OT: Best Way to Invest $20K for 2 Years

Submitted by TheCool on

FIRST POST!

My wife and I recently sold our house and moved to Houston, TX. Of the profit from the sale of our house is $20,000 that we are saving for the down payment for our next home which we plan to use 2 years from now when we find our "Forever Home". What is the best form of investment to use to get the greatest return with minimal risk in such a short time period? I know very little about investing so all information is considered helpful.

Thanks in advance for taking the time to help a brother out! GO BLUE!

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The Mad Hatter

August 23rd, 2015 at 11:49 AM ^

And Pokémon cards. You'll do great. But seriously, your time line flexibility is the major factor in picking an investment strategy. If it's two years with no flexibility, just sit on the cash. If that two years can flex out to three or four in case of a market downturn, you're better off in the market.

Joined: 02/17/2015

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uncleFred

August 23rd, 2015 at 11:50 AM ^

Risk and return tend to go hand in hand. Low risk produces low returns and high risk can produce high returns. This is not a given, but it is how things often work. As I read your criteria, protecting the value of your $20k is more important than a return. We are pretty well into a period of economic instabilty and there is a fair amount of government intervention both rather openly and behind the scenes in the world investment markets. There has been a fair amount of debt monatization by the US and other governments. This tends to be inflationary but has not been reflected directly in the markets because of various suppressive techniques imposed by those same governments and banks. There is currently a great deal of speculation on all investment fronts about how long these mechanisms can keep the lid on and what will happen should the lid come off.  

Bottom line for you: Keep your money away from the stock market. Yes you might get a nice return, but if things get ugly 18 months from now the remaining 6 month period is unlikely to be long enough for you to recover. Under normal circumstances I'd recommend a 24 month CD or just a savings account, but there is significant inflation risk now that IMHO is likely to increase over much of your investment period, plus there is a presidential election next year and there is no telling how that might manifest in the markets. I don't generally recommend gold other than as a fractional inflation hedge of between 5%-10% of total portfolio value, but in your case I'd strongly consider and investigate buying gold. Gold is not real low right now and carries a lot of emotion in its pricing, but it is back off its highs and is a traditional store of value which at this point seems to be what you need. FWIW my primary retirement portfolio is professionally managed and managers at that firm have been accumulating gold opportunistically for quite sometime in excess of the 5%-10% I mention above.

Be sure to look at service fees and charges etc and factor that in to your cost. Shop around and get educated on the ins and outs before you chose your investment vehicle. This advice is worth exactly what you paid for it, but in your situation that is what I would do. Good Luck!

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Aero01

August 23rd, 2015 at 12:40 PM ^

You were making a ton of sense before you started talking about gold.  People always talk about gold like it's a safe investment and I don't get it.  When I look at two year periods comparing gold to the market, I just don't see gold as a better vehicle.

http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

*My opinion is based on historical data which is not a reliable indicator of future results something something something.

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Aero01

August 23rd, 2015 at 9:48 PM ^

I've never understood how gold is different than any currency.  It has no (or at least very little) intrinsic value.  It is only valuable because people decide it is valuable.

I agree it is less volatile than any individual stock, but that doesn't make it a safer investment than the stock market as a whole (Note that I could be wrong about this, I know that there are actual ways to define "risk" and I don't pretend to know how that works, hence why people shouldn't take financial advice from football message boards.  But I feel like I'm right...).

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uncleFred

August 23rd, 2015 at 4:38 PM ^

and generally I subscribe to them in my own financial decisions. In anything like a convenvtional market, I would have stuck with either CDs or a savings account. Unfortunately over the last couple of years I've become convinced that the folks "managing" (if it makes any sense to use that term) the money supply, availabilty of credit, playing games to support T bill sales, and other "questionable" tactics are flying blind and have lost any sense of long term impact. I don't want to sound like I'm wearing a tin foil hat here and I'm not predicting the end of our financial institutions or anything, but I can remember double digit real inflation in my life time. CDs or a savings account won't protect against that and I can see the possibility of some pretty ugly inflation if things fall apart. If I had more confidence in the so called "safeguards" in the system, I'd be less nervous, but as I said I think to many of those folks are flying blind.

