![]() Note: the type of account is completely separate from the investment itself (except that certain accounts can only contain certain kinds of investments). Bonds also generally outpace inflation, but the margin tends to be significantly smaller.įor borderline time frames of 3 to 5 years, aggressive investors may consider one of the more conservative Vanguard LifeStrategy funds or a similarly allocated three-fund portfolio (perhaps combined with I Bonds, CDs, saving accounts, and/or money market accounts), but this is definitely not for the faint of heart! Historically, stocks tend to outpace inflation the best. If your investments are not outpacing inflation (about 2% a year in recent history), you may be losing actual value over time despite your investments being worth more nominally. Just bear in mind that there is a different risk to not investing aggressively enough. If that seems too risky for you, stick with savings accounts, money market accounts, CDs, or maybe some I Bonds (as long as the 12-month lockup isn't an issue, see above). To put it another way: More than half of the time, it will be a win (based on past history), but sometimes it will not be a win. You need to be prepared for a scenario where a poorly timed downturn could affect your plans for the money. The risk is significant that you will lose money because it's a relatively short time frame for an investment that is based on stocks and bonds. If the time frame is 5 years or longer, you can consider something like a Vanguard LifeStrategy fund or a similarly allocated three-fund portfolio. Consider using a "mini CD ladder" based on CDs with shorter terms if the time frame is under 1 to 2 years and bear in mind that CDs also often have a lock up period or a significant early withdrawal penalty.While I Bond rates are often attractive, be aware that I Bond purchases are locked up for the first 12 months and if you redeem an I Bond within the first 5 years, you will lose the last 3 months of interest (the higher interest rates compared to savings accounts will often make up for the last 3 months of interest, though).If the idea of low interest rates is too much to bear, you can also consider using I Bonds or a CD ladder. The stock market is too volatile for any time horizon shorter than 3 to 5 years and investing for less than 10 years is risky (it's not for the faint of heart).įor any time frame under 3 to 5 years, you should just use savings or money market accounts. It's a bad idea to invest money that you will need within several years. Can you just recommend something extremely specific to get me started?Ĭommon Questions on Investing I have money that I need in a short amount of time.How should I invest in my 401(k), 403(b), SIMPLE IRA, or other employer-sponsored account with limited choices?.In what order should I prioritize my long-term investments?.Why does everyone seem to recommend Vanguard?. ![]() For low-cost index fund providers, which is preferable, Vanguard, Fidelity or Schwab?.Should I invest a lump sum all at once, or employ a dollar cost averaging strategy?. ![]()
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