Which investment vehicle should I use if I will only be saving for two years?

Question

I am currently in college, and me and my girlfriend are planning to take a vacation after we graduate in 2010. We will both be putting whatever extra money we can into an account to save for when we graduate. I was wondering what the best account to use would be. Is a money market account smart right now with the state of the economy? Should I just use a high yield savings or CD?

Answer 1

Well, it depends on the risk you want to take.  Since the time horizon is short (2 years), that should push you to take less risk.  But since it is just vacation money, you could also go for something more risky if you wanted to.

If you want to go with no risk, do a CD or HY savings.

If you want low risk, but more return, go buy a good quality bond that matures just before your graduation.  Every time you have money for another bond, go buy another one that matures before graduation.  For example, this citigroup bond has a yield to maturity of about 6%, and matures in Nov 2009:

http://reports.finance.yahoo.com/z2?ce=5...

If you want more risk, go for equities (stocks), probably in a mutual fund or ETF that mimics the markets rather than picking out individual stocks.

Answer 2

Take a look at this. It will take a bit of work, but there is a fair degree of safety.

Suppose you opened an account at a discount brokerage, Scottrade is nice ($500 minimum, last I heard; $7 stock trades, etc.).  Then suppose that you fairly regularly contribute to the account each month (or budget the lump sum by month).

Here is a list symbols for some solid companies, that make above industry average returns, pay above industry average dividends, and are well rated by a couple of common rating agencies: AFL, BDX, CB, CZN, HIG, KO, MO, MSFT, PG, and SWK.

Now, the rest depends on how much you want to put in over how many of these (or your suitable substitutes). Since these are all consistent money makers, suppose one option is to buy with your available funds for the month the one of these that is down the most (year to date, month, even over the last day, you choose, but be consistent).

Consistently profitable companies get poohed by the market all the time, but they stay consistently valuable because their book of business is valuable, they keep cranking out profits. Over time, a year or two, each of these, which you bought when then were relatively cheap (think of them as being on sale), will have risen, and likely paid you dividends in the meanwhile.

Be consistent. Stick to the plan. You will work out fine. Just don't get greedy. This is almost a fix and forget process. Good luck.

Answer 3

ING Savings accounts (high interest).

Or, maybe you can find four high-yield dividend-paying companies to invest in through a broker with no commissions (Zecco maybe).

MoneyEnergy

http://wwww.getmoneyenergy.com

Answer 4

I would look for a high yielding cd, a money markets are paying really low right now, around 1-2%. You might be able to find a 4% cd right now.

Answer 5

Money market fund.

Answer 6

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