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The short version:

  • Short-term investing strategies tend to be made up of “safer” low-risk investments that you can easily draw from when needed.
  • Long-term strategies, on the other hand, rely on higher return investments such as the stock market.
  • You’ll want to consider the return and risk of an investment in addition to liquidity when considering short-term options.

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What are short-term investment strategies?

When you need to save money for a future house down payment, a wedding, or seed money to launch your business, you need different investment options than those that are built for long-term investors saving for retirement. Short-term investment strategies prioritize more liquid investments that you can draw from when you need to, while still earning a decent return.

How do short-term investment strategies differ from long-term investment strategies?

Your investment goal is going to determine what strategy you use. The longest-term investment goal is retirement, but people saving for their children's college tuition or looking to purchase a vacation home or rental property should also consider a long-term strategy. On the other hand, goals like buying a car or house or taking a big vacation would be better served by a shorter term strategy.

Aside from purpose and timeline, there are a few differences between long-term and short-term strategies. They include:

  • Risk tolerance When you need your money in just a few years, stick to lower risk investments that’ll let you access your money quickly and easily, without experiencing too many ups and downs. Take the time to think about how willing you are to lose your investment entirely. This will help you determine your true risk tolerance.
  • Liquidity There’s a reason many financial experts recommend investing in stocks and index funds when you have a longer investing horizon. Since the stock market dips and skyrockets suddenly every few years, you need time to balance out these gains and losses. That’s why stocks aren’t a liquid option for short-term investors who need their returns within a few years.
  • Management type Many people have no idea how their retirement account is invested, and they don’t really feel the need to know. However, while longer-term investments can be easily managed by an in-person or robo advisor, short-term investments should be more closely watched by you. That’s because you’ll need the money sooner and they’re often in savings vehicles (such as savings accounts) that can’t be managed by others.

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What are the best strategies for short-term investments

Let’s get down to the meat of it now. When you’re saving for more pressing goals, what investments do you choose?

Here are just five to consider:

High-yield savings accounts (HYSA)

Sure, a high-yield savings account gives you a pretty low return compared to other types of investments — Many accounts offer just over 1% APY. But what a HYSA does do is give you the most liquid option available. You can withdraw your money whenever you need to and put it towards your expense(s). While regular savings accounts usually have monthly withdrawal limits, high-yield savings accounts as a whole provide the most flexibility.

Certificates of deposit (CDs)

Certificates of Deposit are best for those who don’t need to touch their money for a number of years. You’ll hold your money for a term of your choosing (common terms include one, two, five, and even 12 years) and earn a fixed interest rate on it while it sits in the account. It’s an easy way to earn a little bit of interest, just by holding your money in the right place. The average interest on a CD isn’t amazing — 12-month CDs average about 0.46% interest — but it’s still better than a regular savings account.

Money market accounts (MMA)

Money Market Account is like if a savings account and a checking account had a baby. Your money will be held in an interest-bearing account, but you’ll get a debit card that allows you to spend money as needed. While your MMA likely comes with a minimum number of withdrawals each month, they tend to provide higher interest than high-yield savings accounts.


When you buy a bond, you’re giving the government or a corporation a loan and they’re promising to pay you back, with interest. The average investor can rest easy with their investment, as bonds are rated — you can find out how likely a company is to pay back its debt, so you can choose ones that align with your risk profile. Plus, bonds have a wide range of maturity dates, so you can pick one that works best with your timeline.

Robo advisors

If you know you want to invest money for a short-term goal, but you’re not sure how or what to invest in, a robo advisor can do that work for you. When you use a robo advisor, you tell them your goals and how long you want to invest. From there, the company’s algorithm will handle the rest and allocate your money to the most logical investment options.

Generally, returns from robo advisors might yield less returns than stocks, but they aren’t terrible either. Just make sure you’re not paying so much in fees that any returns you get will be canceled out.

How to decide which strategy is best for you

When deciding on which investments will work best for your short-term needs, it all boils down to your specific goals.

Ask yourself the following questions before transferring your accounts:

What’s your time frame?

Your investment choices will largely be determined by when you need your returns. If you need them in a few months' time up to a year, you’ll want the most liquid option available — that usually means a high-yield savings account or MMA. If however, you’re looking at a longer timeline — say your next car down payment you won’t need for seven years — a CD may be a better option that provides a higher interest rate.

How much risk are you willing to take on?

Typically, long-term investors can take on more risk if they choose to, as their returns can even out over a longer period. This means investing in stocks, real estate, and even (for the extra daring) in crypto. Typically, stocks have evened out over time, providing an average return of about 10%.

However, short-term investors should focus instead on liquidity. It’s better to earn a small return than lose your money altogether because you were chasing returns.

What return are you looking for?

Even though short-term investors should focus on other factors, some investors are looking for a higher return than others. For investors willing to take on the extra risk, they may want to direct their investments toward more profitable ventures like REITs or crowdfunding, for example.

What to be aware of when looking for a short-term strategy

When you’re looking to create your own short-term strategy, you need to think very carefully about where your money is going. You don’t want to have your money tied up when you really need it. You also don’t want to end up losing your money due to poor investment decisions. Before settling on a final strategy, take the following into consideration:

Lower returns

The best short-term investing strategy involves avoiding risk. And unfortunately, less risky investments tend to come with lower returns. Still, even low-risk investments outperform money that just sits in your local credit union account.

Investing isn’t gambling

In general, you should never look at investing as a get-rich-quick option. Your chances of getting lucky buying the next big crypto or picking the next best stock are extremely slim.

That’s why it’s important to mention the one investment that often touts maximum short-term gains: Cryptocurrency. It’s easy to fall for this myth with Bitcoin billionaires happening seemingly overnight a few years ago. But be warned that this is not a safe investment choice in most cases. The price of crypto is extremely volatile, and you can’t be sure that you’ll have any money left when you need it.

More: Opinion: 6 reasons why I don't invest in cryptocurrency

Keep a closer eye

The sooner you need the money, the closer of an eye you’ll want to keep on your investment performance. For this reason, you’ll need investments you can follow easily. For many investors, it’s a lot easier to understand the complexities of CDs than it is to understand day trading and the ups and downs of the stock market.

The takeaway

When you’re saving for goals in the near future, you might want to do more than just stash your savings under your mattress. Investing your money can offer a return you otherwise wouldn’t get. You won’t necessarily want the same investments as those in your retirement portfolio, though.

Short-term investment strategies include options like CDs, high-yield savings accounts, and bonds. The option(s) you choose will depend on a number of factors including your timeline, risk tolerance, and the return you’re looking for.

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Chris Murray Freelance Contributor

Chris Murray was formerly a freelance contributor with Moneywise.


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