Short-term investment help for a newbie?

[T Money]

I currently put money into a Roth IRA every month and I've done a lot of reading regarding stocks, long-term growth and index funds.  But I don't know much of anything when it comes to short-term liquid investments.  I'm saving up for a car, a move and a wedding/honeymoon and I'm just wondering what you guys think the best option is for investing this money.  Right now I have just under 4K but that will (hopefully) grow to around 15-20K in the next 7 months from me saving up.  I don't want it to just sit in my bank account (interest rate of 0.90%) but I also need the money to be easily accessible once I need to get it out, and I need a moderately risk-free investment.  I plan on funneling the left-over into my IRA's afterwards by upping my contributions and living on the remainder, but I want it all available until after all of this is over just in case.

I was thinking about investing in bond index funds through Vanguard in a non tax-deferred account, but how liquid will this be when I need my money?

Thanks for any and all help/advice!

[joleran]

This is a difficult question to answer in today's low rate environment.  Even 10 years ago, you could happily put money into a savings account making a beautiful 5% a year, safe and secure, but now you see rates closer to 0.9% as you mention.  Short-term bonds are another historical haven, also suffering in terms of yield.

Your safe bet is to leave it in the savings account at 0.9%.  Long term bonds and/or any equities are unsuitable.  Short term bonds are still practical, but it's only another 0.5% interest at the most and it opens up more volatility.

Your risky bet is to drop things into the market like you were planning for the long haul, and only pull money out if you win the short term bet.  This means that depending on the random mood swings of the market, you will either cash out at a rate somewhere generally between -30% to 30% annually or be forced to delay the car/move/wedding/honeymoon.

Your offbeat bet is to drop the money into peer to peer lending, via something like LendingClub.  The returns have been remarkably stable for the last 8 years, but there's no guarantee this will stay true in the future.  In addition, liquidating your account in the best manner can take 1-3 months.  However, this method can give you stable 10% returns before taxes.

[slugline]

Mutual funds in a taxable account should be liquid enough for your purposes. But did I really read that your time horizon for this money is a mere seven months??? I would leave it in the bank.

[johnny847]

Right now I have just under 4K but that will (hopefully) grow to around 15-20K in the next 7 months.

The only way you're getting that kind of return is if you're taking an absurd amount of risk (and even then, you probably won't be able to get anywhere close to 15-20k.)

For any short term investment (ie, 10 years or less) you need to use risk free investments. Like FDIC insured savings accounts. Or US treasuries. Considering your time frame is just 7 months, just use a savings account.

[rayt168]

For what it's worth, my situation is very similar to yours.  Looking for a decent return for the short term.  After reviewing my available options, I decided to purchase shares of iShare preferred stock ETF - symbol PFF.  I opened an account at Fidelity since there is no commission on this particular ETF.  I believe the dividend yield is around 6%.  However, this will not get you to your goal of 15 - 20K in the next  7 months.  I do dollar cost averaging since I budget a specific amount each month for my annual property taxes. 

Hope this helps. 

[thedayisbrave]

I currently put money into a Roth IRA every month and I've done a lot of reading regarding stocks, long-term growth and index funds.  But I don't know much of anything when it comes to short-term liquid investments.  I'm saving up for a car, a move and a wedding/honeymoon and I'm just wondering what you guys think the best option is for investing this money.  Right now I have just under 4K but that will (hopefully) grow to around 15-20K in the next 7 months.  I don't want it to just sit in my bank account (interest rate of 0.90%) but I also need the money to be easily accessible once I need to get it out, and I need a moderately risk-free investment.  I plan on funneling the left-over into my IRA's afterwards by upping my contributions and living on the remainder, but I want it all available until after all of this is over just in case.

I was thinking about investing in bond index funds through Vanguard in a non tax-deferred account, but how liquid will this be when I need my money?

Thanks for any and all help/advice!

