How to Invest Cash for Short-Term Goals

Investing for short term goals of 5 years or less can be tricky. Savings accounts pay about 0.50%, but stocks can lose money in the short term. Many saving for a down payment on a house face this problem.

In this video I'll cover an approach that can enable short-term savers to benefit from stock market returns without taking excessive risk of losing money over the next few years.

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#investingcash #investing #robberger

ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.

[rob_berger]

In the video I use BND, which is a Vanguard intermediate term etf. One could also use a combination of BND and a TIPS fund, as I've described in the past. One could also add a short-term treasury fund or mutual fund (or savings account) to slowly fill up as the time for needing the money approaches.

[Geore]

Your videos are actually peaceful. The background setting is great. The calm tone of the video is great.

[leesmith]

i think people would benefit from not setting dates to their house buying goals. by being flexible and patient they can be fully investing in equities. strike when the iron is hot and be happy to ride out a downturn. renting is fine and they'll do better long term being all in. it's how i always did it and worked well for me. takes a certain mindset though i guess. i was not obsessed with house buying, i was happy to wait for the right moment. so the problem of what to do with money i need in the short term was never an issue. i changed my life plan to not need the cash short term.

[sd]

An interesting study would be to compare the gain/loss of the stock allocation with the price of real estate. If you were saving for a house in the stock market during 2008 your stock portfolio would have lost 50% but the value of the home you were going to buy also dropped by 50%.

[tarpar]

Rob, thank you for another gem of a video. This is actually very relevant and useful for many of us who are struggling where to park our liquid funds for some relatively safe growth. My wife and I were literally talking about this subject this morning. Please keep up the great work :)

[rao]

Treasury series i bonds will give 7.5% for next one year. Interest depends on inflation+ interest rate. Zero risk

[rsinsheimer]

Bonds have overperformed since the early 80s, that party is over. I don’t know that there’s any better way to analyze this than what you did, but I’d be very careful about projecting that bonds are going to be a positive investment going forward.

[louiswelrod]

Rob, I really like this video and find it useful, In fact, your channel is among the most useful I watch. However, I disagree about your "bad news" after 2 years. You are correct that the remaining 3 years will act like a 3-year portfolio, but your starting point for the 3 years should be (on average) about 18% above where you began the 5 years. You would have to lose all your gains plus more to post an overall loss. That is not the same as looking at a 3-year portfolio risk.

[slimdawgwoof]

Thanks, this helped me greatly. I am about 6.5 years out from from needing money for education. Can take some risk. I'm going to make a glide path using this concept.

[joeburns]

Thanks Rob! Perfect video for a guy like me who is paying for one out of state college while saving for another.

[robertryan]

I would think using a target date fund with a 50/50 starting point would work as well.

[JJS]

I like VTIP for my short term asset requirements.

[JosephDickson]

I've been wondering what could be a good way to save for a non urgent purchase. Car or home improvements... This is a really solid idea. 😉

[shosansah]

Rob you just empowered me! Exactly what I was looking for. Thank you!

[richardcarlin]

I'm in this situation. I invested money into Vanguard Wellesley Income fund.

[markmorris]

Another great video Rob! One additional factor to think about is if you're flexible on when you use the savings or if it's relatively fixed. If it's for upgrading something that you already have that works (e.g. house, car, etc.) then the risks of market volatility can be better managed by adjusting the timing of using the funds.

[andrewharmon]

Hi Rob. Love what you do, but I am not sure I agree with your thought process on your "need the money in 5/4/3 years" discussion. While I agree that the portfolio can go down when you have 3 years left, you likely made money in those first two years. As a result the total return for the 5 years period would be positive (based on past performance in the market of course.) You can certainly make changes to your mix, but I am much more of the mindset that you just set your plan and avoid looking at it to help prevent you from making emotional decisions.

[aliox]

I have subscribed recently to your channel (a few weeks ago) and love it! I have watched a LOT of your videos already. I should be retiring within the next 6 months and I will likely be doing the 3 fund portfolio you have talked about thru Fidelity. But the confusion I have is that with both traditional and Roth IRA's (2/3rds in Roth and 1/3rd in traditional) how do you split the 3 fund portfolio up?? Do you do the 3 three funds with the same percentages for both IRA's separately? I Am not sure the best way to send this type of question to you, the only other place that mentioned your email was for "business" purposes, so did not want to abuse that.. I work so am not able to attend your live interactive lectures.. I will when I am retired! I also would like more information about how exactly to take money out once you have retired, it seems pretty confusing!

[rabihah]

Love your videos. I am not sure of the need to rebalance within the 5 years. This would only be needed if you care about drawdown within the 5 years. If however, you are only interested in the final sum after 5 years, I think you can keep the 50% asset allocation throughout the 5 year period and you would not increase the risk of a loss after the 5 years are up. Thanks again for very insightful videos.

[brianjp]

Great video! This is a concept I’ve been toying around with in my head and you presented it very succinctly. Of course rebalancing is assumed in these scenarios to maintain your determined AA. That being said, in a taxable account would you limit yourself to rebalancing only once a year to avoid short term capital gains taxes? I guess the scenario in which you would be dealing with potential short term capital gains tax is if stocks did amazing one particular year and you have the urgency to adjust AA before the end of the year (for whatever reason). All other scenarios should be fine. If stocks crash and you would be shifting money from bonds to stocks you are unlikely to have much capital gain, if any, from your bond fund. Thanks Rob.