Lazy Money

June 12, 2008 10:56 AM

What is the best way to invest $10-15,000 if you don't want to tie the money up for longer than, say, a year?

I have money that is currently sitting in a bank account doing nothing. I would like it to start working for me, and I was thinking CDs might be the way to go since they're easy, but I'm wondering what the other options may be. I don't want the money to be tied up in any investment for longer than a year at a time. Another way of putting that is saying I want to be able to get it out without too severe a penalty if things start going haywire. Also, how do I, as an investor, beat our current high rate of inflation?

posted by anonymous to work & money (10 comments total)

Why don't you take some of it and put it into a CD and put the rest in a few stocks you really like. I just recently did this on the Visa IPO.
posted by zephyr_words at 11:06 AM on June 12, 2008

Honestly CD's right now are almost lower than the inflation rate - you'll need something slightly more aggressive if you want to actually make any money.

Crappy time to invest really and not my forte, hopefully someone else will give better advice (I like index funds but not necessarily for <= 1 year)
posted by bitdamaged at 11:14 AM on June 12, 2008

There are high yield online savings accounts that give a pretty high rate of return (3.5%). It can take a little longer to get your money out than a CD at a neighborhood bank, but usually not more than a week. If you're considering a bit more risk, index funds are a good way to invest in the stock market without worrying about any market specifics.
posted by demiurge at 11:20 AM on June 12, 2008

Do not buy stocks if you don't want to tie the money up for several years. There are a number of reasons why:

1) The stock market is quite volatile. Who knows what can happen in any given year. Any of a zillion different events (bad hurricane, geopolitical problems, rising oil prices, housing meltdown, etc.) can cause the stock market to go down over a short and medium-length time period. One year definitely qualifies as short.

2) Stocks held for less than a year are subject to high tax rates, which will eat in to any advantage that picking a winning stock may have.

3) There are transactional costs to buying stocks, either in the form of a commission (which, admittedly, may be negligible), a mutual fund fee, etc. Over the short term, these expenses, along with taxes, may overwhelm the potentially superior returns that the stock market can provide.

Stick with a CD or a money market fund. Check out Bank Rate to see what rates are available. Stocks are too risky for anything less than a medium term (3-5 years) investment. Especially when the clouds on the economic horizon are rather dark.
posted by griseus at 11:33 AM on June 12, 2008

There's not really any secret way to make a lot of money on an investment in a short period of time with no risk. A savings account or CD is probably the best low-risk investment you can get right now without risking any of it. Both high-yield savings accounts and CD rates are at about 4% now (via BankDeals blog), and they have been dropping lately due to Fed rate cuts (they were around 6% last year). If someone tells you they can make you significantly more than 4% APY on a 1-year investment with no risk, they are almost certainly lying to you.

The stock market is a great long term investment, but there is significant risk that you will lose part of your investment in the short term, and as griseus said there are generally fixed costs that make long term stock investment cheaper than short term.

It's definitely a good idea to have some money put aside in case things go wrong, so your thinking is correct on that. The problem is that you can't really use money as both an emergency fund and a long term investment. Once you have enough saved up for emergencies, you need to continue saving and put any extra money into long term investments. Gaining wealth from investing for most people is much less about knowing "investment secrets" and much more about knowing the basics (such as buying an index fund), controlling your spending, and saving a relatively large amount of your income.
posted by burnmp3s at 11:52 AM on June 12, 2008

I don't know if there are a lot of options for a one- to two-year horizon investment that has anti-inflation characteristics. The obvious low-risk option is TIPS (Treasury Inflation-Protected Securities), but I believe those are issued with a 5-year minimum maturity. Normally, the best thing to do is buy through Treasury Direct. I suppose you could buy an off-the-run security with two-years of remaining life--that is, buy a 5-year security issued 3 years ago--but I don't know how easy that is for a retail investor (however, what you don't want to do is buy a security with a maturity beyond your stated horizon--you'll introduce some additional risk to your principal when you sell before the security matures).

One option may be this TIPS ETF. It's a designed to match the TIPS index, which should mitigate the risk to principal value.
posted by mullacc at 12:07 PM on June 12, 2008

Seconding the recommendation of a high-yield online savings account.

Most of them are around 3%-4% right now

However, if you are willing to jump through a few hoops, you can get a 6% checking account. This will net you $600-$900 in a year with that kind of investment. There are some caveats to these accounts, such as you must use online banking, you must have a direct deposit (or ACH transfer) once a month, you have to use the debit card X number of times per month, but for double the interest rate I'd say it's worth it.

Check Bank Deals and here
posted by jckll at 12:21 PM on June 12, 2008

Oregon Community Credit Union has checking at about 5 or 6 percent.
posted by tarvuz at 4:46 PM on June 12, 2008

Nthing a high-yield savings account or CD. A year is too short a period to invest in anything else.
posted by pmurray63 at 5:26 PM on June 12, 2008

If your goal is capital preservation first, fixed appreciation second, an FDIC-insured CD is the right instrument.

If you want to *risk* the money for a higher rate of return, stocks.

This is a crappy time to put something into fixed-income securities. Rates are probably as low as they're going to be and the futures market is predicting rate hikes built in to the very near future.
posted by ikkyu2 at 12:02 AM on June 13, 2008