Liquidity isn't really the issue here.  Are you saying you're going to continue saving until your 4K grows to 20K? Or you are hoping the market will do the heavy lifting? If it's the latter... sorry to burst your bubble, but that won't happen in a mere 7 months. 

I get wanting a higher yield, but if you need the money in 7 months it is pointless to put it in any sort of security (stock or bond).  Keep it in the savings account.  What if the market dips on the day you need to withdraw money to pay for the honeymoon and you end up 1K short? You never know and for that reason, give up your dreams of higher yield in exchange for safety.

[T Money]

Right now I have just under 4K but that will (hopefully) grow to around 15-20K in the next 7 months.

The only way you're getting that kind of return is if you're taking an absurd amount of risk (and even then, you probably won't be able to get anywhere close to 15-20k.)

For any short term investment (ie, 10 years or less) you need to use risk free investments. Like FDIC insured savings accounts. Or US treasuries. Considering your time frame is just 7 months, just use a savings account.

Sorry, there's definitely some confusion going on here. I meant my savings is going to grow from 4k to 15-20k from me saving my own money not from some crazy return I expect to get.  My apologies lol.

I just feel bad leaving all this money to basically do nothing in my savings account when it could be invested, but I also need it to be readily available in the near future.

[TN_Steve]

Apart from, maybe, online bank savings options, anything liquid with a better return is going to have some risk of principal loss.

I use VFSUX/VFSTX for our "cash," but can stomach a little risk.  VFSTX, a short term investment grade bond fund, currently pays 1.63%.    Right now it is $10.71 per share/unit.  Over the past year, it has ranged from 10.64 to 10.79.  https://personal.vanguard.com/us/funds/snapshot?FundId=0039&FundIntExt=INT#tab=1

If that level of volatility is too much, you should stick to savings account, whether at your present bank, or at an online bank that pays higher rates.  Nerdwallet shows you can probably get around 1%--don't know about what terms and conditions apply: http://www.nerdwallet.com/blog/banking/nerdwallets-top-high-yield-online-savings-accounts/

If you need every dime you can scrape together in seven months, don't take risk of principal loss.

[johnny847]

Right now I have just under 4K but that will (hopefully) grow to around 15-20K in the next 7 months.

The only way you're getting that kind of return is if you're taking an absurd amount of risk (and even then, you probably won't be able to get anywhere close to 15-20k.)

For any short term investment (ie, 10 years or less) you need to use risk free investments. Like FDIC insured savings accounts. Or US treasuries. Considering your time frame is just 7 months, just use a savings account.

Sorry, there's definitely some confusion going on here. I meant my savings is going to grow from 4k to 15-20k from me saving my own money not from some crazy return I expect to get.  My apologies lol.

I just feel bad leaving all this money to basically do nothing in my savings account when it could be invested, but I also need it to be readily available in the near future.

Ah yea I thought you were planning on some crazy ass investments.

I get how you're feeling. I really do. But the risk that a potential market investment will dip as you need to draw the money is just too real. Do not use anything that is not risk free. Your ability to have it readily available in the near future is far more important than a couple extra percent.
Let me put it this way - the true power of investing comes from compounding returns. Over a long enough period of time, the compounding returns will grow so much that they can outpace how much you can earn in a year. But when you're talking about investing for 7 months, there's virtually no compounding going on.
And suppose you do invest in something that "should" have an 8% return as opposed to the guaranteed 1% in a savings account. Even if your time window was one year, as opposed to 7 months, your gain is just 7%. Not 1.07^(X) - 1, where X is a large number of years, but just 7%. Even if you had 20k today, and invested it right now, your total potential gain is $1400 (and of course, because you're starting with $4k at the moment, your total potential gain is quite a bit lower). But any investment you make outside of a savings account (or a US treasury) could easily lose far more than that.

tl;dr - Don't do it. Just use a savings account.

[surfhb]

Yes.....just a savings account.    Its just a short period of time.