The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: fep on October 14, 2012, 04:51:33 PM
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Hi Mustachians,
I currently have around $200K which I need to invest for a short-term period (from 6 months to a year). This is some money I reserve for a future house downpayment and it currently sits in a .75% interest account i.e. basically losing money when considering inflation. How can I do better (maybe at Vanguard) while staying on the safe side ?
Thanks.
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You can't. Yield and risk are two sides of the same coin. If you don't want risk, you won't get a good yield. If you want a good return, you'll have to accept some risk.
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Thanks for your answer. Yes I understand that's how things work ;)
Where are people keeping there house future down payment usually? Are there any vanguard bonds funds that would be considered good enough for putting money in? I guess I am willing to take a small risk / bet if it means having a chance to get a better return...
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Within Vanguard, you might look at Vanguard Short-Term Bond Index (http://quote.morningstar.com/fund/f.aspx?t=VBISX). Fairly stable, yielding 1.51%. Given your short (6-12 months) horizon, however, I would not get too aggressive.
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Where are people keeping there house future down payment usually?
Equities.
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Thanks hoppy08520. I might just do that... considering it.
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Equities.
This. It's not that equities will do worse over the long run... obviously, it's to the contrary. It's just that there's a greater variation in their returns. If you're willing to wait and buy a house a bit later if the market's down (which most people are), then there's no reason not to keep it in stocks. It's only if you know that you need to buy "in 2014, no matter what the economy does, end of story" that you need to be looking at stability.
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Equities.
This. It's not that equities will do worse over the long run... obviously, it's to the contrary. It's just that there's a greater variation in their returns. If you're willing to wait and buy a house a bit later if the market's down (which most people are), then there's no reason not to keep it in stocks. It's only if you know that you need to buy "in 2014, no matter what the economy does, end of story" that you need to be looking at stability.
Absolutely. Too many people, IMO, think that it's going to be a fixed time frame, so they don't want to "risk" it.. nor get the potential gains. So down market, you add 6 months to your 5 year plan to buy a house. No big deal. The more likely scenario, IMO, is you make more than you would have otherwise and can buy a house even earlier, if you want!
In any case, you're spot on that if your time frame is flexible, it's often worth investing in slightly riskier assets, IMO.
YMMV based on personal risk tolerance preferences.
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I normally use Investment Savings Accounts for this purpose, as they're risk-free (more or less) but return a bit higher than you're getting. I'm currently getting 1.25% using this product, although I've used similar products from other companies before when they had the best return I could find:
http://www.rbcroyalbank.com/products/isa/ (http://www.rbcroyalbank.com/products/isa/)
Otherwise you could hunt around for the best possible rate on a 6 or 12 month GIC or term deposit.