advice for mid-term savings (3-5 years)

[pete216]

Hi folks,

Thanks for all the great advice here. As a result of this forum and some other big life changes, I was able to pay down my $78k of credit card debt over the past 24 months. I feel as if the clouds have finally opened and I can get on with my life.

Here's my question. My wife and I have fully-funded our 401(k)s at work. We have some plans to leave our careers and start a business in approximately 3-5 years. We expect that we will be able to save approximately $100K over the next five years to capitalize the business.

What are the best options for investing these savings? It's a short-term investment, so it seems like we should stay away from stocks. These savings will first be directed to our emergency fund, and then everything extra will be earmarked for business capitalization.

My thought was to build a 3-6 month living expenses fund in a savings account, and then perhaps buy 12 month CDs for everything above that. Any better ideas?

Thanks for the help.

[Scanner]

What are the best options for investing these savings? It's a short-term investment, so it seems like we should stay away from stocks. These savings will first be directed to our emergency fund, and then everything extra will be earmarked for business capitalization.

My midterm strategy is usually fairly simple.

3-5 years away - Vanguard Wellsely Fund - 60% bonds and 40% stocks/blue chips. . .when you are less than 3 years away, shift all the money into cash - CD's, money market or savings account.

If taxes are an issue, you can substitute the above with muni bond purchases.

[jIM_Ohio]

I am unclear as to the purpose of the money being set aside. In that case cash is good, Scanner's advice is good, or use a similar moderate mutual fund (I own two- RPSIX and PRPFX). PRPFX would be good if taxes needed to be avoided (gold and silver do not distribute dividends).

[noppenbd]

I am using a blend of index ETFs for my backup emergency fund:

35% SPY (S&P 500 Index)
25% ITM (intermediate term Municipal bond index)
15% SHM (short term Muni bond index)
12.5% TIP (treasury inflation protected bond index)
10% EFA (international stock index)
2.5% VB (small cap index)

With the exception of TIP all of the ETFs are pretty tax efficient. I got this from Ibbottson, duplicating their "Growth and Income" portfolio, except substituting munis for bonds to lower the tax bills.

You could do something like this as well as the above suggestions.

[billy1980]

Cograts on clearing the debt - a great first step