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Investing for short-term goals

How to reach your goals faster by saving and investing smarter.

Key takeaways

  • When you're investing for a short period of time, like 3 years or less, it's a good idea to balance risk and the ability to quickly access your money (liquidity) with the search for high returns.
  • Using investments that match your goals, time frame, and the amount of risk you're comfortable taking can help ensure that you won't risk losing more money than you can afford.
  • Fidelity's digital tools can help you build an investment mix for each of your financial goals which matches your time frame, plus specific investments to consider.

Whether you’re saving to buy a house or a new car, go on vacation, or anything else, putting your money to work earning money could help you reach that goal. Not only could you reach your goal sooner, but you may not need to save as much money as you otherwise would.

To pick the appropriate investments for your situation, there are some important considerations.

Time frame: When is the deadline for your goal or when do you plan to use this money?

Financial situation: Is there any chance you’ll need the money before your goal deadline?

Risk tolerance: How will you feel if the stock market hits a rough patch and the value of your investments falls?

To learn more about these variables and how they can affect the success of your investment plan, read Viewpoints: 3 tips to choosing investments

Of course, you don’t have to do it all alone. Our free planning tools can help with investment strategies to consider and suggestions for investments.

Here are some of the ideas you’ll find in our free planning tools based on shorter time frames.

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Investing for less than 1 year: Consider liquidity and risk

You probably wouldn’t want to risk losing money that you’ll need to spend very soon. So when you have a very short window to stay invested, consider prioritizing liquidity and safety over seeking high rates of return.

Potential investments to consider: Money market funds

Money market funds can be a good option for money you might need on short notice, or that you are holding to invest when opportunities arise. They invest in high-quality, very short-term debt securities and cash equivalents with low credit risk and yields that tend to closely track changes in the Fed’s target interest rate. (The weighted average maturity of securities in money market funds is 60 days or less.)

Plus, money market funds typically offer easy access to your cash.

There are 3 main categories of money market funds—government, prime, and municipal.

Government money market funds1 hold Treasury and other securities issued by the US government and government agencies. Prime retail2 money market funds do too, but they may also invest in securities issued by corporations. Municipal retail money market funds2 invest in debt issued by states, cities, and public agencies.

To find money market funds at Fidelity, go to Mutual Funds Research. And, in case you didn’t know, the core cash position in our brokerage account has a money market fund option, as does the Fidelity Cash Management Account. In the cash management account, you can now choose between SPAXX,3 a Fidelity money market fund that is not FDIC-insured, and an FDIC-insured sweep account. (The core cash position is where any uninvested money in your account will go.)

Investing for 1–3 years: Options for higher yields and risk

If you have longer than 1 year to invest, you may feel comfortable taking on a little more risk to try to get a little more yield. Here are some options to consider if you have 1 to 3 full years to stay invested.

CDs (3-year terms and under)

CDs are low-risk, time-deposit products offered by banks and brokerages. When you buy a CD, you agree to leave your money in the account for a specified period of time, known as the term. In return, the bank pays you a yield or fixed rate of return.

CDs may offer higher yields than some other options for cash, like savings accounts, making them an attractive offer for savers looking for stable returns without the volatility of the stock market. They come in maturities from 1 month to 20 years, but the most common terms offered range from 3 months to 5 years. All the CDs that Fidelity offers are FDIC-insured up to applicable limits.

You can buy a CD directly from a bank, or you could buy one through a brokerage firm, known as a brokered CD. If you buy a brokered CD at Fidelity as a new issue CD, there are no management fees or transaction costs if you hold it to maturity. Brokered CDs typically require minimum investments of $1,000 but Fidelity offers fractional CDs with minimum investments of $100.

But with CDs you trade off some liquidity for higher yields. If you need to withdraw money before the CD’s term ends, you may be hit with an early withdrawal penalty. If you own a CD in a brokerage account and need access to your savings before maturity, selling it early may lead to transaction fees in addition to a possible early withdrawal penalty.

