The OP is mid-20’s, age wise and worried about having 2k for a down payment on a used car. Doubtful if they are paying any tax at all, let alone 28%.
However, the rest of this post is spot-on. Stock mutual fund, IRA, leave it for 30 years and you’ve done the best thing you can do with your 2k…
Please do educate yourself about financial matters in the process. It’s not all that hard, and the knowledge will serve you well over the years.
How important is it to you that you have $2k+ in three years. And in exactly three years?
The thing with the stock market is that you can get decent returns - or better dividends than interest, but the chance you are taking is that the day you want your principal, the market will be down and you’ll sell at a loss. So you can take your $2k and invest it in something like Merck, which is currently paying a 6% dividend, make a good return on your money, but you take a chance that the market is even lower when you want your money. Three years is pretty short term in the market.
The think with anything other than the stock market, is that the returns right now are lousy.
You might want to look into a bond mutual fund - I’ve had the Harbor Bond Fund for years. The risk to your principal is smaller than the stock market and the gains are higher than in a CD. But there is MORE RISK.
I think the dollar’s going to have some problems in the next two or three (really about seven) years. From my perspective, buying a 2% CD has some built-in risk, because even if you’re insured, $2081 dollars in two years may only be worth dinner and a movie. (This is my opinion and it contains certain forward-looking statements which cannot be verified).
I’m not trying to sound funny or anything, but since every other investment is shitty these days, you may want to consider investing $2000 in the RedRosesForMe Kicking Butt and Taking Names Professional Staffing Services Company, however you may want to interpret that. I’ve been investing a lot of time and some money in Groo the Wandering Productivity Multiplier LLC over the past several years, mostly by lingering after work and going to another part of the company, watching what they were doing and teaching myself about their technology. I’ve literally gone to the extent of helping them around the lab (configuring their test equipment, watching outputs, etc.) in my own interpretation of “networking,” and now the people over there know me. It hasn’t resulted in one dollar of returns yet, but it may be useful at some point. At a minimum, I’m reminding myself that I’m not too old to learn new things.
So many options. :eek:
But it’s made me realize I really need to 1) think about the future and 2) learn about money, since all I know right now is I don’t ever have any.
Thanks all.
Hookers and blow are looking better and better.
I was going to offer to swap tips, but apparently we both covered the same part of the textbook. 
Not necessarily - I think there may be a 5 tax-year minimum that you have to leave the principal in before taking any of it out. I’m getting conflicting info when I google it however, so the OP would want to double-check on that before counting on the money to be there.
Not that putting the money in an IRA is a bad thing at all - it’s a fantastic one. Just that if it’s there, it should be treated as gone for the next few decades, not something that is available to tap.
For money you may want in the next couple of years, CDs really are the way to go.
It’s not terrible advice at all - if the OP truly wants to have a specific amount available in a relatively short time frame, and isn’t in a position to ride out the risk of it dropping.
Yes, inflation would eat away at it - at 2% interest, it will lose “value” over 3 years. But all the financial advice I’ve ever read says that as you get closer to the time you expect to need money, your investments should be weighted more and more heavily toward lower-risk investments.
Now, if the OP wants to take that 2,000 and get his feet wet in investing, and is prepared to take the risk in the short term that it may drop, against the chance that it may go like gangbusters, then that’s fine.
Columnist Michelle Singletary sounds like a broken record, but she make sense: build up a financialk cushion. A grand or two for “life happens” (car repairs etc.), then pay down debt, then build up a cushion of 3-6 months living expenses in a SAFE place (savings account, CD). THEN put aside everything you can for retirement and/or other investing.
I’m pretty sure the OP is a she, FTR.
Roth vs. traditional IRA differs on the tax implications and whether you’re earning above a specific ceiling, and whether you have another retirement funding option.
(caveat: I know I’ve forgotten some of the details re traditional IRA; we do most of our retirement savings through our 401(k) as we need to reduce the tax hit right now and we don’t qualify for a deductible IRA. Any extra goes into the Roth IRA).
Traditional IRA can be deducted from your income tax, if your income is below some specific levels, and you don’t have a 401(k) or other retirement plan through your work. So if you’re earning 50,000 a year, and you deposit 5,000 in an IRA, your taxable income is only 45,000 a year. If you’re at a 20% tax bracket, you’ve just saved 1,000 dollars on your taxes. Then that 5,000 grows (hopefully!!!) for the next 40 years. Then when you retire, let’s say that 5K is now worth 40,000. You pay taxes on that 40,000 as you withdraw it. Hopefully your tax bracket is lower at that point (let’s say 15%).
The traditional IRA becomes non-deductible if you have a retirement plan through work and your income is above a certain level. Same scenario as above, only you don’t have the instant 1,000 savings. And when you retire, you don’t have to pay income taxes on the original 5,000, just on the 35,000.
A Roth IRA is not deductible. Same scenarios as above, but you don’t save the grand on taxes this year. HOWEVER - when you retire, you’ve got that 40,000 FREE AND CLEAR. No taxes.
In general, a traditional IRA is preferable (IMO) if you need the income reduction now, and think you’ll have lower income in retirement. A Roth is preferable if you don’t need (income too low) or can’t take (income too high( a deductible IRA, and/or you think your income in retirement would be higher than it is now.
And the great thing about hookers and blow is that the more you invest, the better they look!
Hmm… the IRA sounds promising the more I’ve read up on it. I’m already taking a portion of the money I’ll be getting and putting it away as a safety net, so I’d imagine that it would not be vital to have access to this $2k as a future car purchase.
One thing that occurred to me was when I was sitting in on my ex’s Calc class (major nerd points), the teacher stressed that the variable which made the most difference in the compound interest equation was time.
That’s not much. I’d just put it in savings. Maybe a money market. Once it has a bit more than doubled (as you hopefully add to it), you’ll have a nice safety net for unforseen emergency outlays.