If you are investing for a goal within three years, there are a few strategies available. Your choice will ultimately depend on your risk-taking capacity, liquidity needs and financial goals.
Todd recommends investing in stocks – with caution, though; keep some bonds as part of your portfolio to reduce risk and increase returns.
High-Yield Savings Accounts
A high-yield savings account offers a safe, secure way to build wealth. Unlike stocks which may experience periodic dips or cause losses during a bad year, annual profits from savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC).
Start saving today; opening a high-yield savings account online should be simple. Simply provide your contact info, social security number, and one form of government identification such as driver’s license or passport to get going!
Before choosing an account, it’s essential to carefully compare rates and terms. Some high-yield accounts only exist for limited times with variable interest rates – meaning their annual percentage yield (APY) may change at times. Also, some accounts require direct deposits or monthly fees – it is wise to read any fine print carefully as any misleading advertisements could end up costing you money in the form of hidden charges or fees.
When investing money for short-term needs such as buying your child a bike for school graduation or purchasing a car in three years’ time, an investment plan that provides safe liquidity benefits may be the right fit. POTDs may provide such guarantees and interest payments upon maturity of an investment tenure and return of principal at maturity.
Treasury bills or near-maturity corporate bonds offer another alternative for investing money. These plans help banks, companies, and the government maintain liquidity while offering relatively low risk with relatively lower returns than long-term investments such as stocks or mutual funds.
Tax-Free Savings Accounts
Tax-free investment plans can be an excellent way to meet short-term financial goals like home down payments or an emergency fund.
These accounts allow you to invest your money tax-free, so that you can reach your financial goals more quickly. But keep in mind that investments made within a TFSA must align with both your financial goals and risk tolerance.
If you’re saving for an emergency fund, stocks should not be among your investments. But if you’re seeking more interest than an average savings account can offer, there are a variety of alternatives to consider that could help quickly grow your money – these include National Savings Certificates from post offices with low risks and high rewards; as well as recurring deposits with an attractive return rate – or saving over three years by investing small amounts at different intervals instead of investing one lump sum sum at once.
Mutual funds allow investors to pool their money together with other investors and own shares in various assets, from stocks and bonds to real estate investments. A fund’s management company selects stocks and bonds based on market research, your goals and risk tolerance – passing any income such as dividends and interest received back as distributions; upon selling an increased-value security for sale back out as capital gains which they pass along as distributions to shareholders.
Investors have an array of mutual fund options at their disposal when it comes to mutual funds, from stock funds (commonly referred to as equity funds), bond funds and balanced funds with both stocks and bonds (“balanced funds”). Be wary of fees such as management or 12b-1 fees that could reduce returns; typically these charges are included within an expense ratio calculation of each fund.