Best Short-Term Investments 2024 (+ Pros & Cons) (2024)

In recent years, it’s safe to say the UK’s economic climate has been a volatile and unpredictable one, with the rising cost of living and political upsets resulting in many of us living life with a great deal of financial uncertainty.

With this in mind, many investors are focusing on a new means of trading that not only hedges their bets but can be executed promptly — short-term investing.

Throughout this article, we'll be exploring a range of different short-term investments you can make with relative ease, as well as how you can best set yourself up for success in such a fast-paced, dangerous market. Let's begin!

What is a Short-Term Investment?

So, what exactly are short-term investments, and what’s their merit? Put simply, these kinds of investments include anything that’s meant to be held for a few minutes all the way up to a year or two, with the overall hopes of achieving a quick return on investment.

These investments take on various forms, with stocks and cryptocurrency being among the most common and lucrative investments.

Flexibility is a huge driving factor for peaking people's interest in short-term investing, with many traders building their investment strategies on entering and exiting trades within minutes or hours of each other.

Also, there's no need to stake or lock your money away for an extended period of time, as all the investments you'll be making will never be held that long.

As always, it's vital we mention the risk profile attached to any short-term investments out there, regardless of the market. For instance, there's an inherent risk of volatility attached to short-term investments, as you're aiming for large price fluctuations within a short term of time, which naturally doesn't always go your way.

Despite the risks, however, there’s a wealth of opportunities attached to the world of short-term investing, particularly if you're willing to take an active and informed approach to your investments.

Pros and Cons of Short-Term Investments

Depending on what your specific goals and risk tolerance are, there's a range of different advantages and disadvantages of this kind of investment strategy.

Let's take a closer look at some of the more prominent ones.

Pros

1. Liquidity

Unlike your more traditional long-term investments that might have various lock-in periods or even penalties for withdrawing too early, you can easily convert short-term investments into cash when needed.

This makes them fairly suitable for any investors who need quick access to their funds in case of things like emergencies, unexpected expenses, or even if you just lack the patience to wait months or even years to see a return on your investment.

2. Capital Preservation

Rather than focusing on the high return potential of long-term investments, short-term investments often prioritise capital preservation. Rather than placing your money in government bonds or stocks with a lengthy maturity period, you'll be using financial vehicles like savings accounts (such as a high yield savings account), money market funds, short-term bond funds and futures contracts instead.

For the latter option, you can take advantage of tools such as leverage which gives you the opportunity to multiply the amount of capital (usually a small amount) you're investing by a certain number so you can see quicker returns without risking too much money.

3. Flexibility

Rather than investing money into a long-term prospect where you'll typically have to wait large periods of time to see how they play out, short-term investments usually give investors the flexibility to adapt to changing market conditions as and when they occur.

Since they normally have much shorter maturity periods, you're able to adjust your portfolio or even take advantage of higher-yielding investments as the market conditions continue to evolve.

4. Diversification

While your investment portfolio should primarily be filled with more substantial, longer-term investments, their short-term counterparts can serve as an incredibly useful way of diversifying your investment portfolio — creating a healthy balance of quick opportunities to capitalise and slightly less risky options.

Ultimately, investors are able to spread the overall risk across a few different asset classes and investment horizons since short-term investments aren't limited to one specific financial vehicle. This basically lets you mitigate any potential losses and increase the stability of your portfolio.

Cons

1. Lower Returns

While short-term investments generally prioritise capital preservation, this naturally means they're coming with lower returns compared to long-term investments since you're more looking to make some quick money rather than seeing out the investment for several years.

As a result, if you're looking to make that “home run” of a trade in a matter of minutes, not only is this a poor investment strategy, but you're also going to have to employ a fairly risky amount of capital or leverage to match your expectations.

2. Inflation Risk

As you're likely already aware, inflation diminishes the purchasing power of your money over time. Since these short-term investments are typically offering quite modest returns, there is a slight risk that the rate of return might not keep pace with inflation, making your efforts slightly futile.

In other words, if the conservative returns you're making from this investment strategy fail to outpace the rising cost of goods and services, you're likely to experience a decrease in real purchasing power.

3. Opportunity Cost

While short-term investments certainly have merit as part of a more diversified investment portfolio, it can, however, mean that you may miss out on some of the higher returns you can obtain with long-term investments or even more aggressive investment strategies in general.

