Investing Short Term
Let's say someone gave you 4 to 5 thousand dollars and told you to invest it anyway you wanted to, but that the investment period would be short term (2-3 years).
What would be the best way to invest that money to gain the most return? |
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It might be better to state what is the worst result you could swallow and then use that to define your level of risk. Assuming you would not be happy with loss of capital in that time frame, for that short of time I would say buy a dividend-paying stock or a CD. If you want to take a bit more risk, I've always had good success with relatively low volatility in regional bank stocks. The interest rate environment at the moment is not real good for them but could improve by your 2-3 yr time frame. One I like is IBOC in Texas. Stay away from the housing bubble states where defaults may rise. Your mileage may vary. |
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It depends on what you need the money for in 2-3 years and how bad you'd feel if your 4K went to 3K compared to how happy you'd feel if your 4K went to 6K. I'd open a brokerage account and put it all in one index mutual fund, that way you lose very little on transaction costs. |
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Mrs. tooblue is very interested in this thread and was even tempted to register to ask questions as she handles our money and we in fact have some money that currently is just sitting in a retirement savings account that we cannot touch but can invest. |
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Biggest mistake meaning too much money in fixed income (T-bills, bonds, etc.). With age expectancy into the 80's and probably into the 90's for people of my age, even at retirement age, people are still on a long horizon. The typical advice of a guy like me in my 30's putting 30% into fixed income is totally nuts, IMHO. Or someone in their 50's moving to 50%+ in fixed income--too conservative. But once you determine your portfolio allocation, i.e. x% in fixed income, x% in stocks, x% in real estate, whatever, then you diversify to fullest extent to lower risk within your asset class and crosswise across other asset classes. So when I say be aggressive, I mean put more money into stocks than bonds. Buying one stock is order of magnitude more risky than buying an index fund (which I would call high risk). Leveraging a real estate purchase is order of magnitude more risky than buying one stock. And giving money to your brother-in-law as his financial partner for his business idea is order of magnitude more risky than the real estate purchase. This kind of aggressiveness is not what I'm talking about. |
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http://www.diehards.org/ I'm a Bogle-head. I think these guys are generally too conservative, but the principles of investing are correct. I think it's the way to go. And the people I respect in business academia go for this way of thinking. I'd like to hear Pelagius' take on Bogle and indexing. |
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