Most people would be happy to have this problem: You have an extra $100,000 in discretionary cash on hand, but you’re not sure what to do with it. The operative word here is discretionary. We’re presuming that the $100,000 extra you have is actually extra and that you don’t owe any money, particularly high-interest credit card debt.
The majority of financial experts would advise paying off any outstanding debt with that amount of change if you have any.
After that is finished, you will already be ahead of the game if you have other assets in place, such as a sound retirement plan, a sufficient emergency fund, and other strategically placed capital. If so, you most likely already know some of your available options. But if you’ve never invested before, you might want to start by doing some research.
As there are numerous options, there isn’t just one ideal way to spend this money. Your objective is to select the investment vehicle, or vehicles, that best suits your needs. Some of the greatest choices for your financial windfall are listed below.
Due to inflation, CDs and savings accounts are offering higher interest rates than they have in a long time. As of late 2022, rates exceeding 3 percent are available for savings accounts and short-term CDs. Compare offers for the best rates.
Congratulations on having $100,000 to invest! With a significant sum like this, you have a plethora of options to choose from, each with its own benefits and risks. Deciding where to put your money depends on your individual goals, risk tolerance, and timeframe.
If you’re looking for a short-term investment, meaning you need the money within a year, your options are slightly different than those for long-term investments. Short-term investments prioritize liquidity and safety over high returns, ensuring you can access your funds when you need them without significant risk of loss.
This guide will delve into seven of the best short-term investment options for $100,000, providing you with the information you need to make an informed decision based on your unique financial circumstances.
Short-Term Investment Options for $100,000
1. High-Yield Savings Accounts
High-yield savings accounts offer a safe and accessible way to park your money while earning interest. These accounts typically offer higher interest rates than traditional savings accounts, allowing your money to grow steadily over time.
Pros:
- High liquidity: You can access your funds at any time without penalty.
- Low risk: Your money is FDIC-insured, protecting it from bank failure.
- Steady returns: High-yield savings accounts offer competitive interest rates, providing a consistent return on your investment.
Cons:
- Lower returns compared to other investments: While offering higher rates than traditional savings accounts, high-yield savings accounts generally provide lower returns than other short-term investment options.
- Inflation risk: The interest rate may not keep pace with inflation, meaning your purchasing power could decrease over time.
Current average APY: 4.15%
Examples: Ally Bank Marcus by Goldman Sachs. American Express High Yield Savings Account
2. Money Market Accounts
Money market accounts are similar to high-yield savings accounts but offer check-writing privileges and may have higher interest rates. These accounts invest in low-risk, short-term securities, providing a safe and liquid option for your money.
Pros:
- High liquidity: You can access your funds through checks, debit cards, or transfers.
- Low risk: Your money is FDIC-insured, protecting it from bank failure.
- Potentially higher returns than high-yield savings accounts: Money market accounts may offer slightly higher interest rates than high-yield savings accounts.
Cons:
- Lower returns compared to other investments: Like high-yield savings accounts, money market accounts generally provide lower returns than other short-term investment options.
- Inflation risk: The interest rate may not keep pace with inflation, meaning your purchasing power could decrease over time.
Current average APY: 4.25%
Examples: U.S. Bank Elite Money Market Account, Fidelity Government Money Market Fund, Schwab Money Market Fund
3. Money Market Funds
Money market funds are mutual funds that invest in short-term debt securities, such as U.S. Treasury bills and commercial paper. These funds offer a high level of safety and liquidity, making them a suitable option for short-term investments.
Pros:
- High liquidity: You can redeem your shares at any time, typically within one business day.
- Low risk: Money market funds are considered very safe investments, with a stable net asset value (NAV).
- Potentially higher returns than high-yield savings accounts: Money market funds may offer slightly higher interest rates than high-yield savings accounts.
Cons:
- Lower returns compared to other investments: Like other low-risk investments, money market funds generally provide lower returns than other short-term investment options.
- Inflation risk: The interest rate may not keep pace with inflation, meaning your purchasing power could decrease over time.
Current average yield: 4.20%
Examples: Vanguard Federal Money Market Fund, Fidelity Government Money Market Fund, Schwab Money Market Fund
4. Cash Management Accounts
Cash management accounts combine the features of a checking account and a high-yield savings account. They offer check-writing privileges, debit card access, and high interest rates on your balance.
Pros:
- High liquidity: You can access your funds through checks, debit cards, or transfers.
- High interest rates: Cash management accounts often offer competitive interest rates, similar to high-yield savings accounts.
- Convenience: You can manage your money in one place, simplifying your finances.
Cons:
- Lower returns compared to other investments: Like other low-risk investments, cash management accounts generally provide lower returns than other short-term investment options.
- Inflation risk: The interest rate may not keep pace with inflation, meaning your purchasing power could decrease over time.
Current average APY: 4.00%
Examples: Ally Invest Cash Management Account, Charles Schwab Investor Checking Account, Fidelity Cash Management Account
5. Short-Term Corporate Bonds
Short-term corporate bonds are debt securities issued by corporations with maturities of less than three years. These bonds offer higher interest rates than government bonds but carry slightly more risk.
Pros:
- Higher returns than government bonds: Short-term corporate bonds typically offer higher interest rates than government bonds of similar maturities.