Essentially, these kinds of investments might not capture the entire growth potential of certain types of assets over an extended period, unlike long-term investments. As a result, it's paramount for investors to weigh the overall opportunity cost of potentially higher returns against some of the benefits that come with short-term investments.

4. Interest Rate Risk

When you invest money in various different short-term investments in a short time frame, they can actually be impacted by the fluctuations in interest rates — not to mention the additional fee that most investment platforms apply for every trade you make.

If the interest rates start to rise, it essentially means the yields on your short-term investments can start to become slightly less attractive compared to some of the other investment options. Naturally, this interest rate risk can begin having an impact on your returns and the overall market value of your investments which can easily lead to lower-than-expected gains.

Best Short-Term Investments — Reviews

1. Stocks

Generally speaking, stocks, and the stock market as a whole, has long been considered as one of the most popular ways of making short-term gains as you're not tied to the same long-term responsibilities as things like government bonds or corporate bonds.

Throughout this section, we'll be taking a look at some of the key ways short-term stocks actually work and what kind of effort you need to put into them to make this option work for you.

How Do Short-Term Stocks Work?

Volatility

Though this isn't exactly limited to short-term stocks (as plenty of long-term stocks are also fairly volatile), these kinds of investments have a reputation for being pretty volatile. In essence, this means that their market value is rarely stable or even predictable, and they tend to experience quite significant fluctuations in their price within a relatively short period of time.

This actually makes short-term stocks a kind of double-edged sword, depending on how you look at it. Yes, this means you can ride the wave of significant price movement in quite a short amount of time, sometimes being able to take advantage of over 5% growth in a matter of minutes, but it also means it carries higher risks.

After all, for every person that's deciding to go long and capitalise on the rising market value, there's a bear out there who is having a totally inverse experience.

As a result, getting in and out of the market quickly is the aim of the game here, so most traders who engage in these kinds of stock investments are often looking to buy low and sell high within an extremely short time frame, sometimes even as short as 10 minutes or less.

Technical Analysis

In order to actually be a successful trader, it shouldn't come as a shock that there's a deep level of analysis and research required so that you're not going into your investments totally blind.

Understandably so, there are many retail investors who are perhaps inspired to get into trading, both long and short-term, by the gains posted on social media by trading “gurus”. Furthermore, because of how easy it is to get started in the stock market, thanks to apps you can download on your phone, it's more streamlined than ever to get started with a trading account and make your first investment.

Still, the dark reality that many novice investors fail to recognise here is that, for the most part, these trading experts prey on retail investor accounts as a means of exit liquidity — allowing them to run away with the profit while you're left holding onto a security that's diminishing in value by the day.

It's this naïve thinking — expecting to become a millionaire overnight — that causes thousands of traders to get blown out of the water before they've barely even started. Of course, why would you bother putting any effort into mastering the stock market when you can just sign up to a professional investors' trading signals group for £10 a month, right?

The secret is, however, that no professional trader makes it simply by copying and pasting the trading strategy of the next best trader. They actually put the work in. The fact of the matter is that these investors rely on years of experience and technical analysis in order to predict price trends and identify various different entry and exit points.

Remember, you're trading against some of the most wealthy people in the world here — hedge funds, day traders, banks, and so on. Don't be fooled into thinking you can compete with them without some fundamental understanding of the market you're getting yourself into.

To stand a chance, it's imperative that you take advantage of various tools such as technical indicators, including things like moving averages, the relative strength index (RSI), and even things like Bollinger Bands.

As a result, you'll be able to gauge some form of an inkling of the current market sentiment, which ultimately lets you identify patterns and make far more informed trading decisions as a novice investor.

Market News and Events

In addition to simply utilising trading tools to give you an idea of how price action works, both for going long and short, it's also highly advised that you stay up to date on news and events surrounding the stock market.

Although it might feel slightly abstract to try and infer price action based on real-world events, the best traders in the world are all following news regarding the companies, industries, and other asset classes they're investing in. Economic indicators or even geopolitical events can have significant impacts on stock prices in the short term and can easily liquidate your position if you're unaware.

In fact, it's often this kind of news that makes it viable to go into short-term investing in the first place. Take, for instance, a company that you're thinking about investing in based on the past success of its stock.

In this hypothetical example, imagine they've just announced record lows in profit in one of their financial quarters for the year. Would this be a good opportunity to short this company's stock or to long it?

Without any prior understanding of the company's stability, you'd only be able to judge your position based on technical indicators which clearly aren't going to be telling the full story.

