If you have read through my posts the last several months, you know I have been looking at the stock market recently. If you have missed those posts, check them out here and here. I have been thinking about how to invest short term
rather than just for retirement. Here is what I have learned so far:
Pay Off Debt
I have heard from several professionals in my research talk about paying off debt. Why would this be important? Debt is often a short-term gain for a long-term loss. Do you have a credit card balance? That is a lot of money being shelled out for the ability to use someone else’s (the credit company’s) money. While it can be difficult sometimes to live completely debt free your entire life, being debt free is important when thinking about your investment journey.
More Than Just Stock
When considering investments, it’s important to think of options off the market too. Have you found any high yielding savings accounts? What about using a CD for a short-term investment? You won’t have access to your money without a penalty before the maturity date, but you will gain a higher interest rate than an average savings account.
Stock Market
If you do want to invest in the market consider the risk you are taking. If the goal is to make money in the next year or so, consider how much you’re willing to risk your money on individual stocks over ETFs or an index fund. Higher risk means higher reward, but if you’re wanting to save for a down payment on a home maybe that’s not the risk you’re willing to take. It can take you years to recoup the loss. If you are someone that enjoys obsessing over the market throughout the day, maybe more risk will be okay. We as the average consumer though, do not have the advantage of knowing inside business plans. When investing in singles stocks, keep that in mind.
Savings Stash
Having several months worth of living expenses saved in a savings account is also very wise and suggested. The suggestion has been to work on that nest egg before talking about investing in other areas. Other than paying off debt, this is a very important aspect of financial stability. A great number of Americans do not have a big enough savings stash.
Investment Property
There are people who want to dive head first into investment properties. There are others that would rather gamble at the craps table than have investment properties. Investment properties can be a good source of monthly income. When considering this investment, having a savings is important. Unexpected expenses always seem to find you at the most inopportune times. You need to plan for those situations and keep yourself out of debt if at all possible. This investment can be helpful as a short term and long term investment. As with other options, you must understand the risk.
Conclusion
Investing is not just for retirement, though that is very important. You can find ways to make your money work for you with higher returns that just a savings account. In order maximize your investment opportunities remember to get out of debt, have a nest egg of several months worth of expenses, and consider the risk before taking the leap.
What do you like to do for short term investments?
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