I have $20,000 saved to buy my next car. I drive a 14-year-old sedan with 160,000 miles on it. Hopefully, I can keep it a few more years, but I could need a new car tomorrow if I had a serious wreck.
Where should I put this money in the meantime? Thanks!
Well, first off, are you planning to spend that whole $20k on a car? You probably don't need to. If you're already fine with driving a really old sedan, you can get a pretty nice newer sedan for $10k. So I wouldn't even save all that money anyway, you could be doing something else with it!
If you're not maxing out your Roth, you could put some of the money in there in a relatively safe bonds fund, and then if you need to get the principal back out you can.
Otherwise I'd probably either find the highest interest savings account I could, or open a Wealthfront or Betterment account and set it to a pretty low risk level.
But if you think it will last a few more years and won't replace it unless something horrible happens, my next question would be - how long did it take you to save up that $20k? If it didn't take long, I might just deploy most of that money (stocks, real estate, etc) and save a little. Because if you can save up $20k quickly, you could also pay off a car loan quickly. Compare the cost of missing out on the returns that money could get you over the next few years to the relatively small amount of interest you would pay on a used car if you had a decent down payment and then paid off the loan in six months. Opportunity cost at its finest. But, YMMV depending on your risk tolerance.
You could also score a REALLY great deal on a used car if you are able to pay in cash immediately, and have the luxury of shopping around till you find the best deal.
However, if it took a long time, I'd probably just do the above options to keep it safe.
