Short-term investing presents an interesting challenge. You want your investment capital to be available in the near future, but you also want your money to earn a favorable rate of return. And, since investments typically offer better return rates for longer hold periods, it can be difficult to find short-term high-yield investments.
But it can be done! The experts here at Gatsby Investment have done the research for you to find five high-yield, short-term investments.
Reasonable liquidity. Short-term investments should allow you to access your initial investment capital within 12-24 months.
Fair stability. Avoiding assets with high volatility is better when investing for the short term.
Low transaction costs. Since short-term holdings have a higher turnover rate, they are subject to more transaction costs. So it’s best if the transaction costs are low.
Some protection against inflation. The goal of investing in the short term vs. holding cash is to grow your savings. So your short-term investments should ideally earn a rate of return greater than, or at least equal to, the current rate of inflation. During periods of higher-than-normal inflation, you might want to consider a few specifics of investing during inflation.
With these criteria in mind, let’s count down the top five best short-term high-yield investments:
Local governments (also called municipalities) often issue bonds to raise funds for local development and infrastructure. Bonds are sound short-term investments because the rate of return is known at the time of your investment. You buy a bond for a given price, knowing when it will mature, and how much you’ll receive at that date.
The major risk of bond investing is that interest rates will rise; if rates rise, your bond is worth less on the secondary market. However, as long as you choose short-term maturity dates, the risk of needing to cash out early by selling on the secondary market is low.
Municipal bonds are also a smart investment from a tax perspective. Interest income earned on municipal bonds is not subject to federal taxes. And to incentivize investors to choose municipal bonds, most states also waive any state taxes on these returns. So your returns might be less with municipal bonds than with other investments on this list, but they’ll also be tax-advantaged.
4. Short-Term Corporate Bonds
Potential rate of return: 2% - 10%
Estimated timeframe: 3 months to 3+ years
Companies issue corporate bonds to raise operating capital. You invest a specific amount of money today in exchange for a pre-determined rate of return on a set future maturity date. You can buy bonds from the corporations directly or on the secondary market from other investors. Similarly, you can sell your bonds to other investors on the secondary market rather than waiting for the maturity date if you choose.
Corporate bonds come with a bit more risk than municipal and other government bonds because they are backed by companies rather than departments of the US government. But this slight increase in risk can lead to greater returns than you can get with government bonds.
When investing for the short term, stick with “blue chip” bonds (those that are established and considered reliable). These might produce lower yields than less stable companies, but they are also less risky.
It’s important to note that, unlike municipal bonds, proceeds from corporate bonds are subject to taxes.
3. Peer-To-Peer Lending
Potential rate of return: 4% - 14%
Estimated timeframe: 6 months to 5+ years
Peer-to-peer lending (commonly called crowdfunding) is a network that matches private inventors with those who need to borrow money. These investments are typically set up with an online platform, making it easy to invest.
Peer-to-peer lending is flexible. The platform’s sponsor might bundle multiple investment opportunities into a single package for investors. Or they might allow you to choose individual projects to fund. “Projects” in peer-to-peer lending typically refer to business ventures, including research and development of new products.
There is some risk associated with peer-to-peer lending. While not common, it is possible for borrowers to default on their loans, resulting in losses to investors. But, as expected, this increase in risk leads corresponds to an increase in return potential. In some cases, borrowers seek peer-to-peer lending because they struggle to qualify for a traditional bank loan. And this type of borrower is more likely to offer a higher interest rate on the loan, recognizing the need to incentivize investors to back them.
Timeframes can range from around six months to five years, with returns varying widely as well.
Like peer-to-peer lending, real estate crowdfunding uses online platforms to match investors with opportunities. Funds are pooled from multiple investors to fund a project (or group of projects), which allows you to buy into a deal with a much lower investment amount than traditional real estate deals.
Short-term real estate projects, like fix-and-flips and multi-family developments, offer dramatically greater return potential than most short-term investment options. And because of the online platforms and the sponsors, who handle the project from start to finish, investing in real estate crowdfunding is as easy as investing in stocks and bonds!
1. Real Estate Syndication
Potential rate of return: 5% - 20%
Estimated timeframe: 6 months to 2+ years
Real estate syndication functions similarly to real estate crowdfunding; multiple investors pool funds and share in any proceeds from the project. Syndication shares all the same benefits as crowdfunding, including low investment minimums, flexibility, and high return potential.
The main difference between syndication and crowdfunding is that syndication offers the added benefit of a stable legal ownership structure for investors. Each investor becomes a member of the business entity that owns the property (typically an LLC or Trust). This means you have an ownership stake in the underlying real estate, as opposed to simply owning the property’s debt.
This is why real estate syndication is the best short-term high-yield investment of the 2020s!
Consider Short-Term Real Estate Investing with Gatsby Investment
If you are interested in maximizing your return potential on your short-term investments, consider investing in short-term real estate deals with Gatsby Investment.
Gatsby Investment is a real estate syndication company with an established investment model and a track record of profitable deals. With our award-winning team of architects, designers, and real estate experts, we know how to minimize risk, and maximize return potential. We can get you in and out of real estate investments in short time frames, allowing you to grow your money, even when you can’t afford to invest for the long term.
