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Comment by throwaway3830 | Hacker News Reader

So about a month ago I inherited just short of $30k. I don't need it right now, and don't plan on using it until either I buy a house (maybe 5 years away?) or retire.

My plan was to invest it with Betterment, because I felt like that was the easiest and cheapest "set and forget" solution. But would there be substantial upside in going directly with a Vanguard fund instead? I'm really new to this and the convenience of a dedicated interface like Wealthfront/Betterment feels valuable to me, but if I'm leaving substantial money on the table doing that I'd rather go to the extra effort of figuring something else out.

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5 years is a bit of a cutoff point. Less than that you typically want a CD and more than that you want an intermediate term bond index. You could put 20k in CDs and 10k in bonds which would have the nice side effect of giving you experience.

Wow, for your own good don't listen to this guy. Just put it in equities.

YOLO? Clearly someone with no experience should just dump their 30k into equities /s. What could possibly go wrong?!

C'mon srj's suggestion isn't that bad.

I'd be tempted to put it into REITs. The main thing you want to avoid is having your investment move in the opposite direction to house prices. If the REIT goes down then it's likely that the house you were going to buy has also gone down in price.

What's bad about my suggestion? REITs are risky for a 5 year investment. Most are highly leveraged and have volatility similar to equities.

Go ahead and compare charts of VTSAX (Total Stock) vs VBILX (Intermediate Bond) vs VGSLX (REITs) from 2000 through today. If you need the money in 5 years you don't want that much risk.

Also it's entirely possible that average real estate values will decline while the housing market in the area the poster is looking to buy goes up.

Actually the duration is a bit high on VBILX. I use Vanguard's muni/tax exempt version VWIUX, but the point is you want a bond index with a duration of around 4-5 years. Maybe I'm more conservative than most, but you don't want to risk a large drop on money you need that soon (look at the REIT losses in '08).

lol I was defending your suggestion!

To defend REITs, yes REITs lost money in 2008 but but you could also buy property cheaper in 2008/2009.

If you're going to cherry pick data then take the case where property prices double in 2016. You would expect REITs to double too (not taking into account the rent that you'd be receiving in the mean time), and you'd still be able to buy your property in five years time.

The same can't be said for uncorrelated assets like bonds/CDs/etc. They suck in highly-inflationary environments.

Also thanks for assuming I was talking about leveraged products. I wasn't.

Curious why you say that? Equities and intermediate term bonds are pretty low risk, equities are a huge amount of risk. Someone with a 5 year investment horizon should not be putting money into equities.

Shouldn't put all their money into equities. I would go 50/50 equities / bond fund and use $/£ cost averaging to buy in increments over say the next 12 months.

If you plan to use the money in less than 5 years, put it in a savings account t. I like capital one 360 (formerly Ing Direct), but any one will do.

The most important part of investing is knowing your time horizon--stocks or stocks and bonds are just too risky for any time.hirozion less than 5 years.

If you plan to use the money in less than 5 years and know you will need about 30k then put it in a savings account or something of the kind.

On the other hand, if you have no specific plans for that money, and you would just like as much money as possible in 5 years' time, on average you are likely (on past performance) to have more in 5 years if you put it into the stock market than if you put it into a savings account.

(And if you know that in 5 years' time you will desperately need about 100k and have no other way of getting that money, go to a casino or something. Fortunately, that's a rather uncommon situation.)

Or just buy a bond etf that matches your horizon. If you super duper do not want any variance then just buy regular bond.

Finance is complex because there exists a product for any need.

You may do well to checkout the FAQ of the personal finance subreddit:

https://www.reddit.com/r/personalfinance/wiki/commontopics

The timing is crucial. You say “until you either buy a house or retire”. I’m not sure how long you have until you retire, but it’s 5 years if you buy the house. 5 years is not a long time.

Even if you start index investing at a market top, you’ll probably do well over longer timeframes, but may do poorly in short intervals.

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