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A place for Get Rich Slowly readers to ask questions
and exchange ideas
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 Post subject: Investing for the "mid-term"
PostPosted: Fri May 18, 2007 8:41 am 

Joined: Fri May 18, 2007 8:25 am
Posts: 520
Location: Santa Barbara
I have a question about investing for mid-term needs, probably a house. I currently rent and am happy with that but some day.....

I have some money currently in treasury bonds (yeah, at a whopping 4.4%!!!) with my mom's financial planner. It's there for (a) security, (b) simplicity because he's doing it pro bono since he's been with the family for a long time and (c) because I haven't figured out where else to put it.

My question is that if I want to invest it for the mid-term (at least 5 yrs, but more likely 10+ years), until I want a major purchase like a house, what's the best place to toe the line between security and returns for that amount of time? I have some money in a CD at 5.6% and 5.2% in savings and that's pretty good. What about like 40% bond index, 60% diversified stock index? More bonds? Bonds, CD, stock? Security would be nice, but to think that in 10 years I could easily double money...well, that's important too. Also, I have an overactive social conscious so if someone had socially/environmentally responsible ideas without huge fees, I'd be really into that.

I make an ok income for one person, have no debt, have a safe emergency fund, have 7.5% of my paycheck compulsorily taken from me for retirement and I plan to fully fund a ROTH IRA.

I hope this is a question others are asking.

I'd appreciate and consider any ideas. Thanks to everyone who helps out on this site. It's like an oasis from the rampant financial irresponsibility in our country/world. (My landlord just bought a stereo financed from a magazine for twice what it would cost in cash...but that's a post for another day.)


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PostPosted: Fri May 18, 2007 9:15 am 

Joined: Sat Apr 07, 2007 2:03 am
Posts: 872
Location: Taishan, Guangdong, China
I clicked on the link for Vanguard Target 2015 and it shows 50% domestic stock, 10% intl stock, 40% bonds. Your 60/40 mix looks fine. Whether a category should be higher or lower, just random guesses at this point. A good way to deal with this is to pick a target "retirement" fund as these funds will automatically become more conservative as you get closer and closer to your major purchase timeframe. Both Target 2015 or 2020 would be good choices -- 2010 is probably too soon.


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PostPosted: Mon May 21, 2007 7:54 am 

Joined: Fri May 18, 2007 8:25 am
Posts: 520
Location: Santa Barbara
Thanks mossy! I guess I never thought of making a major purchase like a "retirement" date but it makes perfect sense.


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PostPosted: Tue May 22, 2007 12:09 pm 
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Joined: Thu Apr 05, 2007 4:19 am
Posts: 394
Location: New Jersey
I will respectfully disagree with the idea of using a targeted retirement fund to fund a major purchase 10 years out. When people retire, whether or not they've used a target fund, they do not spend all of their money at once to pay for the rest of their life up front. It is usually taken out piece by piece over the course of years and often decades. It is a form of dollar-cost-averaging. The regular and relatively small withdrawals help to mitigate the up and down swings of investing in the stock market. If you are using the bulk of the investment proceeds at once, you may be inadvertently taking more risk than the fund's allocation was designed for. So, in that sense, using target funds to buy a home in 10 years is nothing like retiring in ten years.

Your question is similar to asking what the best way to plan a visit to the Grand Canyon is. The answer for someone just making the trip to see the Grand Canyon will be different than someone planning a cross country trip and wants to stop off at the Grand Canyon along the way.

The best strategies for saving for a home along with other goals will vary greatly depending on your other goals and their time horizons. So I suggest that you should look at the big picture first and then look for the best ways to accommodate some of the "along the way" goals like buying a house.


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