure investment vehicles. You are paid interest for the money you keep deposited, and there is no risk of your money losing nominal value. The only investment risk of savings accounts is the risk of bank failures, but up to 100,000 francs per customer and bank is covered by the Swiss bank depositor protection scheme. But in exchange for the low risk, you earn relatively small returns. The interest rates of savings accounts are often lower than the inflation rate, which results in a real loss in terms of purchasing power. You should also pay careful attention to limitations on withdrawals, and to notice periods. You can find out more in the moneyland.ch guide to choosing a savings account.

Medium-term notes and fixed deposits

Invest a fixed amount of money for a fixed amount of time and earn a fixed amount of interest: That is the principle behind medium-term notes. These bank-issued notes are securities and must be held in a custody account, for which some banks charge you custody fees. The investment term is normally between two years and 10 years. Some banks offer fixed deposit accounts. These work the same way, but they are bank accounts instead of securities. Often, fixed deposit accounts are available with shorter fixed investment terms than medium-term notes. Important: Your money is tied up for the entire investment term. If you terminate your investment before the term ends, you will be charged penalty fees. Like savings accounts, medium-term notes and fixed deposits are covered by Swiss depositor protection, up to a maximum of 100,000 francs per customer and bank.

Bonds

When you buy bonds, you lend money to a government, a company, or an organization. As the holder of a bond, you receive regular interest payments from the borrower throughout the bond term. At the end of the term, the lender repays the loan represented by the bond’s face value. You can also buy and sell bonds during the bond term, in which case the price of the bond varies depending on the interest rate environment at the time. You should pay careful attention to the borrower’s creditworthiness. You should also carefully calculate the real return you will earn on a bond, accounting for the price you pay, the remaining interest payments, and the remaining bond term. As a general rule, the higher the interest rate of a bond is, the higher the risk of the borrower not being able to repay the loan is.

Which investments should not be used for short-term portfolios?

Private accounts

Private accounts are not suitable for investing – not even over short terms. While private accounts have an advantage in that there are typically no limits on withdrawals, the balances of private accounts generally earn little or no interest – unlike savings accounts. Private accounts are only suitable for financial transactions, such as receiving your salary. However, there are now a few financial services providers – such as neobanks – that do pay high interest for private account balances. Private accounts for teenagers and students often have relatively high interest rates, with some banks using the same rate that they use for their student and teenager savings accounts.

Stocks

Stocks are a liquid asset because you can buy and sell them at any time during trading hours. But the value of stocks can fluctuate heavily, and there is no way to predict how their prices will develop in advance. There is a substantial risk of making a loss, especially if you only hold a few different stocks. If you need the money at a time when the value of your stocks is low, you may be forced to sell them at a loss. While well-diversified stock portfolios have historically

ETFs

Exchange-traded funds (ETFs) – index funds that are traded on stock exchanges – are often advantageous for long-term investing. That is because they make building a diversified stock portfolio much easier. Over long terms, the risk of losing money is smaller than if you invest in just a few individual stocks. But the values of ETFs also fluctuate. Over short terms, the risk of losing money is high. That makes ETFs a poor choice for investing money for short periods of just a few months or a few years.   

Precious metals

Precious metals like gold, silver, and platinum are considered to be a safe haven against financial crises. But it is important to remember that the value of these metals is extremely volatile, and can fluctuate on a daily basis. The risk of losing money cannot be ruled out, both in the short term and over long terms. If you already know that you will need your money in the near future, then you should avoid tying it up in precious metals altogether.

Cryptocurrencies

While it is hypothetically possible to earn high returns over short terms with cryptocurrency investments, using bitcoin, Ethereum, and other cryptocurrencies as a short-term investment is not recommended. Cryptocurrencies are highly-speculative investments and it is impossible to predict how their value will develop. Massive drops in their value can occur at any time – and can well occur just before you are forced to sell your cryptocurrency for needed money.

What should you pay attention to when choosing short-term investments?

The point in time at which you will need your money back is a deciding factor when choosing the right investment. If you know exactly when you will need the money back, then getting a medium-term note for that exact term is a simple solution, as long as the interest rate is higher than what you would get from the highest-yield savings accounts. On the other hand, if you do not know exactly when you will need your money back, then using a savings account is generally a better option. That way you can access at least part of your money at any time. Always check the terms and conditions for withdrawals in addition to interest rates.

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