6 best ways to invest your money if you’ll need it in the next 5 years
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Whether you’re saving for a car, a house, a wedding, or a college degree, time is always an investor’s greatest asset. If you are looking to invest for a major purchase in five years, congratulations on your planning – now, where and how to invest?
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The following is a list of investment ideas that could help your little pile of money grow and become strong over the course of half a decade.
Some are more aggressive investments for those who are willing to take more risk for a potentially bigger payoff. Others are safer, more conservative bets designed to protect your capital and generate lower payouts. The list also includes a few alternative options that are further removed from the mainstream, but gaining traction among investors who want to diversify and spread their money.
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A Roth IRA is one type of account – it’s not an investment in itself – but it tops the list on this list because it’s a great, underrated, and versatile long-term savings vehicle. . Unlike traditional 401 (k) and IRAs – which are only meant for retirement savings – Roth IRAs are funded with money already taxed and can therefore be withdrawn at any time without penalty.
As CNBC points out, this distinction makes a Roth IRA a great choice for saving for a mid-term goal of around five years. When you’re ready, whether it’s five or 50 years from now, you can withdraw what you need and leave what you have left to keep growing in a tax-sheltered account.
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Index fund ETFs
If you’re new to investing, ETFs take the guesswork out of the stock market and allow you to spread your money over tens, hundreds, or even thousands of stocks with the purchase of a single stock. You can buy and sell them in the open market just like stocks in Amazon or Coca-Cola, and they don’t come with the expenses or long-term commitments associated with mutual funds.
There is a match for just about every investor. If you can imagine, there is probably an ETF that follows it, although the most popular ETFs track major benchmarks like the S&P 500 and the Nasdaq. With a long-term goal of five years, index fund ETFs are as close to a make-and-forget investment as you’ll find in the stock market.
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You’ll never get the kind of return from bonds that you might get in the stock market, but while bonds aren’t completely risk-free, they’re a lot safer than stocks, especially if you’re on a five. -five. annual calendar that doesn’t leave much time to recover from a major stock market crash.
If you’re looking to defend your capital with a relatively safe investment that offers modest returns to offset inflation, consider the different types of bonds:
- Municipal bonds: Muni bonds are issued by state and local governments and often have short-term maturities, such as two or five years. They are generally tax exempt, but they pay lower returns, making them a favorite among investors in the higher tax brackets.
- Corporate bonds: Corporate bonds are taxed, but they make up for it with higher yields. This makes them better for low-income investors whose tax rates are insignificant enough that the higher yield is worth it.
- High yield bonds: These bonds offer a larger payout, but they have lower credit ratings and therefore carry a higher risk.
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Backed by the full confidence and credit of the United States government, Treasuries are among the safest investments in the world. Treasury bonds typically have 30-year maturities, which drops them off this list. Treasury bills also have longer maturities, around 10 years. But bonds and notes aren’t the only treasury bills. Other options include:
- Inflation-protected Treasury securities: TIPS, which offer five-year maturity options, are adjusted based on the Consumer Price Index. They pay interest every six months.
- Goods of treasure: Treasury bills are short-term investments with maturities ranging from a few days to a year.
Certificates of deposit
Like bonds and treasury bills, CDs are known for their safety and security – and they happen to be generally offered for terms of five years. Essentially a long-term savings account, CDs require you to deposit a predetermined amount of money in a bank for a predetermined amount of time. When the CD matures, the bank will reimburse you for your principal as well as a small payment of interest.
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Are you looking to break out of the mainstream and take more risk in pursuit of outsized gains? Consider these alternatives outside the box.
- Peer-to-peer loan: When people or businesses need loans that are too small for banks to touch, or if they are not good candidates for traditional financing, they go to sites like Kiva, Peerform, and Prosper. There, “microlenders” like you analyze their risk and finance their loans on the promise of repayment plus interest.
- Crowdsourced real estate: Platforms like Fundrise, Yieldstreet and CrowdStreet offer the possibility of investing in real estate without owning property. Much like P2P loans, micro-investors can pool their money to help finance real estate projects, and in return they get some of the profits, but they also take some of the risk.
- Cryptocurrency: Anyone who tells you that they know where the cryptocurrency will be in five years is just not being honest. When it comes to Bitcoin, Dogecoin, Ethereum and the rest, the only real guarantee is volatility. But if you can endure five years on the market roller coaster, the past decade has proven that crypto fortunes are here to be made.
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Last updated: October 12, 2021