CD ladders (3 years and under)

A ladder arranges a number of CDs with staggered maturities. This frees up a portion of your investment at preset intervals as each CD matures. So ideally you get potentially higher interest rates on longer-term CDs and closer access to a part of your money in the shorter-term CDs.

You can choose new investments when the CDs mature, buy new CDs, or consider Fidelity’s Auto Roll service which automatically invests the maturing principal in another CD with a term to maturity equal to the length of the ladder.

For instance, you could build a 1-year CD ladder and roll new CDs in as old ones mature. Alternatively, as your time horizon nears, you can let your CDs return their maturing principal to your account.

Find CDs and the latest rates at Fidelity: Fixed Income, Bonds, & CDs

High-quality short-term bond funds/ETFs

Short-term bond funds—whether a mutual fund or exchange-traded fund—can be an option for investors looking for higher yields than they could find in a CD. Short-term bond funds invest in bonds that mature in 1 to 3.5 years. The only caveat is that bonds can be more risky than money market funds or CDs—it is possible to see the value of your investment fall but it could go up too.

Duration, a measure of a bond’s sensitivity to interest rate changes, can be a key consideration when looking for stability in bond prices.4 A higher duration indicates that the bond’s price is more sensitive to changes in interest rates. Bonds with shorter maturities tend to be less sensitive to interest rates. The lower the duration, the less volatile the fund may be.

With a fixed and short time frame for investing, staying on the conservative side can make sense. If you’re looking to reduce risk, consider sticking with investment-grade bond funds. When buying bonds, you’re lending the company money. High-quality, investment-grade bonds come from financially healthy bond issuers with a high likelihood of repaying debts and making all the promised payments.

Ratings agencies research bond issuers and give ratings to the bonds they issue. Investors typically group bond ratings into 2 major categories:

  • Investment-grade refers to bonds rated Baa3/BBB− or better.5
  • High-yield (also referred to as "non-investment-grade" or "junk" bonds) pertains to bonds rated Ba1/BB+ and lower.5

Read Viewpoints: Bonds: Short can be sweet

Investing for 3 years or more: Investing in stocks may be a consideration

If you’re able to invest for 3 years, adding some stocks to a mix of more conservative investments could help improve returns. The thing to remember is that it can take days, weeks, or months for your account value to potentially bounce back from significant dips in the stock market.

To help reduce the swings in your investment mix consider allocating a relatively small portion of your savings to stock mutual funds or ETFs and investing the rest in more conservative investments, like CDs, high-quality bond funds, and money market funds. If you’d like to take on more risk for the chance to get higher returns, increasing the amount invested in stocks while reducing the amount in bonds or short-term investments could help.

When investing in stocks, it can be a good idea to do a gut check and consider how you’d react if your account value fell because of a dip in the stock market. Your feelings about risk can help you determine the level of stocks you feel comfortable with. To learn more, read Viewpoints: 3 tips for choosing investments

Investing in a diversified mix of stocks can help you manage the risk of investing in stocks and bonds. Read Viewpoints: The guide to diversification

A conservative investment mix could have 50% bonds, 30% short-term investments, 14% US stock, and 6% non-US stock. The average annual return for this mix has been 5.78%. The worst 12-month return was -17.67% and the best 12 month return was 31.06%. Adding more stock investments historically increased returns as well as volatility.
Data source: Fidelity Investments and Morningstar Inc. 2023 (1926–2023).4 Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only. It is not possible to invest directly in an index. Time periods for best and worst returns are based on calendar year. For information on the indexes used to construct this table see Data Source in the notes below. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet a participant's goals. You should choose your own investments based on your particular objectives and situation. Remember, you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. You should also consider any investments you may have outside the plan when making your investment choices.

Picking your strategy and implementing it

Before putting a plan into action, consider how much certainty you need for the goal you’re investing for. With a CD, you know how much you will earn and exactly when the returns will be delivered to you (assuming you hold it to maturity). With a fund you need to allow for a margin of error in case the stock or bond markets stumble right when you need your money. You might need to put more money into the investment initially to allow for that uncertainty.

