Skip to main content Skip to Login Skip to Find An Advisor Skip to footer

3 tips for short-term investing

An hourglass sitting in the grass

Key Points

  • Not all financial goals have the luxury of a long investing horizon.
  • Strategize short-term investments according to risk, complexity and timing needs.
  • Consider the degree of stability needed when investing for shorter time periods. 

While many investments are designed to grow over extended periods of time, there may be occasions, such as saving for a down payment on a home, when there’s only a short window of time to reach a goal.

How to position investments for the short run

Even within a period of three years or less, your specific time horizon can provide guidance on the types of assets to consider as well as the appropriate levels of risk to take. For example, a portfolio with easily accessible cash investments may be more suitable if you need the money in three months, while someone who doesn’t need the money for three years may have the flexibility to consider a wider array of investment options.

Here are three tips to think about when investing over a short time horizon: 

1. Determine your level of risk

Given such an abbreviated time period, it’s prudent to reduce the level of risk in an investment plan or portfolio. A business or market cycle usually lasts more than three years¹, so there typically isn’t enough time to recover from a loss that may occur if choosing higher risk assets such as stocks.

To illustrate, the stock market correction that occurred during the "dot.com" crash resulted in the S&P 500 dropping over 35% from 2000-2002 and didn't fully rebound until 2006.  

The lesson learned here is that, with a maximum of three years to invest, investing in more volatile assets can lead to undesirable outcomes.

Reducing the complexity of assets may also be beneficial. For example, non-U.S. assets are exposed to foreign currency movements, which add a layer of uncertainty that doesn’t affect U.S. assets.

2. Consider short-term instruments

Cash is a desirable asset for managing risk and liquidity and is certainly appropriate for very short horizons. Within the fixed-income universe, securities with less than three years to maturity, such as short-term bond funds, may be a good consideration. 

3. Synchronize goal timing with your assets

If your specific time horizon is known (for example, three months, 12 months or three years), invest in products that generally match your investment timeline. Consider these examples:

  • If you’re saving for a down payment on a house that’s due in six months, look for products such as short-term government bonds or AAA-rated corporate debt bonds.
  • If you have a down payment on a purchased item due in six months, with the remainder of the purchase price to be paid in 12 months, then look for products with varying durations of six to 12 months, such as a laddered certificate of deposit (CD).

Make sure your investment strategy works for you

Once you've implememted these short-term investment tips and your plan has been determined, there may be additional factors to be considered related to implementation depending on the products used. An Ameriprise financial advisor can help customize a plan that aligns with your short-term goals while factoring in a broader view of your overall investment strategy.

1According to the National Bureau of Economic Research (NBER), there have been 11 business cycles from 1945-2009, with the average length of a cycle lasting about 69 months, or a little less than six years: http://www.nber.org/cycles.html 
The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees.  It is not possible to invest directly in an index. 
Although Brokered Certificates of Deposit are generally FDIC insured up to the applicable limits; currently $250,000 per depositor, per insured bank, for each ownership category, the FDIC insurance applies only to the principal investment and will not apply to the any amount paid over par value, if applicable.
Past performance is not a guarantee of future results. 
In general, equity securities tend to have greater price volatility than debt securities. The market value of securities may fall, fail to rise or fluctuate, sometimes rapidly and unpredictably. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole.
The U.S. government may be unable or unwilling to honor its financial obligations. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the U.S. government.
There are risks associated with fixed-income investments and bond funds, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.