11 Best Short-Term Investments for 2022

11 Best Short-Term Investments for 2022

What Is Liquidity?

Liquidity describes your ability to exchange an asset for cash. The easier it is to convert an asset into cash, the more liquid it is. And cash is generally considered the most liquid asset. Cash in a bank account or credit union account can be accessed quickly and easily, via a bank transfer or an ATM withdrawal.

Liquidity is important because owning liquid assets allows you to pay for basic living expenses and handle emergencies when they arise. But it’s important to recognize that liquidity and holding liquid assets comes at a cost.

In general, the more liquid an asset is, the less its value will increase over time. Completely liquid assets, like cash, may even fall victim to inflation, the gradual decrease in purchasing power over time.

To protect against inflation and save for long-term financial goals, you’ll probably want to sacrifice some liquidity and lock assets into investments that grow your wealth over time, like investment securities or real estate.

But assets like real estate, as well as art and jewelry, may be considered highly or even exclusively illiquid. This doesn’t mean that you will never receive cash for them, only that it can be more challenging to value assets like this and then turn them into cash.

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Bonds

When you buy a bond, you’re lending money to a company or governmental entity, such as a city, state or nation.

Bonds are issued for a set period of time during which interest payments are made to the bondholder. The amount of these payments depends on the interest rate established by the issuer of the bond when the bond is issued. This is called a coupon rate, which can be fixed or variable. At the end of the set period of time (maturity date), the bond issuer is required to repay the par, or face value, of the bond (the original loan amount).

Bonds are considered a more stable investment compared to stocks because they usually provide a steady flow of income. But because they’re more stable, their long-term return probably will be less when compared to stocks. Bonds, however, can sometimes outperform a particular stock’s rate of return.

Keep in mind that bonds are subject to a number of investment risks including credit risk, repayment risk and interest rate risk.

What does a 1031 Exchange cost?

At Equity Advantage, we take pride in our ability to make the most of a client’s exchange. We consider the exchange the tool to move a client from one investment to another. The course taken will vary from client-to-client depending on the client’s needs and circumstances. Often it’s not a question of doing an exchange, it’s a question of what kind of exchange to do.

The cost of an exchange varies depending on the circumstance and the type of exchange. A True Swap of properties can be as little as $500. A Delayed Exchange of two properties starts at about $1,000. More complex transactions such as Reverse or Improvement Exchanges start at $6,500.

Please contact Equity Advantage today for exchange consultation and a price quote.

What is capital investment proposal?

Capital investment in new equipment or facilities is usually a significant sum. It could be funded from internal resources or it may require a new source. You can use the NPV (net present value) to calculate the return on the investment in today’s money. …

Is cash a good investment?

As mentioned above, because cash investments are secure, the return can be small in comparison to investment in shares and property. Cash investments are classified as defensive investments, which are investments that provide a steady income and stable returns.

Real Estate

There are a variety of ways to invest in real estate from buying homes, apartments, and commercial business buildings to flipping houses, or even owning farms and trailer parks. The main drawback for most beginning investors is that the price of entry is high.

14. Property

Property is often an expensive investment, which can easily crowd out small investors with less capital.

However, crowd-funded real estate investment opportunities are beginning to pop up, providing new types of investments for those who want to invest in real estate but don’t have all the cash. 

The hardest part about investing in real estate is finding a property that you can purchase with a margin of safety. If you can do that, you can make some decent returns investing in property.

You can make money by buying the property at a below-market rate and selling it at full price, as well as by renting or leasing the property to tenants.

The various types of property investments can all be good, as long as you treat them the same as any other Rule #1 investment. This means the property should have meaning to you, have a moat, good management, and be purchased with a margin of safety. 

Key Takeaway: While it’s possible to find a great deal on real estate, it might be easier to invest in the stock market, make the same returns or better, and not have to deal with having a bunch of rental properties to take care of.

15. Real Estate Investment Trust 

A Real Estate Investment Trust, or REIT, is similar to a mutual fund in that it takes the funds of many investors and invests them in a collection of income-generating real estate properties.

Plus, REITs can be bought and sold like stocks on the stock market so they can be cheaper and easier to invest in than property. 

Without having to buy, manage, or finance any properties yourself, investing in a REIT reduces the barriers of entry common to property real estate investment.