Other than currency speculation, and I doubt that any currency will be a safe harbor under those circumstances, gold has always been where money flees when people get real nervous. As I said there is a lot of emotion in gold pricing and it's hard to tell how much uncertainty is already priced in, so it's not a great answer, but under my view of current conditions and given OPs 2 year window the best I could come up with is gold. 

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trustBlue

August 23rd, 2015 at 5:50 PM ^

The inflation risk over 2 years is likely to be minimal and even under likely to be most extreme inflationary scenarios, would be mostly offset by the return on a decent CD.  

However if that is really a concern, you'd probably be better looking into a TIPS (inflation protected Treasury bills). 

Investing in gold simply to hedge against inflation is not necessarily a great recommendation for an unsophisticated investor making a one time investment over 2 years.

The price of gold is subject to its own volatility, just like the stock market.  It might make sense as small part of a diversified portfolio like you described here, but is probably overkill for a small investment like this over a short time frame.

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ElBictors

August 23rd, 2015 at 11:54 AM ^

I'm a stock broker. Lots of wildly imaginative and 'youthful' ideas being tossed around. If the money is earmarked for a down payment, I would be reluctant to have market exposure and for the reasons already given - 2yrs isn't a lot of time, really, and any gains would be taxable in a retail account. You might consider money markets or like bond exposure and park the money. If what you're really looking for is a way to turn that $20,000 into say $22,000 in two years, you'd theoretically have to accept the idea that you might have $18,000 instead. So there is no right answer without more questions. You also need to factor in liquidity so that you can have the money available when you need it ...any fees or other expenses should also be considered.

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MGoOhNo

August 23rd, 2015 at 12:36 PM ^

I think that's code for "stupid" and even though I'm not particularly youthful any longer, even at 18 I knew not to invest earmarked funds with a short term horizon in depreciating and/or highly speculative "investments" - I mean how could you possibly lose money buying Rolex watches, used cars, flipping houses, or timing the market. My favorite though was buy oil stocks because oil is low. Lol

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ElBictors

August 23rd, 2015 at 1:03 PM ^

Some of the jokes are good but some of the more sincere and eager ideas are amusing. And if you want to play oil, you're probably better buying the companies - Exxon, Chevron, Schlumberger - or an Energy ETF than trade the futures market. If oil reverses higher, those Energy stocks will likely jump in a more dynamic fashion. * not actual investment advice. Individual goals, risk and timeframe must be considered. Please consult a licensed professional financial advisor

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gustave ferbert

August 23rd, 2015 at 11:57 AM ^

$5000 divided into 6 month increments.  As the first one comes due, reinvest in a 1.5 year cd, in six months the rate should be higher.  When the one comes due in a year, look to roll that one into another 1 year cd. 

We're heading into a higher interest rate environment.  This strategy guarantees safety, with some liquidity to possibly lock in a higher rate. 

The other option is to be a floating rate mutual fund, which should do well in the case of rising rates.  But principal isn't guaranteed. 

 

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F5

August 23rd, 2015 at 11:58 AM ^

Buy a few low cost cars, 5-8k at a great price ( if you are good at negotiating) and turn around and flip them for a nice profit. Last year I made 9k off 3 car sales.

Joined: 01/18/2011

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ppToilet

August 23rd, 2015 at 5:03 PM ^

If the debt can be used as a deduction on his tax return, and he is at a 20% bracket, he is saving essentially that much. Obviously, you don't want to be overleveraged and if the OP has significant debts then paying some of them off (especially anything not tax deductible) would be a good idea.

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Bluetotheday

August 23rd, 2015 at 12:11 PM ^

But still, I would think of making a purchase sooner rather than later since debt is so cheap and the fed has been flirting with increasing rates. Figure out the cost to finance the additional amount needed vs the time it would take to earn the additional amount...rates are low!!!

