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How to Invest for Short-Term Goals (Less Than 10 Years Out)

How do you save for goals less than 10 years out -- maximizing returns while minimizing risk?Raise your hand if you’re trying to save for something big in the next 10 years.

A new car? Your wedding? The down payment on a home? More education?

Most financial advice tells you to save for two –- maybe three — things: A rainy day (the cash you stash away in your emergency fund), retirement and, once you have kids, their college education.

But what about everything else? Are we just supposed to go into debt to pay for all that stuff?

Why you don’t hear about investing for short-term goals

Actually, I suspect that’s why we don’t see more written about saving for these short-term goals…most people don’t save for them: They finance the new car. They put their wedding on credit cards. They get a bigger mortgage rather than put money down. They get student loans.

But you’re not like most people. You know you’re going to need big money to get married or buy a home in several years, and you want to start planning for that. One problem: Bank savings interest rates suck and stocks can seem risky.

What you can do to save money you’ll need in 10 years or less

The solution for short-term savings is a properly allocated investment portfolio that holds bonds and stocks. You need stocks because bonds likely won’t deliver the kinds of returns you want; you need bonds because the an all-stock portfolio increases your risk of being stuck with a negative return when you need to withdraw the money.

Personally, my wife and I have a savings account with a six-month emergency fund in cash and a non-retirement brokerage account with a mix of index funds: 60 percent stocks and 40 percent bonds. (Our retirement accounts are more aggressively allocated with about 80 percent stocks.) At the moment we’re not saving for anything in particular aside from retirement and our children’s education, but we might adjust that allocation if we need to hit a certain amount of money at a certain time.

Short-term investing with Betterment

I also have an account with Betterment (affiliate – see footnote), an alternative to brokerages that simplifies your investing decisions by giving you just one choice: What percentage to invest in stocks and what percentage to invest in bonds. Betterment then invests your account in low-cost index funds that track the entire stock and bond markets and continually readjusts your holdings to maintain your desired allocation.

For short-term investing, Betterment offers one notable feature: The ability to segregate your savings by goal. Each goal is a bucket of money that you can assign a unique allocation. For example, you could have one goal in which you invest aggressively for a business you might start in 20 years and another goal for your wedding in two years in which you choose a more conservative, bond-heavy allocation.

Short-term investing with mutual funds

If a self-selected mix of index funds is the advanced way and Betterment is the easy way, there’s an intermediate option: Mutual funds designed specifically for short- or mid-term investing goals.

These funds will be managed to preserve your capital while hopefully providing decent returns for your desired time frame. Vanguard’s Life Strategy fund family includes examples.

Of course, you can always leave your short-term savings as cash in savings accounts or certificates of deposit, but at less than 2 percent interest and with inflation as a constant concern, doing so is just barely better than leaving the cash under your mattresses.

What about you? How do you save or invest for short- or mid-term investing goals in the next 10 years or less?

Disclaimer: The link to Betterment in this article is an affiliate link, meaning if you decide to open an account with them, this site gets a few bucks, which helps keep all the content on Money Under 30 free. If you choose to support our site in this way, thank you!

Published or updated on October 2, 2012

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Aram Durphy says:

    I always recommend ETFs over mutual funds, and there are bond ETFs if you’re looking to diversify your portfolio. Mutual fund fees take too big a piece out of your annual returns, unless you’ve found one with excellent management, a good performance track record, and it’s still open.

    If you’re trying to time the market: waiting for the economy to turn around, etc., best to stay out of stocks. The best way to earn the returns stocks promise, is to dollar cost average in good times and bad, because the market does not behave rationally in the short term.

  2. Eric says:

    I had to figure this out on my own because I couldn’t find any advice on this subject until now. I ended up taking the approach of looking at strategies used during retirement. I think there are some good options here, but it largely depends on how short term you’re looking at. Ten years or less is pretty vague.

    I like to break out my savings into short-, mid-, and long-term savings. Short-term being within two years, mid-term being 2-10 years, long-term anything longer than 10 years. Short-term goals are held in cash, mid-term and long-term are invested in stocks and bonds and allocation is determined by the time frame. Personally I wouldn’t look at real estate for savings goals but rather for generating income over the long-term, which can then fuel additional savings.

    For my own mid-term savings that I plan on using when the time comes to make a big purchase (car, new home, etc.) within the next 5 or 6 years, I have a Betterment goal (thank you and you’re welcome David) that’s currently allocated at 40/60 stocks/bonds (I also have 2 months of my 6-month emergency fund in a different goal allocated at 15/85). Since this is a mid-term account that needs to be more conservative than my long-term outlook, I’ve set my current allocation at 40/60 given current market sentiment. Once sentiment and economic data firms up, I plan on changing the allocation to 60/40.

  3. Tony says:

    I just thought I’d like to mention something from Remininsces of a Stock operator (my favourite book)
    So one day, a person says to his friends “I’m going to buy a mink coat and make the market pay for it!” He invests 10k, and loses half. Then one of his friends does the same thing, has the same result, then another friends does the same thing, has the same result….

    What I find is that in order to invest profitably, you must have zero desire for the profits to pay for something you want, or else you will lose money.

  4. HKR says:

    I have several short-term savings goals, like for new furniture and an overseas vacation. These are things that i’ll need/would like to do in the next 5 yrs or less and that have monetary goals of less than $5,000, so it’s unlikely I’d get a huge return on any investment I made with that money. For that reason, I simply keep it in my rewards checking account at my local credit union. They offer 1.5% APR, if you have a direct deposit and use your debit card at least 12x a month. Since I only have one direct deposit, I keep all my money in this account but keep separate account booklets for each savings goal and for my personal use funds; in my head it is like having several targeted savings accounts and a personal checking account. I’m sure there are investments that would yield a better return, but this system has the added bonuses of acting as a cushion to prevent accidental overdraft fees (i.e. when the mortgage payment gets to the bank before the paycheck) and in the event of an emergency that my dedicated emergency fund wasn’t big enough to cover, these mostly want-based savings funds could be easily accessed to supplement it.

