Spring, TX · Member since 2016 · 243 posts · 203 votes
Looking for some other ideas about where to put money to place short term ($1,000 for one year, the other $1,000 for 2 yrs), basically this is money on top of my emergency fund that I'm saving for big ticket costs for either car/house. So far what I've considered are the following:
Stock Market, but even with an ETF or index fund I could withdraw at a 10-20% loss
Considered bonds, but risk/reward isn't really worth it since they could as well drop 10% in the short term
CD for 12 months @ 1.5%
Currently, I have my Emergency fund + the extra money getting 1% interest. Currently, only about $2,000 to potentially move out, but I add about $250/mo to the account. I'm wondering if there are any other areas that others are using that I haven't considered, or a place to get better rates?
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
I keep my cash in VCSH (Vanguard Short-Term Corporate Bond ETF). It maintains a pretty consistent value while kicking off a yield of just over 2%, so you are at least keeping up with inflation.
VCSH can be bought/sold commission free on TD Ameritrade (requires 30-day hold).
This is not investment money. If you could need it at any minute, it's short term money that shouldn't be in anything more complicated than a money market mutual fund account that you can write a check from.
@Dan Rudolph How long have you been doing that for/what has the % return looked like? I've debated on bonds, but I feel like if I'm going to go with more risk, I might as well go for the return and go the Index route....in the back of my head I know I also shouldn't be greedy and potentially lose 20% of my money chasing a 10% return.
@Account Closed Unless there's some other MMA, those normally pay an extremely low rate.
@Robert Leonard So am I just overthinking this/thinking about it wrong?
My emergency fund will always sit in a savings account, then I have my checking account that combine for roughly six months of expenses (about 10 months of fixed expenses). The money I'm questioning what to do with, would be on top of that - and I was thinking I can always use my emergency money for immediate expenses. However, I also don't want to run into a situation where say I have to pay the deductible on my home insurance + major car repairs (granted, my emergency fund would cover both or even a used car purchase - I'm frugal). A 1% return on the money isn't ideal, but granted my risks in a savings account are virtually zero, it's not too bad either.
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
@Robert Leonard In original post, I meant to specify this is for major repairs/maintenance on cars/house, since I already have a primary residence and own vehicles. This is just a reserve account for when major costs come up. Leaning towards keeping $2k in that account, then using the $250/mo I deposit to invest for better returns.
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
Agreed ... if you are parking literally millions of dollars short term, then maybe you worry about this, but then again if you had a few mill to park short term you sure as heck wouldn't be asking the question on BP.
Trying to squeeze a few extra points while parking a few thousand and you are wasting brain cells that could be applied elsewhere to make some real money ... you are probably stepping over dollars along your path to try pick up a nickel. LOL.
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
Agreed ... if you are parking literally millions of dollars short term, then maybe you worry about this, but then again if you had a few mill to park short term you sure as heck wouldn't be asking the question on BP.
Trying to squeeze a few extra points while parking a few thousand and you are wasting brain cells that could be applied elsewhere to make some real money ... you are probably stepping over dollars along your path to try pick up a nickel. LOL.
Well, over a 30 year period, the money truly would be significant...and I have $250/mo going into the account. But I'll keep the $2k in a reserves account getting 1% and invest the $250/mo.
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
Agreed ... if you are parking literally millions of dollars short term, then maybe you worry about this, but then again if you had a few mill to park short term you sure as heck wouldn't be asking the question on BP.
Trying to squeeze a few extra points while parking a few thousand and you are wasting brain cells that could be applied elsewhere to make some real money ... you are probably stepping over dollars along your path to try pick up a nickel. LOL.
Well, over a 30 year period, the money truly would be significant...and I have $250/mo going into the account. But I'll keep the $2k in a reserves account getting 1% and invest the $250/mo.
But by very definition, it is NOT over a 30 year period ... it is short term.
I think you are definitely overthinking this, if we are talking about maximizing the ROI on $2,000 in 2 years? If you found the great XYZ strategy and made 30% ROI, you would have $600 more in two years. That same strategy probably comes with the risk of losing 30% just as easy and you would have $600 less. Small beans (within the range of $1200) in most scenarios of buying a house or car as you stated in the OP.
Agreed ... if you are parking literally millions of dollars short term, then maybe you worry about this, but then again if you had a few mill to park short term you sure as heck wouldn't be asking the question on BP.
Trying to squeeze a few extra points while parking a few thousand and you are wasting brain cells that could be applied elsewhere to make some real money ... you are probably stepping over dollars along your path to try pick up a nickel. LOL.
Well, over a 30 year period, the money truly would be significant...and I have $250/mo going into the account. But I'll keep the $2k in a reserves account getting 1% and invest the $250/mo.
But by very definition, it is NOT over a 30 year period ... it is short term.
