Best way to invest $2k?

Disclaimer: I know you are not financial advisers, you’re not my financial advisers, and I should consult a professional before making investment decisions.

That said, I’m coming into a small sum of money soon. After I pay off debt and put some in my savings account I figure I’ll have about $2k left. I’d like to invest this in some way.

Guidelines:
[ul]
[li]modest interest earnings[/li][li]small penalties for early withdrawal acceptable[/li][li]short-term (3 years or so)[/li][/ul]

So I’m thinking a CD would be my best bet, but I’ll admit right now I have no experience with any sort of investments. The idea behind this (as opposed to just putting it all in my savings account) is to accrue a bit more interest and have more of an incentive to keep it in there. That’s why a small penalty is ok- it means I won’t convince myself to splurge on 10 million thread count sheets, but if, for example, I lost my job and my car exploded*, I’d be able to access the money.

*Funny story about my car, actually. It’s already been totalled by an insurance company. Got rear-ended, which resulted in 2 small dents in the trunk and bumper, and a broken taillight. The insurance company concluded that replacing the trunk, bumper, and taillight cost more than my car was worth, so cut me a $1500 check and was done with it. I kept my car. So, the way I look at it, I paid $400 for this car, have driven it for 4 years with minimal maintenance, and it shows no signs of dying soon.

Roth IRA - in an emergency you can pull out the principle without penalty so you can think of it as an emergency fund that is tax free if you never get laid off.

If you haven’t already funded your 2009 IRA do that. Roth, if you qualify. If you’ve already funded your 2009 IRA then a CD is your safest choice at this time. Shop around for the best rate and term that meet your cash needs.

What’s your savings account paying?

The problem with the Roth is that the OP wants the money back in 3 years. The principal can be taken out, but not the interest earned without penalties. To me, it seems like much ado about nothing for only 2k to worry about tax implications, penalties for withdrawal, etc. You won’t earn much of anything off that 2k anyway. And that’s certainly not meant as a slight to the OP. Everyone starts somewhere. But Bankrate.com has a 1 year CD yielding 2.29%. That’s under $150 in interest over the 3 years ($140.57 actually).

I would go to a local bank and buy a 1 year CD. Then after the first year interest rates will have likely risen, or maybe they won’t have, but you can then re-up it for another year. Or even simpler go to ING and open up a high yield savings account. That’s what I do.

JMHO.

Put it into eTrade and buy 125 shares of GE. If it tanks, you’re out $1000, but I’d be willing to bet (actually, I am betting on it) that your $2K will be more like $5K in three years.

That’s terrible advice if you are seriously proposing this for the OP. I wonder how many people said the same about Chrysler, GM, AIG, etc. Individual stock picking is gambling. If you want to do that, at least go to a casino and play roulette and get some free drinks.

No it isn’t. Parking it in a 2% CD is terrible advice. It also isn’t investing. You’d be better off spending it on something that would enhance your life now than letting inflation eat it away for three years.

However the stock market isn’t a bad place to put $2k for right now. Yes, the market is a bear market, but that’s when it’s right to buy. Find a good financial adviser who can steer you toward some promising markets and mutual funds.

I would not advise investing in a single stock, even with the market in the pooper. $2,000 is simply not enough to achieve a safe level of diversification.

But it’s a great amount for investing in something like an S&P index fund. Shares of VFINX are still very cheap.

I’m expecting to come into about 5K myself in the next few months, so I’m glad this thread was started. Given the diversity of opinion already posted here, I’m thinking hookers and blow is not a bad choice.

Either that or just stick it under my mattress.

Step 1: Ignore every post in this thread except for this one (I haven’t even read them and advise you to do the same).

Step 2: Educate yourself about investing and money in general. A decent (but by no means the only) place to start is www.motleyfool.com.

Step 3: Answer your own question re: the best way to invest $2k.

If you intend to invest in stocks for a 3 year holding period as people here are suggesting (irresponsibly IMO), you should look at this graph so you understand the risk:

The shorter the holding period, the more volatility. You can also see here:

http://politicalcalculations.blogspot.com/2006/05/sp-500-best-average-and-worst-returns.html

That for a 3 year holding period the returns have ranged ~±40%. So the VTSMX is great if you can stomach the risk, but the OP said “modest return” so generally that would imlies that losing 30 to 40% is unacceptable.

[edit] and in light of Rand Rover’s post, www.bogleheads.org to teach yourself as well.

If you absolutely can’t stand the thought of losing one penny, then buy a CD.

I’d put it into an S&P 500 index mutual fund. Probably going to pay off, and if it doesn’t we’re talking about an initial investment of only 2K. Losing $400 is not exactly an earth-shaking event if it does tank.

In either case, I don’t agree with the idea of putting it into an IRA with the intention of withdrawing in a few years. Not worth the hassle with the IRS when you do that.

Step 1: Substitute www.motleyfool.com in Step 2 of post #12 with http://www.bogleheads.org, and save yourself a lot of time and misinformation on investing.

Sorry, I just cannot get on board with a financial site that states this:

For beginners? hahaha. If I won the lottery today, the ONLY way to go is low cost, no load, index funds for life. I’d recommend it for newbies, and seasoned investors.

Otherwise, post #12 is right on.

Hmmm… I will, of course, be reading up more on the subject, so thanks for the links. I mentioned 3 years or so in the OP because I’m thinking about my car, which will probably become too expensive to maintain sometime within the next 3 or 4 years. So I figured having a cushion in savings for small emergencies , but then investing this money in something with the understanding that I’d probably need it to purchase a new car.

However, as I’m in my mid-20s, longer term investments might be in my best interest. Being able to take out the principle without penalty is also intriguing. But yeah, definitely going to check out those sites, as I don’t know what differentiates a Roth IRA from a regular one or how you qualify.

hangs head in shame

Stock market, no. If this small sum were more like 10k, then I might, might be willing to consider assuming more risk, but at this point, no. I’m still a student so losing a grand is definitely not an option.

If you’re just getting your credit cards paid off, it sounds like you have essentially no cash reserves. I don’t think any competent financial planner is going to recommend investing in the stock market until you have a sufficient emergency fund plus enough to cover short term anticipated expenses, like your car replacement. Funds for these purposes should be kept in instruments that won’t lose principle and can be withdrawn with no (or very little) penalty.

There’s no decent investment nowadays for $2K and 3 years. Period. Either keep it fluid in CD (and no interest), or gamble on the stock market, or best- IRA. But of course with the IRA you have to leave it in for a looong time.

But let me put it this way, assuming you’re in the 28% bracket and you dont have a real retirement plan, this investment returns 28% in less than a year- on next years taxes you’ll save around $560. And, it’s pretty safe. So, in one year or less you have got back $560 and then 30 years from now you’ll really appreciate the rest of it.

So, don’t worry about fluidity- put in in that IRA and keep it there for 30 years.

We’re going with CDs for the short-term future. You can do better on a 6- or 9-month CD than you can with a savings account. When the market turns around, we’ll be ready to change direction. We’re also takin’ care o’ shit we’ve been putting off while we paid off the house. Home repairs and the like. It puts a few bucks into the local economy and improves the appearance and worth of our home.

A few weeks ago I liquidated about 60% of one of my itty bitty retirement accounts ($12k) and bought GE when it was 7.64. It closed over 14 on Friday. My stock broker husband wanted me to sell it but I said I’d consider it when it was 30. :smiley:

Worse case scenario is that I work a few more months during my golden years.