Decision Paralysis re Short-term Investing

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Mudpuppy
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Decision Paralysis re Short-term Investing

Post by Mudpuppy » Thu Dec 15, 2011 4:03 pm

I've recently come into a very modest inheritance. Most of the inheritance is being placed into my retirement accounts via the standard trick of increasing deferrals then supplementing living expenses from the inheritance. I've also used a portion of it to max my I Bond purchases for the year by opening up a TD account and buying electronic I Bonds. However, I want to take a portion of the inheritance to shore up my car replacement fund. My current car is about 12 years old, but I've only recently been on the path of fiscal responsibility, so my current car replacement fund is very small (up until a couple years ago, I used to think I'd just use my salary increases to pay for another car loan). I want to bring the car replacement fund up to about $17-20k.

My decision paralysis comes in where to "park" this money until it is needed. Currently, the car replacement fund is just a small money market account. But the returns are as paltry as the current balance of that account. Given that the car is 12 years old, I honestly don't know how long it will be until I need to replace it, which is the cause of most of my decision paralysis. If I knew I'd need it within the next year or two, I'd be more prone to go for a high-yield savings account or low-penalty CDs just for the sheer liquidity. But it could last another 5 years, where more investing options would come into play. I could also co-mingle the liquidity of the portion I'm redirecting into retirement plans with any immediate needs for a new car (like the current one keeling over on the side of the road tomorrow) and put all of the car replacement fund into some intermediate term taxable investing.

Perhaps it's just my recent sleep deprivation, but I'm having difficulty choosing between the options given the uncertainty of when I'll need the money. Any thoughts?

matthylland
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Re: Decision Paralysis re Short-term Investing

Post by matthylland » Thu Dec 15, 2011 4:13 pm

In my personal opinion, because of the nature of possibly needing that money relatively quickly. I would think a money market/"high yield" savings maybe a better choice. Something that you can write a check against at a moments notice if you need to.

Any credit unions available to you? mine pays .8% for money market, which isn't bad after you consider what your effective yield on a CD may be after the penalty. i don't have any experience with an online high yield account... I am guessing they give checks for the accounts.

In the end, it seems like a very small difference in yield, and having your money outside of a CD seems (to me) less hassle for little cost.

staustin
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Re: Decision Paralysis re Short-term Investing

Post by staustin » Thu Dec 15, 2011 4:55 pm

If you're vehicle is already 12 years old, with higher mileage, think you're on the right track with parking a car replacement portion in a money market account. I always thought that if I could get 10 years out of a vehicle i was doing fairly well. But, I have a somewhat long daily commute.

You might consider the american express personal saver. A decent rate and respectable customer service.

Mudpuppy
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Re: Decision Paralysis re Short-term Investing

Post by Mudpuppy » Thu Dec 15, 2011 5:17 pm

The current money market is at a credit union, although they offer a scaled rate based on the balance and the rate at that level is 0.25%. The AmEx personal savings account actually is the high-yield savings account I was considering, since I've had good experiences so far with my AmEx Blue Cash card. I know Sally Mae has a higher yield, but I have an emotional aversion to Sally Mae after seeing how predatory they were to some of my graduate school friends.

And while the car is 12 years old, it is actually low mileage. I've managed to live within 10 miles of school and work during the entire time I've had it, so it only has around 80,000 miles. It's a Honda, so it could get many more miles before it breaks down. This is the cause of much of my uncertainty of how long it will last.

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dave66
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Re: Decision Paralysis re Short-term Investing

Post by dave66 » Thu Dec 15, 2011 5:27 pm

How about Vanguard Short-Term Treasury maybe? Fairly solid.

john94549
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Re: Decision Paralysis re Short-term Investing

Post by john94549 » Thu Dec 15, 2011 7:29 pm

The amount you have in mind (<$25K) might be appropriate for a "Rewards Checking Account." Do a little research and compare rates and requirements over at Ken's blog (depositaccounts.com). You might be able to find a nationally-available account (or a local deal in your area) with an interest rate north of 2%. Some deals are better than others. The unifying feature is the requirement to use a fee-generating (to the credit union or bank) card for a minimum number of transactions per month, which can be a pain if you are adverse to plastic. But, if not, it's worth considering.

Mudpuppy
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Re: Decision Paralysis re Short-term Investing

Post by Mudpuppy » Fri Dec 16, 2011 6:32 pm

I don't want to go through the hoops of rewards checking, so it seems the majority are pointing towards a high-yield savings account like AmEx personal savings. Now I need to go to the credit union and find out the routing/account number for the money market account so I can get the funds transferred.

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