Author Topic: Best Thing for Short Term Savings  (Read 1425 times)

Urizen

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Best Thing for Short Term Savings
« on: May 21, 2015, 03:33:38 PM »
I'm planning to move within the next two years, though how far and under what exact conditions I don't know. I plan to change jobs within the next two years and am currently applying in a wide geographic range, so I'm wanting to prepare for moving under any circumstances.

Because of that, I'm putting my investments on hold in order to save up assets for the move in the short term. Since I don't know exactly how much I'll need, I'm looking for short term alternatives to bonds that have better interest than a simple bank savings account.

What's a good alternative that is somewhere between the pathetic interest rates on savings account and the less stable, more long-term investment of bonds? Or would it be best, if I plan to use the money so soon, to just stick it in a savings account and use it when the time comes?

Tremeroy

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Re: Best Thing for Short Term Savings
« Reply #1 on: May 21, 2015, 03:47:16 PM »
Hi Urizen. It's good that you're trying to plan ahead. Since we're talking about a big uncertainty here, I think it is important that you don't let either of your two fears control your decision making—fear of not having enough cash & fear of missing out on yield.

My first questions relate to  the circumstances you envision yourself moving under. Would you plan on moving without having a new source of income lined up? Do you hope to hold on to all of your stuff? How will it be getting where you're going (i.e. move yourself or pay someone.)? Are you hoping to downsize, upsize, or maintain your current housing situation irrespective of your new income level? These are all very concrete questions, but they're trying to get at one important information—how much cash will you need & when will you need it?

Personally, I am very risk-averse when it comes to known liabilities. If you are 95% certain that you are going to have an expense in two years, you should set aside that dollar amount in a very safe place. CDs, credit union accounts, or high-yield money-market accounts are all appropriate places, given that movements in interests rates aren't going to impact their liquidation values. Bond ETFs with fixed maturity dates are an alternative idea, but given how low 2-year yields are right now, you're not likely to make up your costs + an acceptable risk premium.

All of that being said, do be sure that you have a realistic grasp of how much money you'll need so that you don't go overboard in hoarding cash. The first few months in a new place are likely to be expensive, but they shouldn't be unpredictable.

Sorry to give you a more negative answer than you may have wanted, but I firmly believe in matching assets to liabilities!

Urizen

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Re: Best Thing for Short Term Savings
« Reply #2 on: May 21, 2015, 04:14:50 PM »
Hi Urizen. It's good that you're trying to plan ahead. Since we're talking about a big uncertainty here, I think it is important that you don't let either of your two fears control your decision making—fear of not having enough cash & fear of missing out on yield.

My first questions relate to  the circumstances you envision yourself moving under. Would you plan on moving without having a new source of income lined up? Do you hope to hold on to all of your stuff? How will it be getting where you're going (i.e. move yourself or pay someone.)? Are you hoping to downsize, upsize, or maintain your current housing situation irrespective of your new income level? These are all very concrete questions, but they're trying to get at one important information—how much cash will you need & when will you need it?

Personally, I am very risk-averse when it comes to known liabilities. If you are 95% certain that you are going to have an expense in two years, you should set aside that dollar amount in a very safe place. CDs, credit union accounts, or high-yield money-market accounts are all appropriate places, given that movements in interests rates aren't going to impact their liquidation values. Bond ETFs with fixed maturity dates are an alternative idea, but given how low 2-year yields are right now, you're not likely to make up your costs + an acceptable risk premium.

All of that being said, do be sure that you have a realistic grasp of how much money you'll need so that you don't go overboard in hoarding cash. The first few months in a new place are likely to be expensive, but they shouldn't be unpredictable.

Sorry to give you a more negative answer than you may have wanted, but I firmly believe in matching assets to liabilities!

Hmm, no, you're right. I'm probably being overly cautious since I'm not even planning a cut off limit (a maximum "money needed").

So let's see... the average scenario I expect is this: move to new location (expenses: moving self and furnishing, either by rental or by friends), take up residence in an apartment for at least a year to get a feel for the new area (expenses: down payments on apartment and utilities, plus I'd want cash for the first month's expenses) and... that'd be about it. A few thousand or so, depending on the area (California would be more pricey than Colorado).

It sounds like the best thing might be to see what my options are on CDs and credit unions and save up enough in one to cover any of my target states. I'll need to run the numbers on them.

Thanks!