How to invest $10,000 for 3 years

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Blue456
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How to invest $10,000 for 3 years

Post by Blue456 » Tue Jun 11, 2019 7:47 pm

I would like to invest relatively small amount of money $10,000.
Here is what I am looking for:
- Short term 3 years only
- 1-2% chance that I will need the money sooner than 3 years
- Gain must be better than 2.7% since my bank offers me a CD at this rate
- I would prefer to stay with BoA ME if possible
- I don't want to loose half my money, so nothing too risky

buhlaxtus
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Re: How to invest $10,000 for 3 years

Post by buhlaxtus » Tue Jun 11, 2019 8:06 pm

I would never use anything but a money market fund or CD or maybe savings account for this amount and this time period. You don't get to both maintain principal and select your return, it doesn't work that way. If you are willing to risk principal, how much? Then select a stock/bonds/cash ratio that will probably give you the risk/return profile you specified.

... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
Last edited by buhlaxtus on Tue Jun 11, 2019 8:08 pm, edited 1 time in total.

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welderwannabe
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Re: How to invest $10,000 for 3 years

Post by welderwannabe » Tue Jun 11, 2019 8:07 pm

Look at ICSH or something equivalent.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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arcticpineapplecorp.
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Re: How to invest $10,000 for 3 years

Post by arcticpineapplecorp. » Tue Jun 11, 2019 8:29 pm

buhlaxtus wrote:
Tue Jun 11, 2019 8:06 pm
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
if you were looking through his history and saw something about 2.5 mil...that was a post by a mrdigweed that the OP was responding to. I don't see anything in blue456's 6 posts that allude to him having millions in assets, unless I missed something (a distinct possibility).

blue456 2.7% sounds fine for the short term. How much more than 2.7% were you hoping to make? Why? Do you need to?

risk and return are inextricably linked as buhlaxtus stated. You could get higher return, but you'd be taking more risk. Since you need the money in the short term, you can't afford to take risk (i.e., what would you do if the money isn't there when you need it?). So we have to accept lower returns for the sake of safety. There's no way around that. If there was, everyone would get higher returns and take no risk, right?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Blue456
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Re: How to invest $10,000 for 3 years

Post by Blue456 » Tue Jun 11, 2019 8:43 pm

buhlaxtus wrote:
Tue Jun 11, 2019 8:06 pm
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
I don't have millions in assets. I apologize if I gave you such perception.

buhlaxtus
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Re: How to invest $10,000 for 3 years

Post by buhlaxtus » Tue Jun 11, 2019 8:45 pm

Blue456 wrote:
Tue Jun 11, 2019 8:43 pm
I don't have millions in assets. I apologize if I gave you such perception.
Sorry, blame my old eyes :) Yes, the sad truth is that you have to take what's on offer for risk vs return. For this situation I would just use a money market, myself. In fact I literally am at this moment.

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Blue456
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Re: How to invest $10,000 for 3 years

Post by Blue456 » Tue Jun 11, 2019 8:51 pm

arcticpineapplecorp. wrote:
Tue Jun 11, 2019 8:29 pm

blue456 2.7% sounds fine for the short term. How much more than 2.7% were you hoping to make? Why? Do you need to?

risk and return are inextricably linked as buhlaxtus stated. You could get higher return, but you'd be taking more risk. Since you need the money in the short term, you can't afford to take risk (i.e., what would you do if the money isn't there when you need it?). So we have to accept lower returns for the sake of safety. There's no way around that. If there was, everyone would get higher returns and take no risk, right?
Right I understand that. I am less knowledgeable than average person on Bogleheads. I wanted to check with community here to make sure I am not missing on any better returns with relative low risk. I get 2.7% return on a CD. The returned is small but principle is guaranteed by US gov't. I don't mind risking 15%-20% of principle for better return.

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willthrill81
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Re: How to invest $10,000 for 3 years

Post by willthrill81 » Tue Jun 11, 2019 8:52 pm

With this amount of money and the returns involved, don't overthink this. Take out the 2.7% CD and call it a day.

