What is the best investment strategy for a 5 year goal?

[syncracirca]

Topic says it all - I have a 5 year goal. I'm putting away $100/month for that goal. That's $6000 less any investment fees and/or interest earned, dividends, etc....what should I do with this money? If it matters, it is going towards a new vehicle. My car is 9 years old and I plan to keep it as long as possible, but it won't last forever.

[tamo42]

For something small and liquid like you are describing, I'd probably to with preferred stock. You can get yields of about 7-8% with very little capital risk.

[loanuniverse]

For something small and liquid like you are describing, I'd probably to with preferred stock. You can get yields of about 7-8% with very little capital risk.

 

I like the idea, but $100 a month in stocks means that you would have to bundle several months unless you want transaction costs to eat your returns. Also the small amount makes it difficult to diversify.

 

How about an ETF that invests in preferred stock {diversification would lower risk} http://finance.yahoo.com/q?s=PFF

[Kevin20]

Tricky, because now that interest rates are so low, the old guidance on this sort of thing leads to almost zero returns. Your problem is that a 5-year horizon is so short, there is apt to be volatility and risk if you do anything other than low-risk fixed income. And plugging in $100 a month limits your options.

 

This applies to even a preferred ETF, just look at the 5-year history on the chart you link to.

 

A decent idea is to go with i-Bonds savings bonds. You can buy in $100 increments or less. You can buy online, monthly, from Treasury Direct. And in recent years it's tended to pay out more than bank accounts. Just set your sights low and realize you're not going to double your money.

 

http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds.htm

Edited October 17, 2012 by Kevin20

[XxRaVeNxX]

Become an investor at the www.lendingclub.com or www.prosper.com

[loanuniverse]

Become an investor at the www.lendingclub.com or www.prosper.com

 

When you invest in those Peer to Peer lending sites, you are actually giving unsecured loans to the companies. Your return might be tied with the performance of specific loans, but in case of financial trouble by the company you will be just another unsecured creditor. This means that your position is similar to that of a bondholder. I am not sure about the financial performance of lendingclub, but I know Prosper is loosing money and will need to sell more equity to survive in the near future. If you are going to be investing in Non Rated bonds, you better be compensated accordingly.

[bullthistle]

The stock market can be a great investment however it has up and downs and when you need to purchase a new car it could be down. Savings bonds are out. You need to hold them for 5 years. Unsecure investments are out as well. I know it sounds insane but what you need is a savings account. I know interest is paltry however the money is instantly accessible. No CD's. You don't have a lot of choice. Now if you had a longer view closed end funds or others would be a good bet. Dividends approaching 20% like DCIX or IGD that pays over 10% but you don't want to take a chance.

[Kevin20]

The stock market can be a great investment however it has up and downs and when you need to purchase a new car it could be down. Savings bonds are out. You need to hold them for 5 years.

 

 

That's incorrect. You do not have to hold savings bonds for 5 years. The caveat that may be confusing you is that, if you sell within 5 years, you don't get paid interest on the final 3 months you held the bonds. That's a very minor penalty and still makes iBonds considerably better than bank accounts at this time, even if you do sell before 5 years has passed.