Short Term Investments UK – Invest with 0% Commission Today

Our selections for short term investments UK come from across the asset class range but with a particular focus on equities. The investments in this survey should be blended and tailored to specific individual circumstances regarding timescale and risk profile, and to reduce risk as you progress to meet your financial goals.

A short term investment is usually defined as one that can be liquidated for cash within five years. Often there will be a preponderance of bonds and other lower risk investments in a short term investment portfolio, but we are going to focus on those investments that can generate above-average short term returns within five years – a slightly different proposition.

Short term investments also have the benefit of not tying up your funds for too long. However, a short term investment horizon comes with the downside that you may need to take more risk to achieve the same returns that could be generated over a longer timeframe by taking less risk.

We will focus on equities but include other asset classes and have chosen eToro as the venue of choice because of its 0% commission fee on trading, which will help keep your investment costs down.

We have included the usual short term investment categories suspects, but added equities and alternative investments to the mix – the latter includes bitcoin and rare whisky.

The only category we did not review any products from was savings accounts and fixed-rate bonds, because of the extremely low rates. For instance, a 3-year fixed rate bond currently earns only 0.95% with a minimum deposit amount of £1,000 at RCI Bank. If you’re also interested in the Halal investments there are heaps of options to consider.

Here’s a list of the asset classes you can select short term investment options from:

• Equities
• Short term government bonds
• Short term investment-grade corporate bonds
• Money market funds
• Savings accounts/fixed rate bonds
• Alternative investments

For a full explanation of each, go to the ‘What are short term investments’ section.

Short Term Investments 2021

From renewable energy portfolios to UK government debt, we take a balanced approach to assembling a clutch of the short term investments available to UK investors.

1. iShares MSCI South Korea ETF – Invest with 0% Commission
2. Renewable Energy Copy Portfolio – Invest with 0% Commission
3. iShares UK Gilts 0-5yr UCITS ETF 
4. US dollar
5. Bitcoin

1. iShares MSCI South Korea ETF

Tracks South Korean large and medium-sized companies. As such it has a bias to technology. The fund has returned 16% year to date, with Korean stocks continuing to be beneficiaries of the country’s relatively successful economic recovery from the Covid pandemic.

Available to invest in on eToro

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2. Renewable Energy Copy Portfolio

Investment platform eToro is the leader in social trading and introduced in recent years a number of portfolios for users to ‘copy’, as opposed to merely following individual traders. We have chosen the Renewable Energy Portfolio as a short-term ethical investment. Its back-tested performance has lagged in the past couple of years but with green infrastructure spending rising rapidly, the portfolio provides a degree of safety with plenty of upsides. The environmental, social, and governance (ESG) space is booming, so this copy portfolio is certainly ‘on trend’. The portfolio currently holds 22 stocks, including First Solar and SolarEdge Technologies.

Available to invest in on eToro

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3. iShares UK Gilts 0-5yr UCITS ETF (IGLS)

For an ultra-safe investment, you will want a slug of gilts. To that end, we have selected an exchange-traded fund (ETF) that tracks the performance of an index composed of sterling-denominated UK government bonds dated 0-5 years: the iShares UK Gilts 0-5yr ETF (IGLS). It invests directly in a mix of short and medium-dated bonds.

Available to invest in on IG

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4. Vanguard UK Short Term Investment Grade Bond Index Fund

This mutual fund from the United States investment management giant Vanguard tracks the Bloomberg Barclays GBP Non-Government 1-5 Year 200MM Float Adjusted Bond Index.

In line with that remit, it invests in investment-grade bonds, excluding government bonds. It is denominated in sterling, with maturities of between 1 to 5 years. A negative screen is applied to remove the more illiquid bonds.

Although its objective is to stay fully invested, it comes with this caveat: “…except in extraordinary market, political or similar conditions”. That is against the background of the extremely uncertain economic conditions prevalent throughout 2021, which will likely be stretching into next year as the pandemic drags on.

Buy direct through Vanguard

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Short Term Investments UK

1. iShares MSCI South Korea ETF (EWY)

We select our short term higher return investments by first recognising that equities are the among the strongest performing major asset class in recent years, although bonds have done pretty well too in terms of capital appreciation (price), as opposed to income (yield).

After deciding on asset class, we then consider which sector and region. Our answers to those two questions are settled with reference to the Covid pandemic, which is having the effect of accelerating pre-existing trends.

Tech and East Asia

Our target sector is therefore technology and we scoured the East Asia region for candidates.