If you wanted to attempt to juice the returns a little, you could put half of it in something like Vanguard's Wellesley Income fund (35% stock / 65% bonds), but with this amount over just three years, I wouldn't bother.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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arcticpineapplecorp.
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Re: How to invest $10,000 for 3 years

Post by arcticpineapplecorp. » Tue Jun 11, 2019 9:12 pm

Blue456 wrote:
Tue Jun 11, 2019 8:51 pm
arcticpineapplecorp. wrote:
Tue Jun 11, 2019 8:29 pm

blue456 2.7% sounds fine for the short term. How much more than 2.7% were you hoping to make? Why? Do you need to?

risk and return are inextricably linked as buhlaxtus stated. You could get higher return, but you'd be taking more risk. Since you need the money in the short term, you can't afford to take risk (i.e., what would you do if the money isn't there when you need it?). So we have to accept lower returns for the sake of safety. There's no way around that. If there was, everyone would get higher returns and take no risk, right?
Right I understand that. I am less knowledgeable than average person on Bogleheads. I wanted to check with community here to make sure I am not missing on any better returns with relative low risk. I get 2.7% return on a CD. The returned is small but principle is guaranteed by US gov't. I don't mind risking 15%-20% of principle for better return.
You originally said you didn't want to lose half your money. You'd only lose half your money if you invested 100% in stocks and stocks lost 50%.

So by this logic, if you invested 100% in stocks and the stock market DIDN'T lose 50% you wouldn't lose half your money.
And if you invested LESS than 100% in stocks and the stock market fell by 50%, you'd lose less than 50% of your money.

Understand?

The chart below shows you how much you'd lose (likely) if stocks fell by 50% (from data from the past) with different allocations of stocks and bonds. So if you don't mind risking 15%-20% of principle you could have between 40%-50% in stocks and the stock market could fall by 50% (if it fell by less than that, you'd lose even less than the amounts stated below).

Image

Does that make sense or no?

So Willthrill81 is giving you one option. There may be more.

The flip side is how much greater return will you get for the greater risk? In the short term, it's hard to assess because stock returns are so variable from year to year.

If you want to juice returns above what bonds are offering you'd add stocks. Rule of thumb--over long periods (Short periods, anything can happen. You've been warned) is that for every 10% in stocks you add to the portofolio, you might add 0.5% to your return. So if you plan to get 2.5% from a 100% bond portfolio, than a 10/90 (10% stock/90% bond) portfolio might get you to 3%. A 20/80 might get you to 3.5%. A 30/70 might get you to 4%. Might, might not. Stock returns are thought to be lower than historical due to high valuations. But that's the theory anyway of how the numbers can work.

questions?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
Blue456
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Re: How to invest $10,000 for 3 years

Post by Blue456 » Tue Jun 11, 2019 9:30 pm

arcticpineapplecorp. wrote:
Tue Jun 11, 2019 9:12 pm
You originally said you didn't want to lose half your money. You'd only lose half your money if you invested 100% in stocks and stocks lost 50%.

So by this logic, if you invested 100% in stocks and the stock market DIDN'T lose 50% you wouldn't lose half your money.
And if you invested LESS than 100% in stocks and the stock market fell by 50%, you'd lose less than 50% of your money.

Understand?

The chart below shows you how much you'd lose (likely) if stocks fell by 50% (from data from the past) with different allocations of stocks and bonds. So if you don't mind risking 15%-20% of principle you could have between 40%-50% in stocks and the stock market could fall by 50% (if it fell by less than that, you'd lose even less than the amounts stated below).

Image

Does that make sense or no?

So Willthrill81 is giving you one option. There may be more.

The flip side is how much greater return will you get for the greater risk? In the short term, it's hard to assess because stock returns are so variable from year to year.

If you want to juice returns above what bonds are offering you'd add stocks. Rule of thumb--over long periods (Short periods, anything can happen. You've been warned) is that for every 10% in stocks you add to the portofolio, you might add 0.5% to your return. So if you plan to get 2.5% from a 100% bond portfolio, than a 10/90 (10% stock/90% bond) portfolio might get you to 3%. A 20/80 might get you to 3.5%. A 30/70 might get you to 4%. Might, might not. Stock returns are thought to be lower than historical due to high valuations. But that's the theory anyway of how the numbers can work.

questions?
This is actually very helpful. What is average return on bonds then?

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willthrill81
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Re: How to invest $10,000 for 3 years

Post by willthrill81 » Tue Jun 11, 2019 9:38 pm

Blue456 wrote:
Tue Jun 11, 2019 9:30 pm
This is actually very helpful. What is average return on bonds then?
The Vanguard page below shows historic returns for various AAs.

https://personal.vanguard.com/us/insigh ... llocations

However, bonds are yielding much lower than their historic average right now, and stocks are also expected to have below average returns for the next decade. I wouldn't personally plan on getting more than half of the historic returns associated with a specific AA.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

protagonist
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Re: How to invest $10,000 for 3 years

