As a debt-free millionaire and personal finance educator, I shifted my own investments to better suit my risk tolerance and take advantage of high interest rates in 2023. Here are four short-term passive income sources that can help you grow your money without losing sleep at night.
Stash The Savings You Won’t Need Until Next Year In A CD
I personally opened several certificates of deposit since the beginning of the year to save cash for the down payment on my next home and for vacations I plan to take next year.
When you cash in your CD after a defined period of time, you receive the money originally invested plus earn passive income through interest paid by the bank.
Some personal finance experts might argue it’s a savings account and not an investing vehicle. But CDs can have rates as high as 5% right now, competing with investments such as dividend stocks that have similar returns with more potential risk.
If recent U.S. bank collapses worry you, CDs are insured up to $250,000 if the bank is covered by the Federal Deposit Insurance Corporation. FDIC insurance covers all accounts under your name at the same bank in total. It does not cover $250,000 for each CD or account you have at the bank.
Treasury Bills Are Confusing At First But Low Risk
Treasury bills make you a lender to the U.S. government. As a beginner, I first confused them with Treasury bonds or Treasury notes, so be clear on which you are buying. TreasuryDirect, the government’s website for purchasing its securities, looked so outdated when I first visited that I thought I was at the wrong website.
I found T-bills are not intuitive to buy, so I watched several tutorials before I bought mine through a brokerage account. Now, I can track them alongside other investments in my cell phone apps.
T-bills are only subject to federal taxes, not state and local, which keeps more of the return on investment in your own pocket.
It’s been rewarding to see them mature after only a few months, since their maturity dates are shorter than other debt vehicles offered by the U.S. government.
Government Money Market Funds Can Help Diversify Your Portfolio While Keeping Your Money Accessible
In 2023, pay particular attention to government money market funds. Despite the ongoing debt ceiling news, I feel okay investing in government money market funds because they are generally less susceptible to stock market fluctuations. They invest 99.5% or more of their total assets such as: cash, government securities, and/or repurchase agreements backed with government securities.
Money market funds are also easier to access than other investments with similar returns, such as CDs. You can withdraw cash or buy other investments quickly. Money market funds are more diversified. They can invest in securities with interest payments that aren’t subject to federal — and sometimes state — taxes, which saves investors money.
In addition to T-Bills, consider storing cash in a government money market fund until you find other long-term investments.
Keep Emergency Funds In A High-Yield Savings Account
A high-yield savings account may sound boring, but it is especially helpful if you’re living paycheck to paycheck and want to start building a cushion that will also grow on its own. If you have a checking account, you might also have a savings account that came with it, where the bank likely is paying you less than one percent in interest.
With interest rates expected to remain relatively high in 2023, replacing your traditional accounts with a high-yield option offers a no-stress way to start growing your savings — and your passive income — with very little risk.
Increase Your Risk Tolerance With Self-Reflection
I share my personal experience for educational purposes only and is not intended to constitute investment advice. All investments involve risk of loss, even if they’re low.
The hard part wasn’t in educating myself, but in being honest about what my own personal goals are rather than comparing them to to what my peers might be doing, and learning to take responsibility for both good and bad investing decisions.
Any strategies you learn should not be undertaken without assessing whether the ideas shared fit your own personal financial objectives, needs and risk tolerance.
If you’re a risk-averse investor like me, I strongly encourage you to seek out diverse opinions and experiences from people who have a proven track record. You don’t need to rush. Take small steps that feel challenging but manageable to grow your investment confidence.
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