For short-term goals, usually defined as needing the funds within 1 to 3 years, it's smart to invest in low-risk options. Consider using high-yield savings accounts, certificates of deposit (CDs), or short-term bond funds. For example, if you invest $5,000 in a high-yield savings account with 1% interest for 2 years, you'd earn about $100 in interest (5,000 * 0.01 * 2). This way, your total balance at the end of 2 years would be $5,100. On the other hand, investing in stocks for such a short period could be risky, as the stock market can fluctuate significantly and you may not have enough time to recover potential losses.

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price. In the context of short-term investing, liquidity is crucial because you want your investments to be accessible when you need the money. Cash and cash equivalents like high-yield savings accounts are highly liquid since you can withdraw your money quickly and without penalties.