Short Term Investing Advice ($30,000 for 1-1.5 years)

[bassguitar115]

My wife and I are currently enjoying being debt free with double income, and have been growing are money mustaches.

We're going to work for another year and then drop both of our jobs and travel. However, I want to invest (or do something with) some of the money we already have saved up. I'd hate for it to just sit in a savings account earning virtually nothing. This brings me to my question.

What is the best thing for me to do with $30,000 while maintaining the option of having access to it within 1-1.5 years?

[smedleyb]

My wife and I are currently enjoying being debt free with double income, and have been growing are money mustaches.

We're going to work for another year and then drop both of our jobs and travel. However, I want to invest (or do something with) some of the money we already have saved up. I'd hate for it to just sit in a savings account earning virtually nothing. This brings me to my question.

What is the best thing for me to do with $30,000 while maintaining the option of having access to it within 1-1.5 years?

The risk free rate of return currently sits at 1.5% (yield on 10 year treasuries).  Earning anything above that requires taking more risk which could result in capital losses.  If your goal is to make sure that 30K is there in 18 months, your options are very limited.  Welcome to the world of yields in the age of ZIRP. 

[tooqk4u22]

The risk free rate of return currently sits at 1.5% (yield on 10 year treasuries).  Earning anything above that requires taking more risk which could result in capital losses.  If your goal is to make sure that 30K is there in 18 months, your options are very limited.  Welcome to the world of yields in the age of ZIRP.

That is the risk free for 10 years assuming a 10 year hold.  If rates move up in the next 18 months the investment value will decline and return could be negative.  HY savings is the only real option for that period but you get next to nothing.

[mechanic baird]

If there is QE3, you might want to gamble in dividend paying stocks for a year and then pull out.
The QE3 money will PROBABLY not let the stock market crash and may even give it another small boost.. who knows.
But that's a gamble.

A bit safer place is short term bonds, but the rate is hardly hitting 3% so you still lose to inflation..

[smedleyb]

If there is QE3, you might want to gamble in dividend paying stocks for a year and then pull out.
The QE3 money will PROBABLY not let the stock market crash and may even give it another small boost.. who knows.
But that's a gamble.

A bit safer place is short term bonds, but the rate is hardly hitting 3% so you still lose to inflation..

Interesting chart on the diminishing returns of QE on the stock market:

http://www.ritholtz.com/blog/2012/06/this-spx-chart-is-deeply-concerning-for-traders/

Which raises the question:  what if the Fed throws a QE3 party, and nobody shows up?

[smedleyb]

The risk free rate of return currently sits at 1.5% (yield on 10 year treasuries).  Earning anything above that requires taking more risk which could result in capital losses.  If your goal is to make sure that 30K is there in 18 months, your options are very limited.  Welcome to the world of yields in the age of ZIRP.

That is the risk free for 10 years assuming a 10 year hold.  If rates move up in the next 18 months the investment value will decline and return could be negative.  HY savings is the only real option for that period but you get next to nothing.

The 10 year yield represents my own subjective benchmark for the risk free rate of return.  Obviously buying bonds and selling them before they mature carries with it capital risk. 

[tooqk4u22]

If you can get 3% on short term bonds of high quality then I would jump on it, I don't think you can get 3% with a good chunk of junk quality in there.  Considering 10yr Treasury is at 1.5%. 

[Another Reader]

Some credit unions and local banks offer high yield checking accounts that pay an above market interest rate in exchange for one ACH/direct deposit transaction and a minimum number of debit transactions.  For example, I use Provident Credit Union here in the SF Bay Area.  I have one check direct deposited there plus I transfer money over from the regular bank.  As long as I make 10 debit transactions a month, they pay me 2.26 percent APY.  These accounts have a maximum limit on the amount they will pay interest on at the high rate.  Provident will pay this rate on balances up to $25,000.  They also refund ATM fees from banks. 

My method is to maintain the maximum amount at the high interest rate as savings and spend from the monthly deposit.  Between the grocery store, the gas station, and all the other places I go, I can meet the 10 debit transaction minimum.

Check depositaccounts.com for your location to see if someone there offers a similar account.  They show Provident as not having easy requirements to join, but that is not accurate.  As long as you live in the service area and can use another member as a reference, you qualify.  Play with the account filters at depositaccounts.com to broaden the possible institutions on your area.

As far as savings and money market accounts go, the best APY I can find right now is TIAA-CREF via TIAA Direct.  They are paying 1.25 percent APY, but that's a promotional rate and could change at any time.

Short term CD's can't match these rates.

[iwannaretire]

Everbank offers CDs in foreign currencies.  From their website, it looks like you can get a 2 percent yield on a CD under 12 months duration on the Aussie dollar.  I don't know enough about currencies though to know how much risk this involves. 

[bassguitar115]

Thanks for all the replies!

I think I'm to the point where I'm just going to keep the funds in my current checking/savings account (earning next to nothing) until I come up with some type of personal business or money-making plan. The best savings accounts and CDs I've seen all hover around 1%. I can't justify handing my money over for only ~$300 at the end of a year. I could make that up in a little over a day at my current job. On the other hand, I'm not sure the reward is worth the risk of betting against the stock market or foreign currency over such a short period.

Looks like it's going to take a bit more work to achieve the level of return I want in only a year or so. Thanks again.

[Tyler]

Honestly, if this is money you'll need to live on in a year (and thus absolutely can't afford to lose) then the most I would do is invest in short-term US treasuries.  Something like SHV or maybe SHY.  The yield may be paltry, but you can't beat the security.  Don't forget that a high-yield savings account may actually be riskier if the banks go through another crisis like in 2008.

IMHO, if I were in your position I'd prioritize safety over yield.

[grantmeaname]

Don't forget that a high-yield savings account may actually be riskier if the banks go through another crisis like in 2008.

The FDIC fully insures all deposits in commercial banks up to $250,000, so with $30k invested you're only at risk if the entire FDIC fails. In the 2008 crisis, the FDIC was unwilling to commit its funds to the Treasury/Fed bailout plans, prioritizing the intactness of the FDIC funds over the continued survival of the banking business, so it seems like the FDIC failing is an unbelievably long shot even in the case of a crisis worse than 2008's.

(Credit union deposits are insured up to $250k by the National Credit Union Administration, the FDIC's counterpart.)

[Tyler]

Fair enough.  I agree that cash under the FDIC limit is very low risk compared to most anything else.