Financial Planning | Investing | Personal Finance | Article
Why You Shouldn’t Put Your Travel Fund in The Stock Market: How to Plan and Invest for Your Short-Term Goals
by The Simple Sum Team | 14 Nov 2022 | 6 mins read
Whether you’re saving or investing, it’s always important to have goals to save or invest towards. Think of your goals as your “why”s – they can be anything from achieving financial independence to paying off your student loan to building up a travel fund. It’s also equally important to know your “when” because your approach to saving and investing for the future doesn’t just depend on your purpose but also how soon you need the money.
There’s already plenty of discussion around the importance of long-term goals and investing towards them. But you shouldn’t neglect planning for your short-term goals too as they help you prioritise saving money and provide the foundation of putting your money to work for you, long into the future.
What are short-term goals?
Short-term goals are defined as those that can be achieved within 3 to 6 months or up to 12 months. They tend to have specific deadlines and may include paying off a university study loan, planning an overseas vacation, setting aside money for a wedding, having a pet or even getting a tattoo. Your short-term goals may also support any major expenses or purchases in the coming years, such as saving up for the down-payment of your home or building an education fund for your child.
The approach you take investing for short-term goals is different from long-term goals
You want to save up fast and ensure your money is available when you need it to fulfill your short-term goals. Unlike long-term goals, which are typically 10 years or more into the future and can change as you progress through life, the short timeline of your short-term goals requires you to think about how to make the most out of your idle money right now.
Although the stock market in developed markets like the US have a history of going up over the long term, you don’t want to lock 90% of your savings in public equities that are subject to market fluctuations and can significantly drop in value at the time of withdrawal. Instead, you’ll be looking for financial instruments with higher liquidity, and a history of steady returns and lower risks to achieve your short-term goals.
Where to put your short-term savings
The amount you need to save and the duration you’re saving will help determine the best financial instruments to place your money. You also want to consider how easy it is to withdraw your money when you need it.
A high interest savings account and a money market account provide the combination of low risks, steady returns and liquidity.
A high-interest savings account allows you to grow your savings faster than an average savings account. You can enjoy bonus interest by simply spending on their credit cards and crediting your salary as long as you fulfill the terms. They may include meeting the bank’s minimum salary requirement, achieving a minimum monthly spend, using your account to pay bills and buying certain bank products. The money in your Singapore dollar savings accounts is insured for up to S$75,000 in aggregate by the Singapore Deposit Insurance Corporation Limited (SDIC).
You may be someone who doesn’t want to bother with all the terms and conditions that a high-yield savings account has just to get a better return on your cash. In that case, a money market account or cash management account is another way to achieve your short-term goals without having to jump through hoops. Usually comprised of short-term fixed income instruments like government bonds, treasury bills, and deposits from financial institutions, a cash management account lets you enjoy lower risk and have ready access to your money. This way you can cash out your funds just as you want to use it for your short-term goals, whether that’s to fund your travels or your investments into the stock market. Since they’re different from bank savings accounts because your money is invested in money market instruments, you’ll receive higher returns within a 3 to 6 months period from a cash management account.
There is a third option of fixed deposits of 1 month to 12 months tenure with banks and finance companies. While they are insured by SDIC, they are less liquid as an early withdrawal penalty would be imposed if you decide to take out your money before the maturity date.
Short-term goals give you the freedom to enjoy the life you want now
Having short-term goals allow your savings to transform into your material wants and needs. It simply means you have something fun, interesting and even exciting to look forward to in the foreseeable future. As your circumstances and priorities in life change, so will your goals. Regardless it is important to set SMART goals that are specific, measurable, attainable, relevant and time-bound. In this way, you can achieve them and save for the life that you want.
Content sponsored by Tiger Brokers
With the inflation rate creeping up lately and eroding the value of cold-hard cash, it’s probably not a good idea to keep your travel fund or cash meant for your short-term goals under your pillow.
One place you can consider stashing your idle cash is in Tiger Vault, a cash management solution by Tiger Broker that provides you with a yield of up to 3.2% on your cash*. Tiger Vault invests in specially curated Money Market Funds to help you achieve this yield and if you’re stockpiling your cash to eventually buy into the stock market, you can easily use your cash in Tiger Vault to buy stocks, options, funds and participate in IPOs.
Tiger Vault is also the first cash management account in Singapore that allows you to store your spare cash in SGD, USD and HKD (coming soon). And if you want quick access to cash that you’ve planned to deploy for your investments (and still earn on that cash, in the meantime), you can always withdraw your cash and invest in just one click.
Tiger Vault is offering 11% cashback for 3-day yields on your next one-time investment amount to give your idle cash that extra boost.
Find out more here
*Yields are estimated based on the current market environment and may be higher or lower. The Yield projection is based on current market conditions as of July 2022. Check out the Tiger Vault page, on the Tiger Brokers app, to see the latest fund performance