Where to Sock Your Short-Term Savings
I am pastor of a church in Arkansas, and we have about $32,000 in an account for one of the ministries we will be starting next year. Instead of letting the money sit in a savings account, I thought it might be better to drop it into a mutual fund, such as CGM Focus. What do you think?
CGM Focus has been a fabulous performer (with an annualized return of 26% over the past five years). But you’d be putting way too much faith in its manager, Ken Heebner, and the stock market in general, to invest money that you'll need in a year.
Although stocks deliver superior long-term returns, they are notoriously unpredictable over the short term –- witness than market's 22% decline in 2002. And although Focus made money during the 2000-02 bear market, there’s no guarantee that it will do well during the next downturn. In addition, Focus is twice as volatile as the average diversified domestic stock fund, so it's not a fund to own for a period as short as one year.
Your best bet is to keep the money in the bank -– in a six-month or one-year certificate of deposit -– or in a money-market fund. Money funds with low expenses now yield more than 4%, and yields are likely to trend upward as the Federal Reserve continues to raise short-term interest rates.
For some of the best-yielding money-market funds and CDs right now, see Pump Up Your Yields (scroll down to the bottom of the article). To search for the top yields in your area, check out our credit and banking page.
Got a question? Ask Kim at firstname.lastname@example.org.