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Jamezz23

August 23rd, 2015 at 12:11 PM ^

Lots of risk right now, American markets aren't doing to well with the crash of China and Asia even tho it has nothing to do with our market, just like when the Greece banks collapsed we felt the hit in America markets. Now if you know how to go short it's a totally new ballgame :)

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MLaw06

August 23rd, 2015 at 12:12 PM ^

If you actually need it for your down payment, then you should just save it and not "invest" since you will need a longer horizon to withstand any negative shocks.

Further, I hope you have other funds for your down payment as well since you will want to put at least 20% down. If you put any less, then you'll have higher expenses in PMI costs, etc.

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Maddogrdt

August 23rd, 2015 at 12:21 PM ^

You can give me the $20k, thus I make a killing of an investment of  one written request...

 

 

Otherwise you have several safe options: Money Market, typical 18m Int Rates are around 1.8% which beats savings account rates of 0

You can invest in Nasdaq it typically returns 3.8% int rate

For more risk, you can invest in property purchase and flip, often returning 4-8% returns in 6-1 year (more if you find a depressed property/owner that sells below current market value- good luck)

Or you can do like the guys at MIT and corner the state lottery market, as $20k of scratch offs typically earn 24k in returns...

 

OR

BET it all on black! for a 300-600% return (Varies by roulette table odds)

 

 

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claire

August 23rd, 2015 at 12:35 PM ^

1) Head to Las Vegas, Nevada 2) Head to the Four Queens 3) Stop and get a Coke and have your boots polished (they'll even take them off for you) 4) Find a Black Jack table...any value 5) Start playing (forget the splits and double downs) 6) Each time you lose, double your next bet 7) Each time you win start over at the table minimum 8) Play as long as you can

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mgobleu

August 23rd, 2015 at 12:55 PM ^

but I don't see much of anything going on domestically or globally that makes me feel warm and fuzzy about the market over the next 2 years. I'm probably more pessimistic than most, but I personally feel like we're headed for a correction bigger than '08. I honestly would just dump it in a money market account and park it until you need it. Take your 1-2%, buy a lawn chair and a 6 pack.

Joined: 07/02/2008

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Sopwith

August 23rd, 2015 at 1:00 PM ^

Like others have said, if that's your time frame, the best investment is to not invest at all. Save it in an online account or buy CDs. You should be able to get close to 1% (and that will be going up) in a no-fee cash account at Ally or Capital One 360 (formerly ING Orange) or several other online savings options if you go that route.

I was horrified when I took over control of my elderly dad's IRA last month and found it was full of high-risk, high-fee mutual funds (energy, biotech, emerging markets, etc). He's retired and is about to start living off that money. He had gotten lucky overall because of the runup in biotech the last year more than offset the others but it was a disaster waiting to happen-- so I moved all his stuff over to a low-risk, low-fee US Treasury fund figuring the drop in the price that might come as interest rates rise would be offset by the higher yields. I just got it moved over and boom, the stock market tanked.

Whew, what a disaster averted. He would have lost over 12% of his savings just in the last week. Those of you who have parents who expect to start withdrawing IRA savings soon or are already taking mandatory distributions, check out what they're invested in. 

 

 

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MichiganG

August 23rd, 2015 at 3:54 PM ^

You sound smart enough to already know this, but keep in mind someone nearing 65 should still be planning to draw funds for 30 years (50th percentile life expectancy for a 65 year old is about 86). This typically means a modestly more aggressive portfolio than people think of when they imagine their portfolio at that age. Depending, of course, on the level of assets accumulated, goals, etc. All treasuries has worked well this week but may not be sufficient for the coming decades. Edit: not suggesting his prior portfolio was a smart one, but some mix of growth/value-focused equities may be appropriate.

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Sopwith

August 24th, 2015 at 1:07 AM ^

but I left one personal detail out just to avoid being too much of a downer. My dad doesn't have 30 years out in front of him, more like 5-7 if we're lucky. he still has some other assets which have growth potential, but given the need for living expenses the next few years, I went way more conservative than the typical new retiree with a lot of golden years ahead.

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