Short-term savings and an emergency fund are often the last line of defence against expensive debt. In addition, cash and near-cash for shorter-term goals give your long-term savings more time to grow. However, finding a great place to grow short-term savings can be a challenge.

The golden age of up to 10% return on longer-term cash savings came and went with COVID. In a lower interest rate environment, such as the one we’re currently experiencing, getting inflation-beating returns on cash becomes challenging. If you have a five-year savings goal, this could have a real impact on whether you can afford what you’re saving for.

A potential solution to the problem of low interest rates is short-term investing. The most important consideration here is the relationship between time and risk.

Certain investments are considered more risky than others because of how much their prices can move in a short time. Ordinary shares, for example, can be bought and sold at any time. The price of a share is determined by supply and demand, which is sometimes influenced by news about the company or the economy. If all of your savings are in shares, the share price could fall the day before you need to withdraw the money. You could end up selling your investments at less than you bought it for or not achieving as much growth as you had hoped.

The more time you have, the more risk you can afford to take. If a share event affects the value of your investment, you simply stay invested until the shares recover. The idea is that a more risky investment gets rewarded with better investment returns. As you get closer to withdrawing your investment, however, your risk should decrease. The closer you get, the more of your savings should sit in cash so you’re sure the amount you need is there exactly when you need it.

In terms of risk, shares (sometimes called equities for no good reason) are the Wild West. Property is slightly less risky, but still no joke.

Next up are bonds. They are considerably safer because you are very likely to get back at least your original investment. On top of the original investment, you’ll receive interest. In the case of total return ETFs, the interest earned on bonds is used to buy even more bonds. Think of this risk as being pick-pocketed on a vacation in Portugal.

Safest of all is cash—in the short term. The longer you have it, the more risky cash becomes. If your cash grows at a rate lower than inflation, your buying power is systematically destroyed without affecting the balance you hold. It’s the silent killer. You have the option to just leave your cash in a fixed interest account for the duration of your investment. However, money market ETFs offer easy access and solid returns.

The below ETFs are suitable for investments of 10 years or less.

At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.