Key Takeaway: You don’t need a lot of money and you don’t need to worry about maintaining the properties. While you won’t make as much money from property appreciation, you can receive a steady income from REITs.

Bonds and Securities

Bonds and securities are other types of low-risk investments. Bonds can be purchased from the US government, state and city governments, or from individual companies.

Mortgage-backed securities are a type of bond that is typically issued by an agency of the U.S. government, but can also be issued by a private firm. 

4. U.S. Savings Bonds & Corporate Bonds

When you purchase any kind of bond, you are loaning money to the entity you purchase it from for a predetermined amount of time and interest.

Bonds are considered safe and low risk because the only chance of not getting your money back is if the issuer defaults. U.S. saving bonds are bonds backed by the U.S. government, which makes them almost risk-free. 

Governments issue bonds to raise money for projects and operations, and the same is true for corporations who issue bonds.

Corporate bonds are slightly more risky than government bonds because there’s more risk of a corporation defaulting on the loan. Unlike when you invest in a corporation by purchasing its stock, purchasing a corporate bond does not give you any ownership in that company. 

An important note to remember is that a bond may only net you a 3% return on your money over multiple years. This means that when you take your money out of the bond, you’ll actually have less buying power than when you put it in because the rate of growth didn’t even keep up with the rate of inflation.

Key Takeaway: There is nothing “safe” about running out of money in retirement because your rates of return couldn’t keep up with inflation while you were trying to grow and protect your money. It’s not worth it to put your money in bonds.

5. Mortgage-Backed Securities

When you purchase a mortgage-backed security, you are once-again lending money to a bank or government institution, but your loan is backed by a pool of home and other real estate mortgages.

Unlike other bonds, which pay the principal at the end of the bond term, mortgage-backed securities pay out interest and principal to investors monthly.

Key Takeaway: While they can be a type of income investment that provides steady returns, mortgage-backed securities are one of the more complex investment types, and so should be avoided by beginner investors.

What Are Illiquid Assets?

Illiquid assets are not easily sold or converted into cash. Some examples of illiquid assets include:

  • Real estate. It can take weeks or months—or even years—to sell real estate. While it’s possible to access the equity you have built up in a home or an investment property through a home equity loan, home equity line of credit or a reverse mortgage, setting up these arrangements take time and effort.
  • Collectibles. Antiques, artwork, baseball cards, jewelry and other collectibles can be difficult to value and hard to sell.
  • Stock options. Many companies—not just tech start-ups—offer their employees stock options as part of a larger compensation package. Typically a new employee is promised a set amount of stock in the company that employs them if they remain with the company for a given period of time. Stock options can be very valuable, but they are highly illiquid assets, as you must remain with the company for years before you own the stock promised to you.
  • Private equity. If you can invest in private equity assets, like venture capital or funds of funds, you have the potential to achieve big gains. However, private equity funds often come with steep restrictions on when you can sell your shares.
  • Estates. Before you can access the assets in an estate, debts must be paid and taxes assessed. It can take years to fully benefit from an estate.
  • Intangible assets. Intangible assets are concepts or ideas that have value—in some cases a very great deal of value. Intangible assets include things such as corporate goodwill, brand recognition, intellectual property and reputation. It can be very difficult to assign a market value to intangible assets, and they are by nature extremely illiquid.

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Example of illiquid assets

Conversely, illiquid assets are those that cannot be easily converted to cash. They may take a while to sell, or lack a bustling market full of potential buyers. The point is, it’ll be tough to turn these types of assets into fast cash: 

  • Real estate: Real estate may hold a lot of value, but it is neither fast nor easy to sell. On average, it takes around two months to sell a house in the US, making real estate an illiquid asset.
  • Collectibles: Collectibles can be almost anything, from baseball cards to paintings. While these assets may hold value, it can be difficult to find buyers, depending on the specific market, and their values may be hard to assess. For that reason, collectibles are considered illiquid.
  • Stock options: Like other items on this list, stock options may be valuable, but aren’t easy to transfer or squeeze cash out of. 
  • Private equity: Do you own a share of a business or organization? This is also called “equity,” and while it may be of some value, that value isn’t easy to tap into. 
  • Intangible assets: It’s hard to define intangible assets since they’re, well, intangible. But they may include things like intellectual property. These would be illiquid, given their specific nature, and a lack of an immediate marketplace where they can be exchanged for cash.

