Author Topic: Short term investments? (3-8 year timeline)  (Read 3030 times)

toddevan

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Short term investments? (3-8 year timeline)
« on: July 17, 2012, 10:40:41 AM »
Howdy all,

Some background: I'm debt free and getting the full match in my employer's 401k, plus some extra into a Roth IRA (totaling ~11% of my income towards retirement). I've got 6 months' expenses in a liquid emergency savings account.

My question is about the leftover income I'm currently adding into a goal oriented savings account. I'm in my late 20s and saving for a wedding, a house's down payment, and a car to replace the one I have now. I'm not seriously involved, happily renting, and my car is a 2008 (paid off). That is to say, the timeline for these savings are in the moderate future (all estimates):
* three years for the wedding at a goal of $10k to pay for my half of a $20k budget
* five years for the house at a goal of $12k to pay for my half of a 20% down payment on a $125k house
* eight years out of my car before replacing it with some late model used for around $15k or less

My question is this - with these goals in mind, and this timeline, is investing in the market a smart strategy for my savings contributions?

Currently, I'm socking away ~$400/mo towards each of these goals into an online savings account (earning 0.8% interest), is  a fast enough rate to hit each of these goals in turn. However, with inflation, what is now a $15k car may be more by the time I'm ready to buy. A rate of return above what a savings account can offer would help battle inflation and potentially increase my savings even faster. I was looking at the Vanguard's LifeStrategy funds, as I don't yet have sufficient funds to invest in both a total stock fund and total bond fund ($3k minimums each at Vanguard) and I believe it could give me a bond heavy distribution of investments in one place.

If not, is there a place besides my "high" interest online savings account that I could put this money until I needed it?

Many thanks.

Tyler

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Re: Short term investments? (3-8 year timeline)
« Reply #1 on: July 17, 2012, 03:59:10 PM »
Congrats on saving and thinking about inflation.  I think you're on the right track. 

For just starting out, my personal one-stop-shop fund recommendations are VWELX, VWINX, and PRPFX.  IMHO, any one of those three could be a reasonable, diverse, conservative, low-cost investment while you continue to save. 

However, thats just my 2-cents.  It's on the high side of what my advice is actually worth, so be sure to do your own research and make a decision based on your own situation and risk tolerance. 

the fixer

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Re: Short term investments? (3-8 year timeline)
« Reply #2 on: July 17, 2012, 08:44:13 PM »
Conventional advice is not to put money in the stock market that you'll need in the next 10 years or so. I think that's good advice, depending on what "need" means to you.

If you put your wedding savings in a mixed stock/bond allocation that lost 30% of its value one year before the planned date, what would you do? If you would sell the assets and try to have a wedding anyway, those assets should not have been in stocks. But if you would instead say "darn, I guess we'll just postpone the wedding until the market comes back up," you have a high ability to take risk and could get away with using stocks for the investment.

smedleyb

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Re: Short term investments? (3-8 year timeline)
« Reply #3 on: July 18, 2012, 07:48:43 AM »
Toddevan, two of your three savings goals -- wedding and auto -- are items that push you further away from FI, not closer.  Since you're not seriously involved, and your auto runs great, focus on saving and investing in the stock market and real estate.   Being debt-free is half the battle.  Building income producing assets is the other half.



« Last Edit: July 18, 2012, 08:40:28 AM by smedleyb »