Comments on: What To Do with 3-5 Year Money

By: Manshu

Manshu — Sun, 08 Mar 2009 19:15:37 +0000

If you need that money to spend, then you are better off staying away from the market is what I’d think.

By: Mike

Mike — Thu, 05 Mar 2009 16:14:54 +0000

Thanks to all three of you for contributing suggestions. It looks like–while the specifics varied somewhat–we’re all on a similar page here: Keep stock exposure to a minimum.

By: the weakonomist

the weakonomist — Thu, 05 Mar 2009 13:09:11 +0000

I would suggest a 3 year CD. This will lock up the money and the user won’t be tempted to use it for anything.

But if we want to play around a bit with markets, perhaps a target 2010 ETF or mutual fund.

By: Paul Williams @ Crackerjack Greenback

Paul Williams @ Crackerjack Greenback — Thu, 05 Mar 2009 03:05:08 +0000

If you want to be reasonably sure you won’t lose money over any 3-5 year period, your best choice is to have 0-10% in stocks (a diversified portfolio) and the rest in an equal split of short-term and intermediate-term bonds.

Mike, if you remember my posts on diversified portfolios in December, one of the things I looked at is how often the portfolios would lose money over different time periods. A 100% bond portfolio never lost money over any 3 year period since 1927, and a 90% bond portfolio (10% stocks) never lost money over any 5 year period since 1927. During any consecutive 3 years from 1927 to 2007, the 10% stock portfolio lost money 2 times out of a possible 79 periods. The two worst 3 year periods were 1929-1931 and 1930-1932, when the portfolio lost about 2.7% and 0.3% of its original value, respectively.

So I agree with you, for money you’ll need in 3-5 years you should only put a small portion in stocks (<10%). The rest could be easily split between a short-term and intermediate-term bond fund (Vanguard has one for each).

By: Boyan Penkov

Boyan Penkov — Wed, 04 Mar 2009 22:50:33 +0000

What about this?

30%: Short-term corporate bonds
30%: Inter-term corporates
40%: Balanced index (40% total bond index, 60% total stock index).

The net allocation is thus: ~75% bond, ~25% stock.

There is some volatility in bonds, so keep your 1-2 year money in CDs or liquid, high-rate savings accounts or (insured) money market accounts.