Best investment for a shorter timeline

Investing
#1

I’ve decided to invest my kids’ launching funds in a regular brokerage account and not a 529 because they may not attend college and I want them to have the freedom to use that money for any worthwhile launching expense. I’ve opted for a regular brokerage account and not an UGMA/UTMA because it’s our money (the kids aren’t contributing to it) so we want how it’s spent to be collaborative.

Here’s my question: What should we invest it in (they will be launching in 6 and 9 years)? (We also have one launching in 3 years but given the short timeline we’re keeping hers in a high yield savings account.)

We have our retirement accounts invested in Vanguard Target Retirement Funds and feel good about that. Should we invest these funds in that too and just choose a retirement date 6 years out? I fear we wouldn’t get much growth with an allocation that “safe.”

What say you, Personal Finance Club!?

2 Likes
#2

Hm… these “mid term” goal questions are tough. Long term (like 10+ years) it’s a pretty each choice: Invest it aggressively so you can take advantage of the long term growth. Short term (like <2 years) don’t bother investing. There’s too much volatility and it’s too short of a time for investing to pay off.

But the 5ish year time frame is kind of on the bubble. Especially because you’re not necessarily SURE you’re going to need it right then depending on college decisions, etc.

All that said, I’d personally invest it. To me that’s a long time to have cash on the sidelines withering away to inflation. For 529s they do indeed have “target date” funds that are targeting a college age rather than a retirement age. I think it would be a very solid strategy to pick a target date fund that’s 2030 or so for this type of need… that begin more aggressive and get more conseverative as 2030 approaches. You can always change how it’s invested years from now as well as you learn more about college decisions, etc.

For what it’s worth, Vanguard’s 2030 fund is currently 65% stocks… so it’s still on the aggressive side. And even the bonds are generating income too, so it’s not like they’re doing nothing like cash. So I wouldn’t be TOO worried about the overly safe aspect of the fund (and you’ll be thankful for it if the market takes a dip as college bills are approaching).

https://investor.vanguard.com/mutual-funds/profile/portfolio/vthrx

1 Like
#3

Thank you for your thorough response—so helpful! I was feeling stuck for exactly the reasons you described and this validates what I was thinking. Thank you thank you thank you!

1 Like
#4

I would still consider a 529 plan for at least one of your children. You can always change the beneficiary of the account since you own it, but being able to avoid federal taxes on your earnings if used for qualifying education expenses is a savings that should not be taken lightly.