Regardless of the source of your windfall, it’s time to consider how to get the most benefit from it by looking at short-term investment options. Having one or more of these in your financial profile is a buffer against the unexpected.
Carefully look at the possibilities before putting your $500 on the line. The most common short-term options
• A term deposit, sometimes referred to as a certificate of deposit, means you put an amount into an account at a financial institution, with a fixed term. Maturity dates can be set for as short a time as six months or extend to five years. Most institutions charge a penalty if you close the account before the term is filled. In most instances, the institution pays a higher dividend on a term deposit than on a traditional savings account. You can increase the value of such a deposit by “laddering,” or opening multiple accounts that mature at different times, anywhere from a year to five years. When a deposit matures, you can flip it into a new term account. Creating a train of short-term deposits allows you to access money when you need it on a regular basis while still earning good dividends.
• Look at mutual funds, an investment program that takes money contributed by many people and putting it into securities. Beginning investors may be particularly interested because mutual funds are easy to understand and to buy. They are affordable and offer a variety of categories and types. Consider where you feel most comfortable placing your $500.
• Peer-to-peer lending puts people with money to invest together with people or organizations that need to borrow that money. These lending platforms operate online, so they have lower overhead and fewer transaction costs. Three- to five-year investments usually earn higher returns. As is usually the case, that means higher risk. It is possible the borrower could default and the debt go to collection, or be lost entirely. Diversity is the best approach. Putting small amounts of money into several loans minimizes the possibility of damage to your portfolio.
Whatever you decide to do with your $500, don’t leap before carefully studying all of the possibilities. Be familiar with the institution in which you intend to invest your money. If you are uncertain, find a financial advisor who is familiar with the answers to your questions.
