Best investment for 3-4 year window

[skayhart]

I have approx. $10,000 cash that I would like to invest for a couple of years to put towards a new car when I replace our current vehicle. I'm wondering if I should just put it into CD's or should I be thinking of something like mutual funds.
I am not an investing whiz, but I do understand the basics pretty well. My wife and I currently fully fund our Roth-IRA every year. This may be a stupid question but can I put the money in a mutual fund and how will i be taxed when i take it out???

[Ima saver]

Re: Best investment for 3-4 year window

I think you should just put it in cd's. Mutual funds are long term investments. You are taxed on the capital gains when you take the funds out. (if there are any gains)

[LuxLiving]

Re: Best investment for 3-4 year window

I'd just put it in a CD myself - that's what we've done for our two cars.

You'd be taxed on the CD interest income as well for the year you cash it out. Anything longer than 5 years then I'd go w/the mutual funds.

Disclaimer: I'm not an investment banker nor do I play one on TV. Invest at your own risk!

[MonkeyMama]

Re: Best investment for 3-4 year window

Actually interest on CD is charged when earned. I have CDs that pay monthly interest. I guess some only pay interest at maturity then? Regardless, when interest is credited to your account, you are taxed. Not when you take out the money - doesn't matter - it's cash.

C.d. is the way to go - you can get some good rates today.

Mutual funds - very risky for short-term.

[LuxLiving]

Re: Best investment for 3-4 year window

Yeah - what she said!

[TBH]

Re: Best investment for 3-4 year window

I'd be nervous about locking it into a CD. What if something unexpected happened and you needed to replace your current car sooner than you thought, and your CD didn't mature for months yet? I'd put it into a high-interest savings acct like Emigrant or Virtual or ING Direct.

[LuxLiving]

Re: Best investment for 3-4 year window

If I were in that situation and something went capblowy w/the car before the CD matured then I'd borrow on a short note from my banker w/ the CD as collateral or get a traditional car loan, either of which I'd pay off when the CD matured.

For us this is a moot point BECAUSE of the hefty emergency fund. When you get to the point that you're paying cash for all of your cars the money you save every month from not having to make payments begins to pile up and now we have our own reserve to draw from. We become our own bank.

[sweeps]

Re: Best investment for 3-4 year window

CDs are close to irrelevant these days. Unless interest rates tank in the next few years (unlikely), a 5% or better savings account is the better choice.

[LuxLiving]

Re: Best investment for 3-4 year window

Could be - IF you are the type who can leave money alone. Not everyone can. Maybe the OP can, but the spouse might not be able to - then locking it away can be the best choice.

[debt_free]

Re: Best investment for 3-4 year window

Yes, capital gains taxes always cut into our investments, when profits are taken out.
Have you thought of a home based business? The tax advantages alone usually save the working person at least a few hundred dollars a month.

Best,
Dennis