The best 1 year cumulative return for a conservative investment mix was 15%, for 3 years it was 29.2%. But the worst cumulative 1-year return was -11.5% and -2% over 3 years. Compared to a CD yielding 4.2%, the outcome could be better in terms of return but there's no certainty.

Illustration compares the hypothetical investment of $10,000 into a CD or a conservative investment mix. For the conservative portfolio: A hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various unmanaged indexes from 2004 through 2023. Domestic stocks represented by Dow Jones US Total Market data. Foreign stocks represented by MSCI ACWI Ex USA GR USD. Bonds are represented by Barclays Aggregate Bond Index. Short-term/cash represented by 30-day US Treasury bills.


Source: Fidelity; 10/10/2024. Past performance is no guarantee of future results.

Further considerations:

If you’d like to pick your own investment mix, start exploring investments using Fidelity’s research pages: Fixed income, bonds, and CDs, ETF and stock screener, and mutual fund screener.

For a little help, use our free planning tools to get suggestions for an investment strategy and specific investments to consider. We have a couple of tools that could help.

  1. The Fidelity Planning & Guidance Center: Hit the "Plan today" button to log in if you’re a customer. If you’re not yet a customer, try the retirement portion of the planning experience for free.
  2. The ETF Portfolio Builder: Answer a few simple questions and get investment options to consider. All 7 of the model ETF portfolios do include stocks. Consider choosing the amount of stocks you’re comfortable with based on your time frame.

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Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.

1. 

You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund’s sponsor, is not required to reimburse the fund for losses, and you should not expect that the sponsor will provide financial support to the fund at any time, including during periods of market stress.

Fidelity's government and U.S. Treasury money market funds will not impose a fee upon the sale of your shares.

 2. You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon the sale of your shares. An investment in the fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund’s sponsor, is not required to reimburse the fund for losses, and you should not expect that the sponsor will provide financial support to the fund at any time, including during periods of market stress. 3. You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund's sponsor, is not required to reimburse the fund for losses, and you should not expect that the sponsor will provide financial support to the fund at any time, including during periods of market stress. The fund will not impose a fee upon the sale of your shares. 4. Duration is measure of a security’s price sensitivity to interest rate changes. Duration differs from maturity in that it considers a security’s interest rate payments in addition to the amount of time until the security reaches maturity, and also takes into account certain maturity shortening features (including interest rate resets and call options) when applicable. Securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration is generally expected to be more sensitive to interest rate changes than a fund with a shorter average duration. 5. There are 3 rating agencies: Moody’s, Standard & Poor’s, and Fitch. Standard & Poor’s and Fitch use the same scale with 10 tiers for investment grade bonds. The strongest investment grade rating is AAA. The lowest investment grade rating is BBB-. Moody’s uses a similar 10-tier hierarchy with a different naming convention. The strongest for Moody’s is Aaa and lowest rating for investment grade bonds in Moody’s system is Baa3. Per Fitchratings.com: ‘AAA' ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. The lowest investment grade, 'BBB' ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. Bonds with a rating beneath investment grade are rated speculative (BB+/Ba1) to very high levels of credit risk (CC/Ca), and near default (C/C). Data Source: Fidelity Investments and Morningstar Inc. Hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various unmanaged indexes from 1926 through the latest year-end data available from Morningstar. Domestic stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926-Jan 1987, then by Dow Jones US Total Market data starting Feb 1987 to Present. Foreign stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926–Dec 1969, MSCI EAFE Jan 1970-Nov 2000, then MSCI ACWI Ex USA GR USD Dec 2000 to Present. Bonds represented by US Intermediate-Term Government Bond Index Jan 1926–Dec 1975, then Barclays Aggregate Bond Jan 1976 - Present. Short-term/cash represented by 30-day US Treasury bills beginning in Jan 1926 to Present. Past performance is no guarantee of future results. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet an investor's goals. You should choose your own investments based on your particular objectives and situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals. Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions.

