Author Topic: Question on short term investing  (Read 3685 times)

epaulson10

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Question on short term investing
« on: February 11, 2013, 12:34:36 PM »
I've been working on cutting back my spending and making other financial improvements in my life this year. I moved all of the money I had in savings accounts earning nearly zero interest into an Ally high yield account. However, it still kills me that I'm only earning .9% interest on that money. I have really wanted to get into investing for a while but have been held back because I am a college student who will be graduating in a year and a half. Here are my details:

I have about $10,000 cash in savings.
I have about $4,750 in mutual funds (this was a college savings fund my late grandfather started for me that I haven't touched).
I am on basically a full ride scholarship, so I have no student debt to pay down.
The above scholarship is an ROTC scholarship, so after I graduate I will have a guaranteed job in the military.
I have $3000 in credit on two credit cards.
I have a paid off car.

The main reason I have held off of investing my liquid assets is that I plan on getting married in about a year and a half. I read MMM's article on frugal weddings, but it is one life event that I have always looked forward too and definitely want to have a nice ceremony/reception. Also, although I know the military will take care of me when I move to my first assignment, I want to have some funds around to pay for unexpected expenses in that process.

My main question then is, would it be worth my while to open an investment account with Vanguard if I may need to withdraw some (or possibly all) of it a year and a half to two years from now? I really want to get better returns on my money, I am just afraid of it not being liquid.

bo_knows

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Re: Question on short term investing
« Reply #1 on: February 11, 2013, 12:47:13 PM »
The liquidity of an investment account isn't a problem.  You can sell your shares and have that money in your checking account in 2-3 business days.  However, short-term investing can suffer from the perils of market fluctuations in which you're not willing to ride out.  If the market drops 25%+, and your wedding is approaching, will you need to sell? Would you be ok with that risk?  Also, you need to take into consideration that you need to hold assets for a year for it to be considered "Long term" capital gains (the lower tax) as opposed to short-term capital gains which is taxed at a higher rate.

It's a matter of risk as to whether you should invest short-term, not liquidity.

Richard3

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Re: Question on short term investing
« Reply #2 on: February 11, 2013, 06:12:36 PM »
Bo does knows :) - it is absolutely risk rather than liquidity. Shares have a higher expected return than cash but much higher variance. If you need assets to be worth at least their current value at some point in the future then the shorter the time frame we look at the more chance you have of failing this test with shares.

One way you could invest despite knowing the wedding is coming would be to have make some variant of the Permanent portfolio with your Vanguard account and then liquidate the asset classes that have done best to pay for the wedding (or rather pay for anything that your savings between now and the big day don't cover). Then refill these asset classes with your post wedding savings until you're balanced again.

How much of your savings are you planning on wasting spending on the wedding?
 

TN_Steve

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Re: Question on short term investing
« Reply #3 on: February 11, 2013, 07:51:21 PM »
Agree with Bo_knows and Richard3.  Stated otherwise, it is fair to say that "short term investing" is an oxymoron.  http://tinyurl.com/bcethua 


Mike

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Re: Question on short term investing
« Reply #4 on: February 12, 2013, 07:15:11 AM »
"I have $3000 in credit on two credit cards".

Seems like paying those off is a good place to start - the rate you pay on those is many times higher than what you'll earn in a savings account and is also probably higher than what you'll get in the stock market depending on the year.

As far as investment goes with just an 18 month timeline, you're probably limited to bonds/CDs and the like.  The stock market is simply too volatile over that short a period of time to make it all that useful an area in which to park your savings.

Personally, I'd elope and hold a reception later. 

aclarridge

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Re: Question on short term investing
« Reply #5 on: February 12, 2013, 07:41:18 AM »
I understood the $3000 to be the credit limit. Certainly, if you have any CC debt, pay it off first.

You're in a tough situation. Right now, it's hard to do much better than a savings account.

To be honest, I think this is a time where you have to look at the grand scheme of things. The priority now is that in the near future you can make the memories you want to make, and that means avoiding losses that will compromise your wedding goals at all costs.  If that means giving up on some potential returns, so be it. When you start working, this amount of money won't seem like a big deal. So figure out how much you want to spend, and keep that in a "no-risk" investment like govt bonds, GICs, or even a savings account. Invest the rest for the long term in a stock-bond ETF portfolio.

Take the money out of the mutual fund though if you can - I hate to see regular people paying those fund managers.

twincities

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Re: Question on short term investing
« Reply #6 on: February 20, 2013, 08:25:29 AM »
If you are really itching to do some short term investing, you could open a Prosper account.  They have 1 year loans with very minimal risk that yield 6-8% interest.

aclarridge

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Re: Question on short term investing
« Reply #7 on: February 20, 2013, 11:21:56 AM »
If you are really itching to do some short term investing, you could open a Prosper account.  They have 1 year loans with very minimal risk that yield 6-8% interest.

Again, stuff like this is for money that you don't mind potentially losing value on temporarily, since it's way higher risk than a government bond, or a basket of short-term corporates, etc.