Best Bets for Pretty Short-Term Investing?

The Guy warmed my heart recently and asked for my advice on where he should put his money. Due to a pretty rich (and completely unanticipated) tax refund, as well as some birthday money he received in January, the Guy confided that he’d had around $10,000 just sitting in a CHECKING account for awhile.

Gasp…. Scream…yelp…. sigh, recover.

Once recovered, I tried to put my best diagnosis skills to work.

First, I sent him photos of super expensive handbags I’ve been admiring, to give him some inspiration for my upcoming birthday (see L.A.M.B. bag at right!)

Then, I tried to consider all of the various variables he could contend with:
1. At least, getting that money in a high-interest savings account
2. Investing in CD’s
3. Investing in mutual funds, etc.
4. Paying off more of his mortgage early.

I researched a number of scenarios for him, taking all of this, plus our own situation and personalities into context. We still have a good bit of financial insecurity coming our way with me going back to school, The Guy potentially finding a new job and moving out there with me, and not knowing whether or not we will be able to rent our current condo, and if so, for how much? And what sort of costs are involved with being absentee landlords, etc? How much more expensive will our new lives be in California? That said, it’s tempting for me to recommend paying off more of the mortgage, given the fear that the monthly payment might become more unmanageable once we’re in a new set of circumstances. However, I’m pretty sure his mortgage rate is fairly low, when compared with what he could achieve with investments. Plus, he still has a lot of life left on that mortgage, so for tax purposes, the interest would be deductible.

This is in theory a fantastic time for a relatively young person like The Guy to invest in the stock market, given our long time horizons, but with all of the uncertainty ahead of us, does he really want to say sayonara to that extra cushion, for the long-haul? I think not. Plus, his retirement savings is for all intents and purposes, just fine. He doesn’t NEED a bolster there.

Which brings me to CD’s. For the Guy I’m ultimately recommending a laddered approach with CD’s, so he can still keep his extra cash relatively liquid until we’re re-settled again in the South Bay, and he can earn a far better return than keeping it where it is now. CD rates aren’t all THAT much higher than high interest online savings accounts right now… but higher is higher. Right now, it looks like his best rate out there right now with a decent time horizon is 3% on 14 months at Charter Bank. Beyond that GMAC has it on all time horizons, but their one year is 2.65%. HSBC is another good one at 2.3% for a year. I’m thinking he should put half his moola in the year long time horizon, 25% in 6 months and the last 25% in 3 months, and then keep reinvesting at better rates, since we’re (God help us) hopefully moving into a rising rate economy sooner or later.

What do you think? Good advice? Anything I’m missing in the prognosis?

Evaluating My Portfolio of Assets

So, I did it... I took the plunge and upped my automatic savings by another $100. I decided I would increase my cash-value life insurance contributions so that I can hopefully cover this no problem, even when I'm in grad school. I think I may even be able to do more... but I want to wait it out and see.

The one blessing of not having a lot of money in these times, as I told my advisor yesterday, is not having to worry so much about the right balance of your portfolio. When you only have a little teensy bit in the market, there’s just not that much nuance you can introduce. But for the future, I do want to re-evaluate my entire portfolio of assets and get a sober assessment of the right balance. I recently found a quick list of resources to help you do just that on your own.

Step 1: Break down all of your assets into three major categories; stocks, bonds and cash.
Step 2: Use Morningstar’s free Instant X-Ray tool (Morningstar.com/goto/instantxray) to display the assets in a pie chart.
Step 3: Decide your target allocation and shift from investments you’re overweighted in to those you’re light on.

Rinse and repeat annually. I think the categorization will be enlightening for me for instance, because often, even when I have my money in many different places, they all might fall into the same category.

A Different Kind of Risk Aversion

Like many of you also in your twenties, I've been watching the DJIA plummet with concern, but not panic. All of my money is staying right where it is in my Roth. And if I have extra dollars, I'll be plunking more in there to lock in these bargain basement prices for index funds. But, I think these kind of tumultuous times have made me realize I'm much less tolerant of risk in other areas of my life.

For example, an opportunity just came up for me to leave my current safe, bottom rung of the ladder, corporate job to do something I really care about with a social enterprise on another continent. Despite the perfect fit, these times make it too scary... instead I'm choosing the safer* step of staying here in the States with a Guy I love, continuing to apply to business school, and trying to get excited about new things in my current job, rather than risking it abroad.

I think it IS the right decision for me, right now. But I wonder if I'd made a different decision were the market not disintegrating...


*Looks like getting an MBA is not the safest option right now either: NYTimes: Credit Crisis is Bad News for MBA Students