Would I not always have a reserves account for my house and cars? I don't only need reserves for two years...yes, the money is needed in short term, but it would always be needed in the short term. Just because it's not millions of dollars doesn't make it any less important. Over the 30 years, my measly $2,000 at 1% would be $2,700. However, at 8% that $2,000 would be over $18,000.
But like I said, I will keep the $2k in my reserves account, and the $250/mo I'm putting in monthly, I will go ahead and invest. When I need to use the $2k, I will replenish the account with my $250/mo. Anything over $2k, if my investment is down, I can easily cover with the $2k + a portion of my emergency fund.
buy a dividend pating stock from an utility company. These are usually no growers so your money won't sink, bur you keep getting dividends. 10Y Corporate Treasuries are a good place to gave your money parked, but it won't grow.
S&P500 is still your best option. Buy the SPX if you can afford it or the ETF version
My emergency fund would pay for the unforseen expenses you're saving that 2k for and if I had to dip into it I'd replace it asap. If you're emergency fund can't cover a 2k hit it's probably not big enough. If you have enough equity in your house you could use a heloc for your emergency fund and then atleast your saving mortgage interest which is greater than the 1.5% you're talking about.
You can also Google "High Yield Checking." If you're willing to jump through some hoops, you can earn a decent interest rate there. I'm getting 4.59% APY on $20K in a high yield checking right now and 3.00% APY on another $10K on a different account. Just because it's technically in a checking account doesn't mean the funds can't be "ear marked" for something else.
It does not matter so long as yields are below 3%. Your time is best employed on selecting better long term investment, and then better purchase and mortgage terms. The savings yield on a emergency repair money has to be a rounding error of the return on your investment.
@Brad Schultheiss My emergency fund can cover about 10 months of fixed expenses, so I have enough in there to cover the 2k. So anything over my emergency fund, you would just invest?
@Mark S. I'm guessing both of those have minimums + stipulations? I currently have a bank that I get 5% on up to $5k, but there is stipulations for the 5% rate.
Under the mattress. That way you can sleep better at night and have access to the cash 24/7.
I don't really follow the "have access to cash 24/7" - since with credit/debit cards access to my money have never been an issue. Outside of having a couple hundred bucks cash, I'm not really a fan of storing thousands at my house - I'd rather have it FDIC Insured and making me 1% at least.
@Kevin Coggins buy two shares of Amazon and forget about it. - Just joking, as I am not a financial adviser. But don't over analyze it
1. Put it with the rest of your money and maximize the 1-1.5% gain (still cash/liquid) until you are ready to invest 5,10,15k into a deal
or
2. Get active and take a risk that may yield more 4-8% return in the market.
I think you should consider where the money is most useful to your long-term investing strategy. Hope this assisted in any clarity, I get this way sometimes. Wanting to make the best decision with every cent, it's a good thing. A headache, but good thing. Best of luck!
10 months of emergency funds is more than you should ever need. The way I look at it is I can always lower my life style temporarily to stretch that out plus if you're that worried that the money won't last hustle to get some money in while fixing the situation that's draining your account. If it's so bad that you can't manage to generate any additional income than you're in a bad enough situation that 2k likely won't save you and if it will get a personal loan from a bank or sell something.
@Ernest Chamblee This money would be separate from anything I'd be using to invest in a deal, unless of course it grew into $15k then I'd move it around a bit. I have other money tied to the stock market that I'm slowly selling/can sell to fund a deal. Then there's always a 401k loan that I could do if necessary...and my wife is about to get back to work so her pay minus daycare costs should bring some solid money in to invest.
As far as going for higher returns, since I have my emergency fund, plus a reserve account, I'm thinking my $250/mo I can be more aggressive with.
@Brad Schultheiss It's just 10 months of fixed expenses - I'd guess I could truly live off of it for about 6 months. Always ways to get the money that I need, but the ideal goal is to be in a position to not have to take any sort of loss to get that money. Maybe I am being overly conservative on my emergency + reserve, but it'd really such to have to pull money at a 20% loss when I was chasing 8% returns.
Somebody above mentioned how safe Utilities are, but I owned the ETF and had it down over 20% at one point. Granted, I sold it and made over 20% return, nothing is really "safe". I also own NRG stock and had it down 60% at one point....
@Kevin Coggins Very nice! Seems like you have a great system working. Continue that, if the $250/mo is disposable and long-term the sky is the limit. I personally would put a nominal amount like $250 to work for a intermediate-term gain, like in Index or Short-term bond (seems you aren't too fond of this option). It sounds like you are pretty smart and moving in the right the direction, make a decision and execute. Don't get analysis paralysis over $250/mo. The figure is small enough not sweat, and large enough for some real long-term growth. Ultimately it's up to you.
Hope you figure it out my friend, would love to hear what you actually do. Take Care!