We know that with a short term investment there isn’t as much time to correct things in the event of painful losses, therefore capital preservation has to be kept front of mind. As such, only 20% of your total investment in short term return investments should go into the stock market. However, this part of the overall short term investments position has the growth potential to boost the returns for the period of the investment in a way that fixed income (bonds) investments don’t.

We chose the iShares MSCI South Korea ETF (EWY) because it combines both our tech and regional requirements, through its tracking of the Korean senior equities markets (benchmark MSCI Korea 20/50 index).

The top holding is Samsung at nearly 25% of the portfolio. South Korea has bounced back impressively from the pandemic. The country’s large and mid-cap companies are well-positioned to benefit from a further pick-up in the global economy as its giant Chinese neighbour’s economy comes fully back online.

EWY has a 1-year total return of 8.39%, as of 26 October. The management fee is 0.59%

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For an ultra-safe investment, you will want a slug of US government bonds. With that in mind, we have selected an exchange-traded fund that tracks the performance of an index composed of sterling-denominated US government bonds dated 20 plus years: the iShares Barclays 20+ Year Treasury Bond ETF (TLT). It invests directly in long-dated US treasury bonds. Remember, investors rarely hold bonds to maturity and they can be traded at any time of the investor’s choosing.

Annualised return is 9.7%. Leverage 1:5; Spread 0.19.

You can invest in this product with Plus500

Short Term Investments with Potentially High Returns

1. FTSE China A50 Index

This index fund available on eToro invests in the top 50 stocks by market capitalisation on Cina’s Shenzhen and Shanghai stock exchanges. As the fund’s key facts information reminds the investor, official data is not as reliable in China, where there is less transparency all round. Bottom line – the Chinese market is immature which means it is dominated by retail investors and can be more volatile.

The risks are substantial on the face of it but we remain convinced by the argument that China’s growth story is still very much intact. Even on a short-term basis, equity returns should advance, with a helping hand from domestic demand, even if the global recovery falters under the pressure of new waves of the coronavirus.

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2. WisdomTree Palladium 2x Daily Leverage ETP (2PAL)

The palladium market brings to mind the old investment adage “don’t fight the trend”. Since 2016, the price of the metal has been trending relentlessly higher, currently priced at $2,250 per ounce, making it more expensive than gold.

Two variables are at work here – constrained supply and rising demand caused by the ongoing tightening of regulations to reduce emissions from carbon-burning vehicles. Palladium is an essential metal in the manufacture of catalytic converters.

WisdomTree Palladium 2x Daily Leverage (2PAL) exchange-traded product is intended for ‘informed’ investors, according to the key information document. It also an expensive product because of the leverage – and that also heightens the risk. The ETP charges 1.41% for trading cost and 0.95% management fee and those costs are passed on in eToro’s CFD-wrapped version of the fund.

You can invest in this product on the IG platform

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Safe Short Term Investments

1. SPDR Gold Trust ETF

Gold is the safe-haven asset of choice but would not normally be included in a short term investment strategy. However, gold has been unusually volatile so far this year and we expect that to continue, with the yellow metal at the time of writing trading near the bottom of its recent range, it presents an entry point.

Gold has been on an exhilarating bull run lately, but with uncertainty all around and inflation threatening to rear its ugly head, even over the short term, we expect gold to appreciate to reclaim the year’s highs (nominal all-time high that doesn’t take into account of inflation).

The precious metal combines safety with a strong outlook for further price appreciation going into 2021.

You can buy SPDR Gold through the CFD version available on eToro.

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2. iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

This bond fund tracks the Markit iBoxx USD Liquid High Yield Index, which consists of liquid high-yield corporate bonds. It invests across the company market capitalisation piece, and the stock sectors represented include consumer services, financial, industrials, and oil & gas companies.

Performance shows a net asset value annual return of 5.22% since inception in April 2007. Although it slightly underperforms its benchmark, we think as a short term investment you will be more than happy to earn 5%, given that an access account pays only around 0.85%.

The fund is dollar-denominated for some welcome currency diversification. It has net assets of $25 billion and the ongoing charges figure is 0.49%.

You can buy this bond on the Plus500 platform.

Short Term High Risk Investments

1. Bitcoin

This will be a controversial selection and may not work for those with an ultra-short-term horizon. Bitcoin is the leading cryptocurrency and its notoriously volatile, which ordinarily means it should be the last product to find its way into a short-term investment bucket due to its status as a high risk investment.

But bitcoin has come a long way since its birth in 2009 and with payment giants such as PayPal onboard and respected investors such as US hedge fund manager Paul Tudor, the risks are becoming less elevated.