Post by protagonist » Tue Jun 11, 2019 10:51 pm

buhlaxtus wrote:
Tue Jun 11, 2019 8:06 pm
I would never use anything but a money market fund or CD or maybe savings account for this amount and this time period. You don't get to both maintain principal and select your return, it doesn't work that way. If you are willing to risk principal, how much? Then select a stock/bonds/cash ratio that will probably give you the risk/return profile you specified.
I agree with this.
OP probably won't be able to do A LOT better than what the bank is offering .
If you got, for example, a 3 year CD you may be able to find one offering a bit over 3%.
But consider this. Not including compounding, the difference between 2.7% and 3% of $10K is $30 interest/year.
So if you purchased a CD you might be able to finish with an additional $100 or so before taxes, but you said there is a chance you might need the money sooner. You have to decide if that is worth the risk for less than $100. I would opt for liquidity in this situation and keep the money in the bank.

bck63
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Re: How to invest $10,000 for 3 years

Post by bck63 » Wed Jun 12, 2019 3:36 am

Deleted
Last edited by bck63 on Wed Jun 12, 2019 3:41 am, edited 1 time in total.

bck63
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Re: How to invest $10,000 for 3 years

Post by bck63 » Wed Jun 12, 2019 3:37 am

bck63 wrote:
Wed Jun 12, 2019 3:36 am
[quote=buhlaxtus post_id=4589397
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
I’m reading an excellent book on behavioral economics and this is a perfect example of mental accounting. The author uses an almost identical example.

If OP can reasonably get a little more yield, it doesn’t matter what his net worth is. The value of the extra money he will receive is exactly the same.

I’m not intending to argue. This just reminded me of the book I’m reading.

aqan
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Re: How to invest $10,000 for 3 years

Post by aqan » Wed Jun 12, 2019 4:46 am

Blue456 wrote:
Tue Jun 11, 2019 8:43 pm
buhlaxtus wrote:
Tue Jun 11, 2019 8:06 pm
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
I don't have millions in assets. I apologize if I gave you such perception.
I don’t see anything wrong with being a thrifty millionaire.

Topic Author
Blue456
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Re: How to invest $10,000 for 3 years

Post by Blue456 » Wed Jun 12, 2019 7:29 am

aqan wrote:
Wed Jun 12, 2019 4:46 am
I don’t see anything wrong with being a thrifty millionaire.
I am working on it :).

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arcticpineapplecorp.
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Re: How to invest $10,000 for 3 years

Post by arcticpineapplecorp. » Wed Jun 12, 2019 4:41 pm

Blue456 wrote:
Tue Jun 11, 2019 9:30 pm
arcticpineapplecorp. wrote:
Tue Jun 11, 2019 9:12 pm
You originally said you didn't want to lose half your money. You'd only lose half your money if you invested 100% in stocks and stocks lost 50%.

So by this logic, if you invested 100% in stocks and the stock market DIDN'T lose 50% you wouldn't lose half your money.
And if you invested LESS than 100% in stocks and the stock market fell by 50%, you'd lose less than 50% of your money.

Understand?

The chart below shows you how much you'd lose (likely) if stocks fell by 50% (from data from the past) with different allocations of stocks and bonds. So if you don't mind risking 15%-20% of principle you could have between 40%-50% in stocks and the stock market could fall by 50% (if it fell by less than that, you'd lose even less than the amounts stated below).

Image

Does that make sense or no?

So Willthrill81 is giving you one option. There may be more.

The flip side is how much greater return will you get for the greater risk? In the short term, it's hard to assess because stock returns are so variable from year to year.

If you want to juice returns above what bonds are offering you'd add stocks. Rule of thumb--over long periods (Short periods, anything can happen. You've been warned) is that for every 10% in stocks you add to the portofolio, you might add 0.5% to your return. So if you plan to get 2.5% from a 100% bond portfolio, than a 10/90 (10% stock/90% bond) portfolio might get you to 3%. A 20/80 might get you to 3.5%. A 30/70 might get you to 4%. Might, might not. Stock returns are thought to be lower than historical due to high valuations. But that's the theory anyway of how the numbers can work.

questions?
This is actually very helpful. What is average return on bonds then?
depends. the interest rate changes in the market basically every day by small amounts usually. Historically bonds paid higher rates than currently. After 2008 bonds paid much less than now.

it also depends on whether you hold short, intermediate or long term bonds. They all pay different amounts of interest. The yield on an intermediate bonds right now is 2.122% according to cnbc (10 year bond, U.S.). Not great, but not negative like Japanese and German bonds right now. While the yield is 2.122% that doesn't tell you what the actual return will be, because bonds not only pay interest but can also have fluctuations in principle (up or down) as a result of changes in interest rates. When rates rise, the NAV of your bond fund will fall. And when rates fall, the NAV of your bond fund will rise.

