Investing $$ with no set goal

[ldawngirl]

My DF and I recently received a very generous gift of $5,000. Our debt will be paid off in less than a year on our current schedule, so we want to use this money towards something else. The trouble is, we're not sure what. We have a few ideas, but until we know for certain, we want to hold off on spending it.

As it seems silly to just put $5,000 in a chequing account, I'm wondering if anyone has ideas for what we can do with this money in the meantime. We don't want to do any risky investing and potentially lose money, so something more secure would be best. But as we aren't sure what we want to do with it, we're not sure when we'll want/need it. We've discussed spending it on a trip to Europe (in the next year) or saving it towards a house (within the next 5 years). So we want something that's fairly open in terms of access.

Any ideas?

Note: We are in Canada and we already use TFSAs for other things, so this would put us far over the yearly limit.

[spruby]

Any reason you wouldn't just pay off the debt early and save the interest? At the current interest rates available - even saving say 2.99% interest on debt will be better than a savings account.

How does your EF look too?

I suggest a basic savings account/CD ladder. Rates aren't great but whether you use it for Europe or a house - your timeline is really to short to invest more aggressively (stocks, bonds).

[ldawngirl]

We toyed with the idea of paying the debt off early, but we want to be able to give his aunt and uncle a more concrete thing that we did with the money. They said to "do something very special" with it.

Our EF is small, but growing. We are both unionized and being in Canada, we have health care, so I'm not concerned about anything dramatic happening job or health-wise. Plus, as they want us to do something special, to me putting it towards debt or the EF isn't special.

What is a CD ladder?

[Deleted]

Since you are saying DF, could you put that money towards the wedding/honeymoon and your own money (that would be going to the wedding), to paying the debt down early?

[ldawngirl]

At this point, most of the wedding money is coming from our parents, so we can't honestly do that.

[Clever Username]

Jun 29, 2011 9:41:35 GMT -5 ldawngirl said:

They said to "do something very special" with it.

Easy.
Tell them what you did that you went into debt for.
I hope it was special if you didn't have the cash and still did it.

[debtheaven]

Idawn

As you know I'm not in the US anymore so I'll try but hope somebody will correct me if I'm wrong. A CD is a Certificate of Deposit: a savings account that you have to leave your money in for a certain length of time (generally six months, 12 months or 24 months, I think) generally in exchange for slightly higher interest rates.

A CD "ladder" means you stagger your CDs. For example (for the sake of simplicity) lets say you have 6000 instead of 5000. You could open a 1000 CD every month for six months. That means that in six months after opening the first CD, you would have 1000 (plus interest) "available" every month. If you need it, you use it. If not, you roll it into a new CD. I'm sure there is something similar in Canada but I don't know what it's called. People tend to do that when they want to keep their money liquid.

This said, I'm not sure that it's worth opening several CDs with 5K (although it's an EXTREMELY generous gift!!!)

[shelly527in]

I don't know if it's available in Canada, but the ING account (online savings) has an interest of 1% right now. Not much, but better than nothing. Tell the aunt and uncle you are saving money for their great-niece or nephew!

[shelly527in]

Try an ING account if it's available in Canada. It's an online savings account with 1% interest. Tell aunt and uncle you are saving for their someday great-niece or nephew.

[thyme4change]

That's a lot of pressure. They say "something special" but getting out of debt isn't "special?"

Honestly, I would either pay off your debt, put it into an emergency fund or start a brokerage account and buy some funds with it. I know you said you don't want to do anything risky - but I can't think of anything more special than putting yourself on the road to financial security.

[blackcard]

I vote for the EF also. You never know when an emergency will hit.

[nalto]

Jun 29, 2011 17:40:06 GMT -5 shelly527in said:

Try an ING account if it's available in Canada. It's an online savings account with 1% interest. Tell aunt and uncle you are saving for their someday great-niece or nephew.

Or SmartyPig. They're also 1 (I think 1.1) %

[mizbear]

I tend to lean toward paying off debt. That would be a very special thing to start your marriage without any unnecessary debt.

[Peace77]

I suggest paying off your debt now and continue to make the same payments into your savings account. Paying off the debt now will save interest and enable you to build your savings account faster.

Tell your aunt and uncle that you have used the money to start saving for a home. They will understand that it will require more than $5,000 to buy a home.

[CarolinaKat]

Jun 29, 2011 11:40:21 GMT -5 ldawngirl said:

At this point, most of the wedding money is coming from our parents, so we can't honestly do that.

Could it cover the honeymoon expenses and you use the money saved for the honeymoon for other purposes?

If not, I agree with the posters who have said to use ot for 'seed' money for a House DP fund. Unless you don't want to buy a house in the future. Then I'm a little lost

[Peace77]

Several banks offer better than 1% interest.

See Bankrate.com's list:
www.bankrate.com/funnel/savings/savings-results.aspx?local=false&prods=33&ic_id=br3int_popup&location=checkingandsavings&pagetype=home

www.smartypig.com looks interesting too.

[phil5185]

I'm wondering if anyone has ideas for what we can do with this money in the meantime. We don't want to do any risky investing and potentially lose money, so something more secure would be best.

If it was mine, it would go into a 'specially named' growth fund, one that historically grows at 11%/yr, so that it would grow by a factor of 8 ($40,000) in 20 yrs. Or a factor of 23 ($115,000) in 30 yrs.

Invest it in an index that grows tax deferred so that you don't have an annual tax. The fund will serve as a fall-back EF, available in 2 days if you need to sell some. When you have a large readily available reserve account such as this you can lower your normal EF, maybe to $5000, knowing that back-up money is always there.

[Cass]

ING is available in Canada. Current rates are 1.5% for savings and up to 2.85% for GIC's (Guaranteed Investments).
www.ingdirect.ca
ETA: GIC's are the Canadian equivalent of CD's. You can 'ladder' these. More info. on the website above.

[cronewitch]

I would invest in mutual funds since it isn't really enough to invest in stocks. Open a taxable brokerage account then add to it when you finish paying off your debts.

There isn't anything like the wonder of taxable accounts. They pay long term gains so in the USA the rates are low for taxes. They grow more than money in the bank over a very long term and you can add to them in small amounts.

The money isn't tied up long term like retirement money so you can use it to back up your emergency fund, save for a house, future children or retirement or vacations when you can afford one.

Having money doesn't mean you need to spend it anytime soon.