Fidelity's Planning and Guidance center allows you to create and monitor multiple independent financial goals. While there is no fee to generate a plan, expenses charged by your investments and other fees associated with trading or transacting in your account would still apply. You are responsible for determining whether, and how, to implement any financial planning considerations presented, including asset allocation suggestions, and for paying applicable fees. Financial planning does not constitute an offer to sell, a solicitation of any offer to buy, or a recommendation of any security by Fidelity Investments or any third-party.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Investors considering investments in bond funds should know that, generally speaking, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate of your CD may be higher or lower than prevailing market rates. The initial rate on a step rate CD is not the yield to maturity. If your CD has a call provision, which many step rate CDs do, please be aware the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may be confronted with a less favorable interest rate at which to reinvest your funds. Fidelity makes no judgment as to the credit worthiness of the issuing institution.

Lower yields - Because of the inherent safety and short-term nature of a CD investment, yields on CDs tend to be lower than other higher risk investments.
Interest rate fluctuation - Like all fixed income securities, CD valuations and secondary market prices are susceptible to fluctuations in interest rates. If interest rates rise, the market price of outstanding CDs will generally decline, creating a potential loss should you decide to sell them in the secondary market. Since changes in interest rates will have the most impact on CDs with longer maturities, shorter-term CDs are generally less impacted by interest rate movements.
Credit risk - Since CDs are debt instruments, there is credit risk associated with their purchase, although the insurance offered by the FDIC may help mitigate this risk. Customers are responsible for evaluating both the CDs and the creditworthiness of the underlying issuing institution.
Insolvency of the issuer- In the event the Issuer approaches insolvency or becomes insolvent, it may be placed in regulatory conservatorship, with the FDIC typically appointed as the conservator. As with any deposits of a depository institution placed in conservatorship, the CDs of the issuer for which a conservator has been appointed may be paid off prior to maturity or transferred to another depository institution. If the CDs are transferred to another institution, the new institution may offer you a choice of retaining the CD at a lower interest rate or receiving payment.
Selling before maturity - CDs sold prior to maturity are subject to a mark down and may be subject to a substantial gain or loss due to interest rate changes and other factors. In addition, the market value of a CD in the secondary market may be influenced by a number of factors including, but not necessarily limited to, interest rates, provisions such as call or step features, and the credit rating of the Issuer. The secondary market for CDs may be limited. Fidelity currently makes a market in the CDs we make available, but may not do so in the future.
Coverage limits- FDIC insurance only covers the principal amount of the CD and any accrued interest. In some cases, CDs may be purchased on the secondary market at a price that reflects a premium to their principal value. This premium is ineligible for FDIC insurance. More generally, FDIC insurance limits apply to aggregate amounts on deposit, per account, at each covered institution. Investors should consider the extent to which other accounts, deposits or accrued interest may exceed applicable FDIC limits. For more information on the FDIC and its insurance coverage visit www.fdic.gov.

For the purposes of FDIC insurance coverage limits, all depository assets of the account holder at the institution issuing the CD will generally be counted toward the aggregate limit (usually $250,000) for each applicable category of account. FDIC insurance does not cover market losses. All the new-issue brokered CDs Fidelity offers are FDIC insured. In some cases, CDs may be purchased on the secondary market at a price that reflects a premium to their principal value. This premium is ineligible for FDIC insurance. For details on FDIC insurance limits, visit FDIC.gov.

Displayed rates of return, including annual percentage yield (APY), represent stated APY for either individual certificates of deposit (CDs) or multiple CDs within model CD ladders, and were identified from Fidelity inventory as of the time stated. For current inventory, including available CDs, please view the CDs & Ladders tab.

A CD ladder, depending on the types and amount of securities within it, may not ensure adequate diversification of your investment portfolio. While diversification does not ensure a profit or guarantee against loss, a lack of diversification may result in heightened volatility of your portfolio value. You must perform your own evaluation as to whether a CD ladder and the securities held within it are consistent with your investment objectives, risk tolerance, and financial circumstances. To learn more about diversification and its effects on your portfolio, contact a representative.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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