TIPS FOR SHORT-TERM SAVING

Usually when the topic of of savings come up, people immediately think of the word retirement and other large investments. However, what if you wanted to spend on something that will come up at a nearer date? Let's say you want to purchase a vacation house or travel outside the country, a couple of years would probably be enough to complete your budget for it. Here are a few guides to keep in mind to meet your small scale savings target.

Consider the involved risks When it comes to long-term nest eggs, an adviser would typically recommend a well-diversified portfolio with at least 60% of stocks. This kind span would also give you plenty of time to recover your holdings in case the stock market suddenly plunges.

On the other hand, for not-so-distant future intentions, it would be wiser to avoid high-risk stocks because a single decline in the market may rob you of all your hard earned cash. Three to five years is highly unlikely to be an ample period for your money to bounce back, so you might as well bid goodbye to that Europe trip.

Cross out savings account You may think that since stocks are too delicate for small scale allocations, a better option would be opening an account for your stashed cash instead. While is true that this strategy is safe, you will not really get much from it considering its little interest. As of last year, a study on the average rate of a US account revealed a meager 0.06% for your entire balances. This may be a bit more than simply stashing your money under the bed, but it will not really help you cope up with inflation.

Opt for bonds A better choice would be to take a look at bonds. These are mainly debt investment in which you will be lending to corporate or government institution. These will be utilized by the companies for fundraisings to finance projects in which you will earn a fixed interest rate on a bond. One benefit of this are the high rates and the ability to select bonds that will mature at a certain date in the future, which offers a good amount of security for an individual.

Trying a new product Ever heard of the target-maturity bond ETF? It’s process is highly similar to the traditional exchange-traded fund, differing only in the sense that all bonds mature together in the same year. After this, the proceeds are moved to cash equivalents. Meanwhile, when they reach their maturity dates, the value is brought back to the investor. This is perfect because of its high liquidity and tax efficiency. Plus, it gives you a certain time for your principal to be returned.