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Best 5-year investment- Bonds? Mutual Funds?

Well, that depends on many of factors: your risk tolerance, state of economy, ect. If you can provide more info, that would help. In general, in a decent bull market, funds always have the ability outperform bonds. Bonds are a safe investment all around, but interest rates on bonds are nothing compared to what some funds can produce.
 
Assuming that you won't touch the money for the five-year period, that's enough time that I'd consider stocks or mutual funds that hold stocks as an investment. Bonds held to maturity are sure money, but since you will be contributing regularly rather than up-front, your later investments will need to be shorter-term bonds (assuming that you want them all to mature by the five year mark) which will pay lower interest rates (and bond interest rates aren't all that great to begin with).

If you don't want to do a lot of financial research, no-load indexed mutual funds are a no-brainer way to invest. Most track a broad section of the market so you will have some diversity, the indexing minimizes fund expenses, and stocks will tend to outperform bonds over time.
 
Originally posted by: phatj
5 years, a small-medium risk tolerance, and about $1300/mo for the 5 years.
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If your risk is small, as in "I want darn-near guaranteed return", then bonds are your bet. Most corporate AAA or AA bonds will be very safe and pay-out coupons twice a year. You could go with riskier bonds for a greater return. Consider municipal bonds from your state for tax-free earnings (lower yield though).

Funds have the chance to blow bonds out of the water on return, but are governered by the volatility of the stock market. If bull market, funds/stocks rule. Bear market, bonds rule. You've got to make the call as to where you see the market headed in the next 5 years.

Since you are not talking about a lot of money here, I would say the "best investment" would be a mutual fund. There are TONS out there and one will surely fit your risk tolerance and contribution allowances. But, that's just me. The next poster may think totally differently. Best wishes! 🙂
 
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