As a result, many traders choose to closely monitor developments like the aforementioned example in order to identify any potential opportunities or avoid risks.

How to Choose Short-Term Stocks

Research and Analysis

As mentioned, conducting thorough research and analysis of your potential stocks should never be optional — something to merely gloss over without any real consideration — but an absolute prerequisite.

Aside from taking a look at various financial news sources and monitoring the current market trends, make sure you're also examining each specific company's financial health, its place in the market and what prospects they might have in place for future growth opportunities.

All of these tactics are invaluable in terms of understanding the bigger picture with each individual security you invest in and help to provide a bit of background information so you can avoid losing money carelessly.

It’s incredibly easy to come out empty handed within this industry, so detailed and comprehensive research into the stock market cannot be stressed enough.

Set Clear Goals

Whenever you're going into an investment, whether that's for cash management accounts or exchange-traded funds, you've always got to define your short-term investment goals for any real chance of being profitable.

Without this kind of insight, it's incredibly easy to just trade and trade until you've lost all of the money in your portfolio, essentially turning the stock market into a casino. Simply put, just set goals for yourself. If your target is to reach, say, 1% total growth of your portfolio each trading day, never go over this number and seek something grandiose, despite how much of a “roll” you're on.

Essentially, this line of thinking breeds complacency and makes you think you have the market by the scruff of the neck when, in reality, the market takes just as easy as it gives and can easily rob you of all the profit you've made this day.

So, ask yourself, are you seeking quick profits from your short-term investments within just a few days or weeks, or are you aiming for something slightly longer?

Ultimately, clarifying these objectives before, rather than retrospectively, will help you choose stocks that best align with your personal risk tolerance and investment timeframe.

Diversification

As with all types of short-term investments, never underestimate the impact of diversification — not merely to maximise different income streams but to mitigate risk in general.

While it can be tempting to simply invest in the most profitable stocks on the FTSE 100 index, it's always worth going out of your comfort zone and considering stocks from various different sectors or industries, even ones that vary in their market caps.

2. Money Market Mutual Funds

Commonly referred to as MMFs, these are a kind of investment vehicle that, rather than investing in by yourself, pools money together from multiple different investors to purchase short-term securities.

These funds are normally incredibly low risk and mainly invest in things such as treasury bills and certificates of deposit with the main objective of preserving your capital while generating, albeit modest, returns.

How Do Money Market Accounts Work?

Stable Net Asset Value (NAV)

These kinds of mutual funds maintain something known as a stable net asset value which is a safety feature to prevent defaulting on your investment. They're usually around £1 per share, so this makes them relatively safe and reliable for any short-term investors.

Dividends and Expense Ratios

Furthermore, these investments work by generating income through dividends that usually depend on whatever the prevailing interest rates are, as well as the fund's investment portfolio.

Now, although these are already only going to provide a modest return, MMFs charge expense ratios that cover their management fees and the administrative costs that come with operating the fund. As a result, you'll always want to consider how these expenses might impact your overall returns before investing in them.

How to Choose Money Market Mutual Funds

Fund Reputation and Stability

Always be on the lookout for MMFs with not only a reputable background but also a strong past record of success. To do this, it's typically best to invest only in funds that come from established financial institutions or fund management companies so you can be sure they're able to navigate through different market conditions without any stress.

Yield and Expenses

Each MMF you'll run into will typically offer various different yields and expense ratios, so it's worth comparing a few different options to work out which is the most lucrative option.

The funds with higher yields can be fairly enticing, but it's worth noting that they normally have higher expenses associated with them. So the best option is normally a money market fund with competitive yields and reasonable expense ratios instead.

3. Crypto

Unless you've been living under a rock for the past few years, you'll know cryptocurrency has gained a fairly solid footing in the financial markets. This isn't for no reason, either, as crypto is actually one of the most lucrative short-term investment options currently available for investors.

In this next section of the article, we'll be taking a look at how cryptocurrency works and what makes it so attractive to short-term investors.

As with most investments, there's a fair bit of information you need to digest before diving headfirst into this market, so we'll also provide some information to help you choose which cryptocurrencies are best for your personal trading strategy.

How Does Cryptocurrency Work?

Decentralisation

One of the major reasons cryptocurrency is so popular is thanks to the notion of decentralisation. Unlike your traditional fiat currencies that are controlled by central banks across the world, cryptocurrencies actually operate on decentralised networks, which are typically based on a kind of technology known as the blockchain.

