Determine your investment horizon to put your money in appropriate investments.
For goals with a term of less
than three years, you generally
don't invest in the traditional
sense. You save for them. For
example, if you're saving for
a down payment on a house, you'll
want to put your money in a safe
place that will be available when
you're ready, without loss of
principal. Consider six- or 12-month
CDs, though you'll pay a penalty
to access your money early; FDIC-insured
high-interest-earning money market
or savings accounts; low-cost
money market mutual funds; or
stable value funds. Find the best rates for these types of deposits on Bankrate's rate tables.
These goals are five to 10 years
away. The key here is diversification.
Look at keeping a small portion
in higher-yielding money market
accounts and CDs, and include
Treasury securities, short-term
to intermediate-term bonds or
bond funds. If your time line
extends beyond five years, some
equity exposure may be appropriate
-- perhaps an index fund, which
tends to be more tax-efficient
than other funds, if this money
is in a taxable account. Consider
allocating a small portion to
an international stock fund if
you want to take on a little more
Long-term: Depending on your risk tolerance, most people should be able to handle a bit more volatility in their portfolio; the alternative is to risk falling short of your goal. For goals beyond 10 years, a 70 percent allocation to equities might be appropriate because you'll need growth. Conservative investors nearing the 10-year mark may want to invest in a mixed stock and bond portfolio.
See examples of asset allocation charts in Bankrate's story, "Building a portfolio."