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Another investing question - Have $20k to invest

TheRemix18 2,246 572 September 2, 2015 at 09:38 AM
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First of all, I apologize for another investing question.

I just got married and have about 20-25k to invest for about couple years. Reason I say couple years because we are planning to buy a home in 2-3 years, so will need that money for down payment.

I was looking into a Savings account, a high rewards checking account or CD. CD is almost out of question as around here I can get max 1.25% for 12 months. High rewards checking I can get anywhere from 3-5% locally. Ally has 0.99% for a Savings account.

Are there any better options for me other than above?

Thank you!

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#2
Quote from TheRemix18 View Post :
First of all, I apologize for another investing question.

I just got married and have about 20-25k to invest for about couple years. Reason I say couple years because we are planning to buy a home in 2-3 years, so will need that money for down payment.

I was looking into a Savings account, a high rewards checking account or CD. CD is almost out of question as around here I can get max 1.25% for 12 months. High rewards checking I can get anywhere from 3-5% locally. Ally has 0.99% for a Savings account.

Are there any better options for me other than above?

Thank you!
IMO not without taking on significant risk, which could jeopardize your capital and therefore your down payment. Opinions vary on this, but while you could get more in the stock market or an index fund, your timeframe is too short to mitigate the risks of major swings.
If you can get high yield checking accounts at 3% or higher, have the monthly income to put some extra money into those accounts to cover any spending for the requirements (most require a certain # of debit transactions a month to get the higher interest rate, as well as direct deposit), and don't mind dealing with needing to make sure you do the transaction requirements each month, I would go this route.
It's a bit of work, but if you can find 2 accounts that give 3-5% and each have a cap of 10k on the rewards rate (or 1 account with a 20k+ cap, though those usually tend to have a lower rewards rate) and don't mind keeping track and doing several small purchases each month and re-doing your direct deposits to put some into each account, it's risk free money.
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#3
Quote from TheRemix18 View Post :
First of all, I apologize for another investing question.

I just got married and have about 20-25k to invest for about couple years. Reason I say couple years because we are planning to buy a home in 2-3 years, so will need that money for down payment.

I was looking into a Savings account, a high rewards checking account or CD. CD is almost out of question as around here I can get max 1.25% for 12 months. High rewards checking I can get anywhere from 3-5% locally. Ally has 0.99% for a Savings account.

Are there any better options for me other than above?

Thank you!
Savings or CDs are preferred for such a short time frame. You're not gonna get a very high interest rate, but you're also guaranteed to not lose any of the money, which is necessary for down payment money.
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#4
Quote from Silvas View Post :
IMO not without taking on significant risk, which could jeopardize your capital and therefore your down payment. Opinions vary on this, but while you could get more in the stock market or an index fund, your timeframe is too short to mitigate the risks of major swings.
If you can get high yield checking accounts at 3% or higher, have the monthly income to put some extra money into those accounts to cover any spending for the requirements (most require a certain # of debit transactions a month to get the higher interest rate, as well as direct deposit), and don't mind dealing with needing to make sure you do the transaction requirements each month, I would go this route.
It's a bit of work, but if you can find 2 accounts that give 3-5% and each have a cap of 10k on the rewards rate (or 1 account with a 20k+ cap, though those usually tend to have a lower rewards rate) and don't mind keeping track and doing several small purchases each month and re-doing your direct deposits to put some into each account, it's risk free money.
This is what I was thinking, but lot of tracking. Need to look into it more. Thank you!
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#5
Quote from TheRemix18 View Post :
This is what I was thinking, but lot of tracking. Need to look into it more. Thank you!
IMO the easiest way to do it is to examine your current spending - what do you buy that you intend to keep buying, and find things that fit. The direct deposit is easy, set that up once and be done with it. Most employers will let you spread your paycheck across multiple accounts with direct deposit.

For the spending part, I'll use my rewards checking account as an example. I have to have at least 1 direct deposit a month, estatements, and 12 transactions a month post to my account. My acct has a 10k cap on the rewards interest rate, so we'll just go with 2 of these accounts.
24 transactions a month, that's an average of less than 1 a day.
What do I purchase that's cheap and I intend to keep purchasing that might fit this? Do I drink soda? Do I go get coffee every day? Do I go buy lunch every day?
Do I grocery shop once a month, or every other week, or every week, or every couple days?

Let's say you go get a coffee each day. That fits. First half of the month you use the debit card from one rewards account for your coffee, 2nd half you use the other.
Lets say you don't do any one thing every day, but maybe you find that you do go get a coffee or a soda at least 12 times a month, and you grocery shop weekly and maybe once a week you go out to get lunch.
In that case you'd use the debit card from acct 1 for your coffee and soda, and debit card from acct 2 for going out to lunch and grocery shopping. You would also, when you go grocery shopping, split your purchase into 2 separate transactions and just use the same card for both. Easy way to manufacture more transactions without buying more.

Once you've identified something in your current spending that is within your budget and you don't intend to cut out of your budget that you can make fit the requirements to get the rewards rate on one or more accounts, it just becomes a matter of reminding yourself to use the right card for that particular spending. After a short time that becomes an automatic habit.
This allows you to meet those requirements without buying more things and spending more money (which would negate the benefit of the higher interest rate)
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#6
As others have said, with a time frame of 2 - 3 years, investing is not a wise financial move. Savings is your best route.
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#7
pay off all your debt first


the stock market could crash some more
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#8
Quote from TheRemix18 View Post :
First of all, I apologize for another investing question.

I just got married and have about 20-25k to invest for about couple years. Reason I say couple years because we are planning to buy a home in 2-3 years, so will need that money for down payment.

I was looking into a Savings account, a high rewards checking account or CD. CD is almost out of question as around here I can get max 1.25% for 12 months. High rewards checking I can get anywhere from 3-5% locally. Ally has 0.99% for a Savings account.

Are there any better options for me other than above?

Thank you!
Stop right there. You said you'll "NEED" the money after 2-3 years for a house. Sounds like you've already written that 20k off for the house purchase. I would keep it in either a CD or high yiedling savings account (if you can find one) or money market. Putting money that you know you'll need in the future into the stock market is a huge gamble, in my opinion. Now if you said 20k was disposable income, then the answer might be a little different.
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#9
If looking at house purchase then generally keep funds in cash as this is likely to be short term, then save into stocks and shares isas for longer term savings, initially by generic widely spread funds like vanguard lifestrategy or black rock consensus, then by diversifying into more specialist areas, looking at rebalancing and emerging markets, commodities, smaller companies etc.
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