The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: frannles on March 17, 2014, 07:33:55 AM
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Hi all! I'm looking for advice on where to store $4000 for about a year, give or take some months.
I am 24 years old - relatively new to investing and the working world - and I have some cash that I'm mostly using to set up Vanguard funds. However, after setting those up, I have about $4000 "left" that I would like to set aside for buying a car when my current one conks out. I drive a 2002 Chrysler PT Cruiser with 156,000 miles on it. I take good care of it and I intend to drive it until it can't be driven anymore - I'm guessing that time might come around 200,000 miles. I bike as often as I can, but my job requires that I have a car for some assignments. Moreover, I'll be moving across the country this summer and I plan to work in a road trip doing so, racking up about 6,000 miles in the process.
I like to be prepared for worst case scenarios, so I'd like to be able to buy a new car by January 2015 at the very earliest, though again I intend to drive my current car until it totally dies. (By the way, I'm thinking the next one will be a used Subaru Forrester - I do a lot of camping/road tripping/transportation of heavy gear when I drive - looking to spend around $7K for that car.)
I was looking at CD's but the Vanguard one requires a minimum deposit of $10K. Money Market funds might be another option, or Treasury Bills, or bonds. Or should I just throw everything into the Vanguard index funds I'm setting up, to maximize my principal investment, and withdraw whatever amount I'd need when car-buying time comes?
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General advice is not to invest anything in stocks / bonds that you'll need short term, and 1 year definitely qualifies as short term. The safe bet would be to figure out where you can get the best rates, CD, Treasury Bills, Money Market, or maybe just a high-interest savings account, and leave the money there.
Regardless of what you do with it, stocks, bonds, anything else, 1 year's interest on $4,000 is not going to be an incredible amount of money, so it's probably not worth gambling on short-term market returns over it. Keep it somewhere safe until you need it.
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There are a number of threads like this one discussing small variations on the topic like this one:
https://forum.mrmoneymustache.com/investor-alley/small-emergency-fund-ally-5-yr-cds-i-bonds/
Long story short: You may be able to find a bank that pays you 2-5% interest on small accounts. However, this will only amount to $80-$200 and will require that you jump through a few hoops (setting up direct deposit or making x charges per month are common ones). It's up to you to decide if it's worth the hassle. Most CDs, treasuries, and money market funds will pay close enough to 0% that it's almost definitely not worth the trouble for a 1yr, $4,000 investment.
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There are a number of threads like this one discussing small variations on the topic like this one:
https://forum.mrmoneymustache.com/investor-alley/small-emergency-fund-ally-5-yr-cds-i-bonds/
Long story short: You may be able to find a bank that pays you 2-5% interest on small accounts. However, this will only amount to $80-$200 and will require that you jump through a few hoops (setting up direct deposit or making x charges per month are common ones). It's up to you to decide if it's worth the hassle. Most CDs, treasuries, and money market funds will pay close enough to 0% that it's almost definitely not worth the hassle for a 1yr, $4,000 investment.
Agree, we aren't talking about much money here. Put it in a bank account and go work your tail off at your job. That will pay off far greater than any fund you can think of.