  5. For my really short term goals, I keep that money mainly in online savings accounts. The interest rates stink, but it’s the price to pay. For longer short term goals, I invest in short term bonds. They offer a higher return than saving accounts and offer some protection (though you can still lose principal in them). For all other goals, it’s a mix of stocks and bonds.

  6. David Cole says:

    This is a topic that hits home for me for sure. Me and the wife are trying to decide just this where do we put money that we might want to tapinto say in 2-5 years from now maybe a little longer. I was looking at mutal funds and real estate. I can get a desent 2-3 bedroom 1-2 bath house here for around $90K or less. On a 15 year morgage that is around $700 a month. Rent here for a 2 bedroom apt is that much. So I figure I could rent out the house for easy $1,000 a month. Now i know there is risk in this. But the base i am stationed at is about to grow by 3,000 people in about a year. So i figure that is a lot of new people about to need homes to rent. This could be a good way to make some money. I might just for now throw some in a mutal fund and buy a house for me and the wife to live in as we rent our house now. If things look good maybe i will try and pick up another home and rent that out.

    • David, IMO those numbers would not work for several reasons.

      If what you are looking at is rental real estate then I think 2 years is too short of a time. I would say 5 at the least.

      However, more important is the fact that a mortgage of $700/month and receiving $1,000 in rent leaves you with a $300 difference and that is WAY too little. Remember you have to pay for taxes and insurance, maybe some utilities, repairs, maintenance, advertising, vacancies and the HASSLE factor. A lot of people forget to include the hassle factor in their projections.

      If you are going to buy something that you can rent for a $1,000 I would suggest you should pay no more than $60k. Of course you will have to factor in if the house needs repairs to begin with in order to make it rentable.

      Also project for future expenses i.e. a roof if the current roof is old, a furnace, water heater, tenant moving out, repainting, recarpeting, etc.

      Real estate investing can be an awesome investment, believe me that is why I like it so much, but you have to go into in with eyes wide open and really understanding what your costs are.

      As far as risk goes, yes there is risk in any investment that is going to give you a good return. So if you are going to invest then you got to be willing to be exposed to risk.

      One more thing, it sounds like you are int he military. Being a veteran myself I tell you there are extra precautions you need to take because you can move at any moment and might not be able to sell the property if you wanted to at the time you have to leave. I have fellow military friends that have become “involuntary landlords” for this reason.

      Have you considered short term real estate investment like buying a distressed property, fixing up and reselling?

      • David Cole says:


        Yea i am military. This has been the huge factor of why i have not pulled the tirger on a house yet. Is that I usally only stay in one area for about 3 years. I have been here for a little over a year. So maybe the renthing thing would not be the best option for me. I have though about fliping houses before. But I have not done to much research into it. I do know a guy that does it and he makes good money on the side for doing it. He hires a crew to do all the work seeing he is in the military and does not have the time to fix it up himself. I might have to relook into the fliping houses.

        • David, I am not saying to completely rule out owning a rental. What I am saying is to make sure you find a rental deal that has better numbers than the ones you first described. And because you are military and you can move anytime you will need property management to take care of that rental. That is another 10% of monthly rent you need to factor in.

          There are a lot of people that own long distance investment property but it does have it’s complications. Just make sure you understand them and plan for them.

          As far as flipping houses goes, I have had plenty of experience doing that and understand the pros and cons and have been able to make some good returns without doing the work myself. I don’t recommend doing the work yourself, takes too much time.

          If you want to find out more you can see exactly how I do it and the results I have had by clicking on the link in my name above or going to this link ( I hope this is Ok with blog moderators): http://www.wealth-steps.com/flip-that-house.html

          I’ll be glad to answer any question you or anyone else might have.

  7. We have some money invested that we will need in about 2 years (invested it 1 year ago). We have part of the sum in CDs and most of it invested in mutual funds that are low-risk on Vanguard’s 5-point scale, a conservative mix of stock and bonds as you recommended. When we made the decision to move this money out of all CDs and to invest part of it we knew we were taking on some risk but are considering the whole endeavor a learning experience.

  8. Great tips! Now I feel like I need to check out some mutual funds.

  9. David, it was a catchy title for this post so I wanted to check it out and now I am a bit dissapointed to hear your solution. Why is it that when people think about investing the default answer always is the stock market?

    How about real estate?

    Right now with $5,000 down you can get your hands on a property that will give you a 15-20% return easily. And if you really look hard you can do better than that. And with more security than you would get in the stock market too. So even if you don’t count on appreciation, you could get a great return.

    Think outside the box a bit, your readers deserve it.

    • Mark says:

      He was talking about short term savings, real estate isn’t liquid enough for a short term place to put money. It is also something that requires a significant amount of background research before jumping into.

      Real estate is a terrible suggestion for an average person finding a short term savings vehicle. Try thinking at all, the readers deserve it.

      • Mark, are you saying then that you want to invest in something that does not require background research and you can just write a check and forget about it?

        Why on earth would anyone want to invest in something they haven’t researched or understand?

        I consider myself average and I have invested for the short term in real estate I guess that according to your definition then I am above average. Or are you assuming the “average” person can’t think?

        If you are needing the money in 1 year then I agree that real estate will not be a good choice but if you need it in 10 years like the post suggest please explain to me why real estate is not a good choice according to your real estate experience.

        Finally, there is no need to be insulting by suggesting I was not thinking at all. Make an effort and keep it civil.

  10. Sam says:

    No mention of I-Bonds?

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