Clark has enough money in personal savings to consider investing, but because of college, he will need to have access to it in the short term. Which investment might he consider?
-401(k)
-T-bills
-bonds
-Roth IRA
T-bills would be a good short-term investment for Clark since they mature in less than one year and provide low-risk returns. The other options, such as 401(k), bonds, and Roth IRA, are better suited for long-term investments.
If Clark needs access to his savings in the short term due to college, he might consider investing in Treasury bills (T-bills). T-bills are short-term debt securities issued by the government, typically with a maturity of less than one year. They are considered to be one of the most secure investments since they are backed by the U.S. government. T-bills can be easily bought and sold in the secondary market, providing Clark with flexibility and access to his funds when he needs them.
On the other hand, 401(k), bonds, and Roth IRA are long-term investment options and may not be suitable for Clark's requirement of having access to his savings in the short term. A 401(k) is a retirement savings plan offered by employers, which generally has penalties for early withdrawals. Bonds also have a fixed term and may not provide the flexibility Clark needs. A Roth IRA is a retirement account that offers tax advantages but has restrictions on withdrawing the earnings before the age of 59 ½ without penalties.
If Clark needs access to his money in the short term, he should consider an investment option that provides liquidity and flexibility. Among the given choices, the most suitable option for him would be T-bills (Treasury Bills).
To understand why T-bills are a suitable choice, let's first discuss what they are. T-bills are short-term debt securities issued by the U.S. government. They are considered one of the safest investments, as they are backed by the full faith and credit of the U.S. government.
T-bills are typically issued with maturities of 4, 8, 13, 26, or 52 weeks. They are sold at a discount to their face value, and investors earn interest by holding them until maturity. Unlike other investments, T-bills do not pay regular interest payments, but rather the interest is earned when the bill matures.
The main advantage of T-bills for Clark is their high liquidity. He can easily sell T-bills on the secondary market before their maturity date to access his funds. Since T-bills are highly liquid, Clark can convert them into cash quickly, without incurring significant penalties or fees. This makes them suitable for his short-term access needs.
In contrast, options like a 401(k), bonds, and Roth IRA are typically designed for long-term investing. A 401(k) is a retirement savings plan offered by employers, which typically has restrictions on accessing the funds before retirement age. Bonds, depending on their type and maturity, may have restrictions or penalties for early redemption. A Roth IRA is a retirement account with tax advantages, but there are limitations on withdrawing money before retirement age.
Overall, considering the need for short-term access to funds, T-bills would be the most appropriate investment choice for Clark.