what should i do to get a conservative decent return by december?

[Ender510]

I would like to buy a car in December.. what is the best way to get a decent return by then? I can throw in about $2-$2.5k a month.. where else to put this besides my checking account??

How do CDs @ banks work? How much are they to buy and how long do u have to keep them invested there?

 

[StageLeft]

In Canada we have GIC's Governemtn investment Certificate I think - the return sucks, like 4.5% or so...but its better than checking. Go into a bank and they'll know what to do. Obviously if you're going to need this money in 9-10 months buying stock is risky so you need something pretty secure...with GIC's at least you can get 6 month terms, 1 year terms, 5 year etc. so you should be able to get something reasonable.

 

[vi edit]

Around here, CD's are sitting around 5.75% for a six month. Basically works out to be about 3.35% earnings on your money. CD's are figured on an annual basis, so a six month CD at 5.75% would need to be divided in half.

Over the years a mutual fund would have been a pretty sure way to go with it, but at this point in time, you'll have to look pretty hard to find a fund that is doing well. Usually funds are about as "conservative" as you can get, but right now, they are hurting pretty bad as with everyone else

 

[Ender510]

So if I started investing in March's paycheck which comes @ the end of the month.. that would be 6 months from April.. but as the time gets closer, meaning from august/sept on, 6 months would no longer be valid because i would want to utilize the money in december.. any other ways to get a decent return by dec with $2-$2.5k going in monthly?

 

[woodie1]

Check out Money Market Funds. Many pay over 5% and are very liquid. You have access to your money any time without penalty unlike a CD.

 

[N8Magic]

Psst.

Its Guaranteed Investment Certificate.

 

[kranky]

I don't think you have any other choice but a Money Market Fund.

 

[Hamburgerpimp]

NOT THE STOCK MARKET. 6mos or 1year CD or Money Market. Or buy a house here in California!

 

[Rio Rebel]

No, buy TECH stocks!

LOL

Anything other than a CD will carry risk. I don't think there's any way around the principle of higher risk = higher return.

 

[glenn1]

look into what in the investment community are called zero-coupon bonds. here's a Link which describes them... perfect if you have a set investment time horizon, and want fairly decent returns with effectively zero principal risk

 

[satori]

Well, you could do what I did and open up an account at someplace like ETrade, Scottrade, Netvest, etc... And just let it sit and collect the 5%. I opened my account last November, or something like that and have just let the money sit so far. If I'd really bought anything since I opened it, I would've been burned (with a few exceptions). I've only got one friend so far that's been making good money in the market, and he's basically been shorting everything like crazy for the past couple months.

 

[kranky]

glenn1, zero-coupon bonds are extremely risky unless you hold them to maturity, and the farther away the maturity date the greater the risk. The value of the bond varies tremendously as interest rates change. If interest rates drop, the value of the bond will drop a lot - too much risk for a short-term investment. The only way to eliminate the risk in this case would be to buy a 9-month zero (if there is such a thing), and the risk is still there in the event you have to sell before maturity. A money market fund eliminates that risk.

 

[glenn1]

Kranky, you make some valid points about volatility of zeros if not held until maturity, but that's the whole point. He would be holding until maturity.

And bond values go up when interest rates go down, not vice versa. The risk of a zero, prior to maturity, would be that the market value of the zero would be adversely affected by a rise in interest rates.

Agreed, a zero is not necessarily the best choice for Ender, but it was one more choice to consider. Only he can figure out what's best for his particular circumstances

 

[Ender510]

Thanks everyone for the responses.. here are the facts of my situation:

- Need to pull the money out in Dec/Jan for sure (needs to be fairly liquid)
- Can only deposit $2-$2.5k monthly, starting may or june (which means I can't just buy a huge $15k bond because I am making incremental deposits)
- Want to receive decent return, more than what it would do in a simple savings, checking account.

I will be using this money to pay off my mother's car loan as a xmas/bday gift.. so that's why it's gotta be liquid.. sounds like Money market is the way to go.. now, any suggestions to that? Should I shop around on the internet? Where do I start? Do local banks, BOFA, wells fargo offer decent rates? Or would it be better at credit unions w/ dividend payments? Either way, how much tax would i pay on this interest anyway and how much more of a gain would I get? A few hundred? $600? Thanks again everyone..

 

[kranky]

glenn1, I knew what I was thinking, but the keyboard didn't follow! Of course you are right - the value of a zero will drop when rates rise. I'll blame my voice-recognition software - I said "If interest rates go up" but it typed "If interest rates drop". (Well, if I actually had voice-recognition software, that would almost be believable - doh!)

The other point I didn't make well (geez, what a crummy post that was on my part) was that even if zeros are available with that short of a term, it wouldn't be worth the additional risk. With a MMF, there is no principal risk even if he needs the money sooner. With a zero, if rates go up, he would be locked in until maturity to avoid a loss. Realistically, though, with a zero of that short of a term the volatility wouldn't be very large since the time to maturity is comparatively short. We're agreed on that, I'm sure.

Thanks for catching my error!

 

[phantasm]

Check out Vanguard's Prime Money Market Fund. They have $600B in assets and the return is decent (6.5% last year or so). Another safe fund for 1+yr outlook is the Vanguard Wellington. Since 1929 (roughly) they've averaged 12% or so.