5 Investment Questions to Ask About Your Portfolio

Investments are tools to help you reach your goals. Knowing more about how to use them may help improve your financial future. The answers to a few simple investment questions can move you a long way toward understanding what you need and how your portfolio can help. Think about your investment portfolio and ask a financial professional these 5 questions:

1. What is this money for?

Most people find it easier to allocate their savings toward particular goals. Are you saving for retirement? Is this an emergency fund? Do you want to take a dream vacation? Are you concerned about paying for long-term care in retirement?

Determining your broad objectives will help you make decisions about such issues as the amount of risk you are willing to tolerate and the types of investment products that fit best with your philosophy. For example, if your goal is an emergency fund, you might select a low-risk investment, which in turn may mean that it has a smaller return.

2. What is the expected rate of return?

Of course, you want to make as much money as possible, but it’s important to remember that the way you choose to invest that money may have particular constraints that can limit how much — or how quickly — you see returns on that investment. There are two main factors that affect returns: risk and fees. It helps to understand how much money an investment is likely to make; the form of that return, such as capital gains, interest or dividends; and the cost of the investment. With that understanding, you can make the investment decision that aligns with your financial goals.

For example, some people choose retirement investments that have a potentially higher rate of return because they have more time to make up losses, which may not be the case with money allocated for a down payment on a first house.

3. How much risk can I tolerate?

All investing involves some risk. This means that, no matter the type of investment you make, there’s a level of uncertainty regarding how the investment may perform or how much money you might — or might not — earn from it. This means your investment may earn more than you expect in any one year, or you may lose some or all of the investment. How much risk you can bear depends not only on your personal temperament but also on how much time will pass until you need the money — and what your overall financial position is.

4. What is my tax situation?

Certain types of investments carry tax advantages, at least for some investors. For example, making contributions to retirement plans, college savings plans and certain types of life insurance policies may reduce income taxes for the year you invest that money. Whether or not you may benefit depends on what state you live in and your overall financial situation.

Selling some investments also impacts your taxes for the year. If you earned money on the investments you made, you pay capital gains taxes on the profit you earned. If you sell an investment at a loss, meaning less than you paid for it, you can claim that loss to lower other capital gains amounts on your tax return for the year.

5. What are my special needs and circumstances?

People and families differ in their financial needs. Maybe you have stock from your employer, expect to inherit farmland from your grandfather or have a religious objection to certain types of investments. Other common but special circumstances include the need to provide for a child with a disability, pursue philanthropic interests or support a blended family. These will affect your financial goals, your risk and return requirements, and possibly your tax situation.

This isn’t a one-time exercise. Your financial situation and the financial markets will change over time, so revisiting these questions will help keep you on track. As the answers to these investment questions change, you can alter your financial planning so that your money continues to work for you. Make sure you have a knowledgeable financial professional help you answer these questions and make sound decisions that address your needs.

What is the difference between Section 1031 and Section 1033?

Although IRC 1033 and 1031 both allow for the deferment of capital gain on property, the code sections operate and impact the taxpayer differently. IRC 1031 may provide more flexibility on the type of replacement property that can be acquired. IRC 1033 offers more flexibility on time constraints and receipt of funds.

Here is a quick summary of the differences.

IRC 1031

  • Pertains to the exchange of property used in “trade or business or investment.”
  • Do not report gain if property is exchanged for “like-kind” property (e.g., real estate for real estate).
  • A third party intermediary is required.
  • May not have actual or constructive receipt of sales proceeds from the relinquished property (all funds must be deposited with the exchange-accommodator).
  • 180 days to replace the relinquished exchange property.
  • 45 days to identify replacement property.
  • Net equity must be reinvested in property of equal or greater value to the relinquished property.

IRC 1033

  • Pertains to property involuntarily converted or exchanged (destroyed, stolen, condemned or disposed of under the threat of condemnation).
  • Do not report gain if property received is “similar or related in service or use” to the converted property. Exception: If converted property is real estate used in trade and business or investment, then do not report gain if exchange is for “like-kind” property (e.g., real estate for real estate).
  • An accommodator is not needed; the deferment is reported on Form 4797.
  • OK to directly receive payment/proceeds for the involuntary conversion. 3 years to replace real estate; 2 years for other property.
  • No time restrictions during which the replacement property must be identified.
  • Proceeds must be reinvested in property of equal value to the converted property.

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