In essence, the fact that crypto is decentralised basically eliminates the need for any additional intermediaries that you'd expect with fiat currency, such as banks or governments. As a result, this gives the individual direct ownership and control over their assets/currency.

There are a few benefits that come from this kind of structure, namely that it acts as a kind of rebellion against the established financial order, becoming a legitimate threat to more conventional power structures.

Now, this may seem like a fairly utopian vision — providing power to the people and whatnot — but it does, unfortunately, open the door to a whole host of potential risks due to the absence of a traditional, centralised authority that would typically oversee transactions and address any issues you might have.

As a result, it's not exactly perfect as a legitimate replacement to cash — but that doesn't stop it from being an incredibly effective short-term investment.

Volatility

If you thought the stock market was volatile, you haven't seen anything until you take a look at the cryptocurrency market. While, say, 10% growth on your stock market portfolio would be considered a good year, that's a slow day in the world of cryptocurrency.

Okay, not entirely, but the fact that certain alt-coins (any cryptocurrencies other than Bitcoin) can grow over 100% in a single day demonstrates the opportunity available here for short-term investors.

So, thanks to this remarkable volatility within the crypto market, there may be plenty of traders who lose a lot of money, but this works in both directions, too. The price of cryptocurrencies can experience fairly rapid fluctuations within a mere matter of minutes, and this can be driven by various different factors.

It's in this way that cryptocurrencies work slightly differently than the traditional stock market, as there's no other industry that can result in a 30% increase in a security within minutes due to a celebrity like Elon Musk changing the Twitter logo to a picture of Doge, a popular alt-coin.

Aside from this, market sentiment, developments in regulations, and even just a minor celebrity endorsem*nt can all influence the price of any given cryptocurrency.

Of course, this immense level of volatility can be fairly enticing for short-term traders that are looking for quick profits, but this also means it requires a cautious and pragmatic approach — perhaps even more so than the stock market.

Technological Advancements

Furthermore, cryptocurrencies generally thrive on advancements in their underlying technology. Blockchain technology, for instance, holds the potential to completely revolutionise certain industries due to the transparency and immutability it comes with.

In addition, things like smart contracts allow for programmable agreements to be executed without any intermediaries at all.

Lastly, DeFi platforms are yet another innovation spawned from crypto technology that opens up new avenues for short-term investors. These platforms offer decentralised financial services, including lending, borrowing, and yield farming, providing opportunities for investors to earn passive income and explore novel investment strategies.

How to Choose Cryptocurrency

Research and Due Diligence

First things first, you'll want to familiarise yourself with some of the more popular cryptocurrencies available, including their underlying technology and the teams behind them.

There are thousands of different cryptocurrencies, with new ones being created daily, so having a firm understanding of what makes a crypto asset genuinely valuable will go a long way in sifting through the countless money grabs and scams associated with this industry.

This kind of research generally helps you make informed decisions so you can avoid falling for hyped-up projects without any solid foundation or fundamentals supporting them.

Risk Management

As with all short-term investments, there's an inherent risk with crypto investing. As such, always define your personal risk tolerance before investing significant amounts of capital so you can help alleviate some of the risk associated with crypto.

Profits can be substantial within this market, even more so than the stock market in some cases, but the risk of losses is equally significant in this volatile market. Make sure you're also setting stop-loss and take-profit levels in your charts so you can properly manage your positions.

Security Measures

It's generally advised you keep your crypto assets off of online exchange platforms when trading crypto and utilise hardware wallets that store your cryptocurrencies offline instead.

If you're absolutely set on choosing the online route, never register with a platform that doesn't encourage two-factor authentication and other security measures so you can avoid your account being tampered with.

Final Thoughts

To wrap things up, short-term investing definitely holds some advantages over its long-term counterpart, but this doesn't mean it's not without its own risks and challenges.

Whether it's the volatility risk that comes with cryptocurrency or simply the masses amount of research and expertise required to actually become a successful trader, sometimes it might be best to focus on a more cautious long-term approach.

Regardless of your decision, the information provided in this article should help set you up with the foundational knowledge required to get a foot in the door in an otherwise highly competitive landscape.

Related Guides:

• How To Buy Cryptocurrency in 2024 (UK guide)
• Crypto Vs. Stocks
• Stock Market Basics for Beginners