Leveraged products on eToro make use of contracts for differences (CFDs), but in this case, we are not using leverage, so are able to invest directly in the underlying asset.

CFDs are financial instruments created by banks in which an agreement is made between parties to pay the difference between an underlying asset’s current price and the price when the contract was originally created.

One way to gain exposure to bitcoin is to hold it directly, but if you are concerned about custody issues and lack the confidence for the DIY investor route, then the non-leveraged eToro route could work for you.

As is the case with gold, bitcoin pays no yield. Although gold’s reputation as a safe haven asset has been built up over millennia, bitcoin is only just getting started. However, its fixed supply is what has led to the ‘digital gold’ monicker, as a hedge against central bank money printing and the threatened re-emergence of inflation, as government fiscal spending around the world balloons.

Nevertheless, bitcoin is volatile and may not be a suitable short-term investment option for all but experienced traders. Bitcoin should be held in the short-term investment section of your portfolio alongside a larger proportion of low-risk investments, such as corporate bonds.

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2. The Single Malt Fund

Collectible whisky in bottles or casks has been gaining in popularity in recent years and the trend looks set to continue, particularly among a younger crowd.

There are a couple of choices as to how you go about investing in whisky. You can either buy from a merchant, such as VC Vintners, which stores rare whisky in its bonded vaults in London.

Investors seeking short-term investments will find alternative investments such as this are a place to dig around for returns, depending on your risk appetite and exactly how short-term your investment horizon is.

Alternatively, you could try the collective vehicle approach.

A new fund that trades on the Nordic Growth Market is certainly worth a look – The Single Malt Fund.

The fund aims to return 10% a year and you can sell at any time, providing your broker allows you to access the Nordic Growth Market. You may also need to enlist your broker or bank for help with filling in the application and subscription documentation.

The Single Malt Fund claims to be the first regulated rare whisky fund in the world, but to invest you will need to fill out the relevant forms to be accepted as an accredited investor. The fund is regulated by Sweden’s financial supervisory authority, Finansinspektionen.

The minimum investment is €1,000 and the subscription unit price is €100. Rare whisky has returned 162% since 2014.

The fund is euro-denominated, so there is a modicum of exchange rate risk to be aware of for UK investors, although the strengthening of the euro against sterling would mean the euro-denomination is a helpful counterweight to sterling weakness. Having said that, a Brexit deal might see the pound escape from its long period of Brexit-induced volatility.

Hargreaves Lansdown has markets in products listed on Scandinavian exchanges – not all brokers do.

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Platforms to Invest in Short Term Investments UK

We’ve counted down the UK’s short term investments, let’s look at platforms where you can buy and trade these investments.

1. eToro – Invest in Short Term Investments with 0% Commission

eToro has been establishing itself in the UK and around the globe as a trusted and cheap investment platform, and as such is a one-stop shop for many of your short-term investment needs. eToro is a stock broker, ETF broker, commodities broker, forex broker, and crypto broker all in one – it has a lot to offer. 

You might fancy taking a punt and invest in some deliveroo shares for a short-term investment strategy, eToro is likely to acquire some when they come to hit the secondary market.

eToro lets you invest in certain short term investment options, like stocks and ETFs, without paying any commission whatsoever. It also offers an investment app for iPhones and Android.

This broker is also very well known for its social and copy trading tools. As a social trading network, you can interact with over 12 million other eToro users. Its famous copy trading tools mean you can copy the entire portfolios of short term investors at the click of a button.

eToro accepts a range of payment methods, including debit and credit card, PayPal, Neteller, Skrill, and bank account transfer. This broker is licensed by the Financial Conduct Authority (FCA), so you can be sure it’s very safe and secure.

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What are Short Term Investments?

A short term investment is defined as one that can be liquidated for cash within five years, in contrast to long term investments, which are held for at least five years.

When people think about short term investments they usually have in mind the returns that can be made over the lifetime of an investment. But the other side of the coin is the risk of capital loss, so this must be balanced with realistic return on investment expectations that don’t require excessive risk-taking while keeping an eagle-eye on portfolio diversification. 

Below we look at the properties and risk profile of each type of short term investment:

Equities

Investing in stocks and shares for short term gains is risky, but the rewards can make it worth it. Investors who want to take a short term position will be minded to make their choice with reference to fundamentals such as sales, revenues, and earnings but also technical considerations such as volatility.

If a company’s share price hasn’t moved much in a month or two, expecting it to deliver short term returns may be a bit of a stretch.

In order to access short term high yield investments, we have no choice but to include some stocks and shares.