The return so far is 4.88% for the total bond market index fund (see chart below). Why? Because interest rates where higher earlier this year. At some point I believe last year, yields just broke 3% before falling back down. When interest rates fell from 3% down to 2.122% that pushes the NAV price higher and that produces some positive return (in addition to the interest payments along the way. But also realize that now going forward you're getting lower interest payments 2.122% than when interest rates on intermediates were at 3%). Understand, or no?

Image
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

buhlaxtus
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Re: How to invest $10,000 for 3 years

Post by buhlaxtus » Wed Jun 12, 2019 6:26 pm

bck63 wrote:
Wed Jun 12, 2019 3:37 am
bck63 wrote:
Wed Jun 12, 2019 3:36 am
[quote=buhlaxtus post_id=4589397
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
I’m reading an excellent book on behavioral economics and this is a perfect example of mental accounting. The author uses an almost identical example.
Another very interesting topic, indeed. "Mental accounting" is talked about a lot here, but few seem to have a clear idea what that means. The overall management decisions for a $millions lifetime portfolio matter quite a bit. Forgetting them to focusing on fractions of a percent for a $5figures short term commitment could be a big mistake. Who knows where this hypothetical investor's mind is. Certainly not me :)

bck63
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Re: How to invest $10,000 for 3 years

Post by bck63 » Wed Jun 12, 2019 7:11 pm

buhlaxtus wrote:
Wed Jun 12, 2019 6:26 pm
bck63 wrote:
Wed Jun 12, 2019 3:37 am
bck63 wrote:
Wed Jun 12, 2019 3:36 am
[quote=buhlaxtus post_id=4589397
... oh good lord. You have millions in assets and you are nitpicking the return on a 10k 3 year investment? Are you trolling?
I’m reading an excellent book on behavioral economics and this is a perfect example of mental accounting. The author uses an almost identical example.
Another very interesting topic, indeed. "Mental accounting" is talked about a lot here, but few seem to have a clear idea what that means. The overall management decisions for a $millions lifetime portfolio matter quite a bit. Forgetting them to focusing on fractions of a percent for a $5figures short term commitment could be a big mistake. Who knows where this hypothetical investor's mind is. Certainly not me :)
Maybe I have it backwards. Guess I have a lot more reading to do. 8-) The book I'm reading is called "Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics" by Gary Belsky and Thomas Gilovich. They give a bunch of fascinating examples which clarify a lot of behavioral mistakes.

protagonist
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Re: How to invest $10,000 for 3 years

Post by protagonist » Thu Jun 13, 2019 9:34 am

protagonist wrote:
Tue Jun 11, 2019 10:51 pm
buhlaxtus wrote:
Tue Jun 11, 2019 8:06 pm
I would never use anything but a money market fund or CD or maybe savings account for this amount and this time period. You don't get to both maintain principal and select your return, it doesn't work that way. If you are willing to risk principal, how much? Then select a stock/bonds/cash ratio that will probably give you the risk/return profile you specified.
I agree with this.
OP probably won't be able to do A LOT better than what the bank is offering .
If you got, for example, a 3 year CD you may be able to find one offering a bit over 3%.
But consider this. Not including compounding, the difference between 2.7% and 3% of $10K is $30 interest/year.
So if you purchased a CD you might be able to finish with an additional $100 or so before taxes, but you said there is a chance you might need the money sooner. You have to decide if that is worth the risk for less than $100. I would opt for liquidity in this situation and keep the money in the bank.
My mistake. I read your post wrong....thought you were getting 2.7% on a bank account rather than a CD. You may be able to do a little better than 2.7% with a 3 year CD if you want to go to the trouble of tweaking it: https://www.depositaccounts.com/cd/3-year-cd-rates.html

Then again, if you think you might need the money sooner, you might opt to get a shorter CD or bite the bullet and accept less interest in a bank account to avoid a possible early withdrawal penalty. You need to decide how much risk you are willing to take. Remember, 1% of 10K is $100, so fractional differences of a percent annual interest for 3 years probably won't make a huge difference down the road.

bloom2708
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Re: How to invest $10,000 for 3 years

Post by bloom2708 » Thu Jun 13, 2019 9:45 am

Just stick with the 2.7%. The $10k will be there with a little interest on top.

What you are looking for doesn't exist.

It is $270 per year in interest. Less your top fed tax rate and state tax.

You'll probably go out this weekend to eat, have a few drinks, fill up the car with gas and buy something fun and spend more than $270.

:sharebeer
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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