Expert: Gina Boykin - 6/21/2008

Question
Hello Miss Boykin:

I have about 25,000. that I received and have had in a 90 day CD for like a
year. What I'd like to do is move it out of there where it could have the
potential for more growth. My idea is to  use a small portion of it to perhaps
invest in a stock and mutual fund another portion, but not sure if this is wise.

The reason is because I'm hiv+, I'm only teaching part time, haven't been
able to find additional work and already using additional savings to survive.

If I did happen to get a mutual can it be kept for a period of perhaps 1,3 or
five years? I phrase it this way because I'm scared a health crisis could come
up. If I invest in a stock do i have to continually trade it ? My preference
would be to try and keep for a year and see how it does.

Could you please provide this novice with some options? Thanks for your
time.  

Answer
I know it is tempting to try to "make it big" in the market, but in your situation, I would not think that it would be wise.  In fact, if there is a strong possibility that the money will be needed within the next 5 years, it is not wise for anyone to put that money in the stock market.  There's no way to tell what will happen in that short of a period, and you don't want your stock to be down during a time when you need it most.  The last thing you need is stress concerning whether your money is going down or not.

This is really an emergency fund for you, so I would suggest keeping it somewhere that you can access it easily, and won't have to worry about losing money.  This means that a savings account, CD, or money market account is the best option.  One way to get a little better interest rate on your CDs is to (1) check for the best rates on www.bankrate.com and move your money to the bank with the best rate and (2) do CD laddering.  Think of laddering just like a ladder - you have money in different CDs that mature at different times.  For example, you can put 1/5 of your money in a 60 or 90 day CD, 1/5 in a 6-month CD, 1/5 in a 9-month CD, and 1/5 in a 1-year or 2-year CD.  The CDs with the longer period will give you a better rate, and you still have access to part of your money every few months.

If you want to take a portion of this money and put it in something a little less liquid, and not as "boring" as a CD, you could put the money in government securities or a money market fund.  Both of these are very safe and may have a little better rate.  

You can purchase savings bonds directly from the government at www.treasurydirect.gov and there are many options for short-term (less than a year) and longer term (2-10 years).  

Money market funds require you to go through a broker.  Go to one of the major discount brokers' websites (like Vanguard, Fidelity, Charles Schwabb) and read about their money market fund options.  These funds invest in low-risk things like CDs and government securities (sound familiar?).  If you chose this route, only put money in a "no load" fund.  Loads are like commissions, and there are enough no load funds to chose from.  Once you put your money in this money market fund, there's no need to trade again unless you want to take money out.  Check out www.investopedia.com and look up money market funds so that you can understand this term before you set up an account.  Note: There could be an annual fee for setting up an account, unless you meet the required minimum balance. It probably won't be worth having the account if you have to pay the fee, because your annual return will end up just like having a CD.  But if it gives you the thrill of investing in the market (without the headache of riskier investments), go for it!