Short term investment-grade government bonds

Bonds are debt instruments. When you lend to a government or a company you receive in return a bond entitling you to a fixed rate of return on the amount loaned and the return of the principal upon maturity (the date it has to be paid back).

Short term bonds will have lower interest rates than longer-term ones because your money is tied up for less time, but they have the advantage of being readily liquidated for cash, which is exactly what we want in a short term investment.

Investors don’t have to hold their bonds until maturity and can instead sell them at a profit if the price of the bond has risen. Bond prices rise when the yield falls. The US government bond market (Treasuries) is a liquid financial market – in other words, it is simple to match orders because of the huge trading volumes.

Bonds are ranked among short term investments because of the security they afford and the income they generate, as well as the possibility of securing a capital return too. Admittedly income (dividend yield) may not be your main concern if you intend to hold over a very short time period – say less than a year, but bonds can also bring you a capital return if the price rises above your entry position.

Government bonds can be used tactically to shelter your capital in periods of heightened volatility.

Short-term investment grade corporate bonds and high-yield corporate bonds

Corporate bonds are issued by companies to raise funds for the business. An investment-grade bond is defined as one rated BBB by the rating agencies (Moody’s and S&P). Ratings of BBB- and below are considered non-investment grade and are sometimes referred to as junk or high-yield bonds.

Non-investment grade bonds are higher yield because the lender demands greater compensation for lending to companies with weaker credit ratings. Like short-term investment-grade corporate bonds, they are liquid – under normal market conditions.

Money market funds

The money market here refers to the credit markets (bonds), and in particular the shortest duration instruments. They are mutual funds that pool the resources of their investors to invest on their behalf in a mix of short-duration sovereign and corporate debt.

Money market funds provide ordinary investors with a cheap way to gain exposure to an area of the financial markets that was until relatively recently inaccessible to all but investment professionals.

Savings accounts/fixed rate bonds

Savings accounts are bank deposits that pay interest. If you are willing to limit your withdrawals and happy to deposit your funds for an extended period (up to five years), you will be able to earn a higher interest rate.

However, savings rates have plummeted in the past 10 years and more, in the wake of the financial crisis of 2008/09 and the introduction of quantitative easing measures by central banks around the world.

The US Federal Reserve and the Bank of England, to name but two, bought up bonds (the Fed recently added junk bonds to its asset purchases) to push down interest rates.

Alternative investments

Any asset class outside of stocks, bonds, and cash are considered an alternative investment. The advantage of selecting from this bucket is the diversification it can bring because these assets are likely to be relatively uncorrelated to the major asset classes.

How to Choose Short Term Investments for You

Below we group short-term investments by timescale, product, and risk-reward trade-off, so at a glance, you can see which types of investment are suitable for your circumstances and goals. Of course, this is just a guide. There are risks associated with short term investments, but you can reduce them by investing in a blend of products from those we have chosen in order to diversify your risk.

What’s your timescale?	Product	Risk-reward trade-off
Two years or less	Savings account	Low risk but low reward. Instant access savings account 0.6%. Fixed-Rate Bond returns around 1%.
	Money market funds	Potential return: Around 2.2% which is higher than a savings account at 0.2% to 0.9%
	Cash	Low risk but low reward. Cash Isa 0.65% to 0.75% (2 to 3-years maturities)
Two to three years	Short-term government and corporate bonds	Low risk. High yield corporate bonds are medium risk. UK Government bonds return: 2-year Gilt 1.75%
	Money market mutual funds	Currently around 2.2%
Three to five years	Equities	Medium to high risk. Annualised return UK equities, 4.6%. S&P 500 annualised return is around 10%.
	High-yield bonds Alternative investment	Low to medium risk. 9.5% return. Medium risk, depending on investment type. Returns vary. Bitcoin 390% annualised. Whisky has return around 8% since 2014.

Table sources: Based on research by the Buyshares team, data sources Bloomberg and various, as of 28 October 2020.

Conclusion

Whatever your reason for investing for the short-term, while doing so you will want to know that your money is in safe hands. All the platforms mentioned are regulated in the UK which means your funds qualify for the Financial Services Compensation Scheme protection of up to £85,000. You will also be guided by cost and quality of service. On those two features alone, eToro comes out as a broker worth considering.

Both its website and app offerings are slick with optimal functionality. Fees are transparent and its pioneering system for copying the trades of successful traders has been augmented with its thematic CopyPortfolio funds.

Add to that the community feel of the platform, which has always emphasized the social aspect as a core competency, makes it a suitable place to educate yourself and learn from others.

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