Author Topic: Looking for a place to stash a few K for 1-2 years  (Read 1234 times)

rach

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Looking for a place to stash a few K for 1-2 years
« on: November 13, 2012, 03:37:10 pm »
I finished grad school earlier this year and am about 6 months into my first proper job.  Until now, I have been saving my cash in a credit union account, which initially yielded 2.24% and has now dropped to 1.75%.  However, the credit union account only pays 1.75% on the first 15K, anything over gets 0.5%.  I have just gone above 15K and will continue to go above in the future.  I save approximately 1-2K per month.

I'm looking to save the money for a short time period (18 mo - 2.5 years), which is how long my current job will last for.  After that, I may be abroad (no idea where) and I'm a non-US citizen so I'm looking to avoid leaving accounts open in the US if I'm not a resident for tax purposes.

I checked out Vanguard and found their "Target Retirement Income Fund (VTINX)", which has good yields and seems fairly stable. 

https://personal.vanguard.com/us/funds/snapshot?FundId=0308&FundIntExt=INT#hist=tab%3A0

Does this seem like a terrible idea given that I'll want my money back in ~2 years?  I'm looking for somewhere with reasonable yield but stable over a short-ish time period.  This seems to meet the requirements, based on their reported past performance.  I would probably invest 1K initially, then drip-feed in a couple/few hundred per month after that.  I know that there is no guarantee that the value of the account will go up, I'm willing to tolerate some risk.

Any and all advice appreciated but all other suggestions must beat 1.5% yield because that's what my student loans are accruing... I'm trying to outpace them.  Thanks!

iamlindoro

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #1 on: November 13, 2012, 04:30:37 pm »
For my money, equities by way of an index fund/ETF.  VTSAX/VTSMX.  Especially given you can tolerate some risk and given the long term average return on the market as a whole is closer to 8-10%, this is a great way to go.  It's also a fantastic fund to stick with over the longer term.

Remember, when the market goes down, don't freak out.  Shares are on sale!  What a great time to buy more!  Also, with the market being down as of the writing of this response, you can probably look forward to modestly nice returns in the near term too.

grantmeaname

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #2 on: November 13, 2012, 07:10:27 pm »
What do you need it for in 1.5-2.5 years? Do you have a specific use in mind such that volatility near that date would actually be a problem for you?

KingCoin

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #3 on: November 13, 2012, 07:30:54 pm »
What do you need it for in 1.5-2.5 years? Do you have a specific use in mind such that volatility near that date would actually be a problem for you?

+1

You really need to define a tolerable draw-down when analyzing investment opportunities (or asking advice). Unless you're willing to sacrifice liquidity and dig into some esoteric investment opportunities, expected return is going to be pretty directly correlated to volatility. I'd suggest that a short duration investment grade corporate bond fund will give you the best chance of 1.5%+ returns with minimum risk.

A word of warning: treasuries and corporate bonds have had an almost unprecedented bull run. Many of these funds will look to be low risk given their 5y return profile but, in fact, they may carry a ton of interest rate risk as well as credit risk. This is one place where I'd caution that past performance does not guarantee future performance.

rach

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #4 on: November 13, 2012, 09:59:32 pm »
The idea would be to take the money with me when/if I leave the US.  It depends on where I end up but there's a risk of double-taxation on any gains, plus the added hassle of multiple tax returns if I leave it here.  Also, depending on the length of my future job, I might want the money for a down payment on a house.

As far as drawdown goes, I can tolerate losses, 10% wouldn't be catastrophic.  This is my first foray into stocks or bonds of any kind and I'm willing to accept that it may go wrong.  That said, I'd like to make the best decision possible with this.

Looking at bond funds on Vanguard, it seems the optimal option is VFSTX - short-term investment-grade fund investor shares.  It seems likely to me that interest rates will rise in the next year or two, which will cause the value of the bonds to decline.  Given this, is it wise to invest in a fund that is exclusively bonds?  I understand the attraction given the low risk, but I thought a more diversified fund with a little more risk might be a wiser choice.

KingCoin

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #5 on: November 13, 2012, 11:25:37 pm »
I'd just invest in a standard asset mix (e.g. 40% US Stocks, 20% Foreign Developed Stocks, 10% EM Stocks, 10% REITS, 10% TIPS, 10% Treasuries) or a fund that does similar. A portfolio like this could definitely draw down more than 10%, but since you don't have any near term obligations (a house purchase can definitely be delayed for a year or two if need be), there's probably no reason to be excessively cautious. If you're down 20%, just sell and reinvest in the same assets wherever you end up. Is there a reason you don't just open an investment account in your country of citizenship? It might be worth talking to an international bank like HSBC to see if there's a solution that allows you and your assets to be mobile without complicating your tax situation.

VFSTX only yields about 1%, so you're probably better off paying down your loans than going that route, unless you're trying to build up more liquidity.

rach

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Re: Looking for a place to stash a few K for 1-2 years
« Reply #6 on: November 14, 2012, 10:39:07 am »
I contacted Fidelity in the UK to see about investing in Vanguard funds and was told I couldn't because I'm not a UK resident.  As for international investments, I have looked but from what I've seen the TERs are off the wall and some have massive initial charges of 5%.