- Low risk: Short-term bonds are less sensitive to interest rate changes than long-term bonds, reducing the risk of capital loss.
Cons:
- Higher risk than government bonds: Corporate bonds carry a higher risk of default than government bonds, meaning you could lose some or all of your investment.
- Interest rate risk: If interest rates rise, the value of your bonds could decrease.
Current average yield: 5.00%
Examples: iShares Aaa-A Rated Corporate Bond ETF (QLTA), Vanguard Short-Term Corporate Bond ETF (BSV)
6. No-Penalty Certificates of Deposit (CDs)
No-penalty CDs offer a fixed interest rate for a specific term, typically ranging from a few months to a few years. While these CDs typically lock in your money for the term, some offer the option to withdraw your funds early without penalty, making them a suitable option for short-term investments.
Pros:
- Guaranteed return: No-penalty CDs offer a fixed interest rate, providing a guaranteed return on your investment.
- Low risk: CDs are considered very safe investments, with FDIC insurance protecting your principal.
Cons:
- Lower returns compared to other investments: No-penalty CDs generally offer lower interest rates than other short-term investment options.
- Limited liquidity: If you need to access your funds before the CD matures, you may have to pay an early withdrawal penalty.
Current average APY: 5.25%
Examples: Ally Bank No Penalty CD, Capital One 360 No-Penalty CD, Marcus by Goldman Sachs No-Penalty CD
7. Short-Term U.S. Government Bonds
Short-term U.S. government bonds are debt securities issued by the U.S. Treasury with maturities of less than three years. These bonds are considered the safest investments available, making them a suitable option for risk-averse investors.
Pros:
- Extremely low risk: U.S. government bonds are backed by the full faith and credit of the U.S. government, making them virtually risk-free.
- Guaranteed return: Short-term U.S. government bonds offer a fixed interest rate, providing a guaranteed return on your investment.
Cons:
- Lower returns compared to other investments: Short-term U.S. government bonds generally offer lower interest rates than other short-term investment options.
- Inflation risk: The interest rate may not keep pace with inflation, meaning your purchasing power could decrease over time.
Current average yield: 4.50%
Examples: Treasury Bills, Treasury Notes
Choosing the Right Short-Term Investment for You
The best short-term investment for you depends on your individual circumstances and goals. Consider the following factors when making your decision:
- Time horizon: How long do you plan to invest your money?
- Risk tolerance: How much risk are you comfortable taking with your investment?
- Liquidity needs: Do you need to access your funds quickly in case of an emergency?
- Return expectations: What kind of return are you hoping to achieve on your investment?
Once you have considered these factors, you can compare the different short-term investment options and choose the one that best meets your needs.
Additional Tips for Short-Term Investing
- Diversify your investments: Don’t put all your eggs in one basket. Spread your money across different short-term investment options to reduce your risk.
- Do your research: Before investing in any short-term investment, be sure to do your research and understand the risks involved.
- Consider working with a financial advisor: If you’re not sure where to start, consider working with a financial advisor who can help you create a personalized investment plan.
Investing $100,000 in a short-term investment can be a great way to grow your money while keeping it safe and accessible. By carefully considering your options and choosing the right investment for your needs, you can achieve your financial goals and secure your financial future.
Diversify, Diversify, Diversify
Your $100,000 is a respectable enough amount to use the diversification principle recommended by Investing 101. Stated differently, it would be prudent of you to split up the $100,000, investing part of it in existing vehicles such as your IRA and using the remaining portion to try out new investment vehicles.
It’s important to carefully consider your options, take into account your short- and long-term financial goals, and be realistic about your risk tolerance when deciding how to allocate this kind of additional capital.
As usual, it’s a good idea to consult a financial expert before making any investments.
Real Estate
It might not be the most thrilling idea, but if you have a mortgage, think about paying it off. Think about making a real estate investment if you don’t already own your house or another investment property. Real estate can be a solid investment. But there are risks involved, so you must exercise caution and due diligence.
Making 100k a Year – The $100K Lifestyle!
FAQ
How much interest will 100K earn in a year?
How to invest $100,000 for quick return?
Where is the best place to invest $100 000 right now?
How to invest 100K?
There are many ways to invest $100,000, from real estate to starting your own business. Keep reading to learn how to invest 100k and what you can do to help your money grow even more over time. Tempting as it may be to spend your 100k on a lavish vacation or a new luxury car, the more practical idea is to put your money to work for you.
What to do with 100K?
You should also consider tax implications after you decide what to do with 100k. Depending on how you invest the money, you may have to pay taxes on the earnings. Capital gains is the term for the money you make on the sale of an investment. Let’s say you buy stocks for $100 and sell them for $200. You made $100 in capital gains on your investment.
How to invest $100K for retirement?
You can find an index fund to invest in almost any area of the stock market. They greatly reduce the riskiness of investing in stocks. That’s why I recommend it as the no. 1 way for beginners to get started investing in stocks. Investing in index funds is also the best way to invest $100k for retirement.
How do I invest my $100,000?
As you consider how to invest your $100,000, keep a focus on building wealth for the long term. Don’t try to turn your $100,000 into $1 million overnight; by doing so, you might take on too much risk and lose that considerable nest egg you’ve already built. Instead, think about how you can steadily get there over time.