Mid-Range Savings
Most people would rather call this part of a financial plan safe investments. This is money you can live without having access to for 3 to 7 years. There is some risk involved in this sector, but it is much less risky than putting your money in stock. Some instruments carry no risk in this section such as I bonds. Others carry a good bit of risk such as mutual funds, but I’m sure most would agree what I recommend is historically very safe.
How do I do this?
For me, I like to have 6 months of my expenses ready (Short term savings). When I have met this criteria, all extra money hits my Mid-range savings plan. From here, I syphon a bit off and kick it up to the long term savings. In some cases, my wife and I just buy something that we have been wanting (morale factor).
I’m a big fan of bonds and specifically Treasure Direct. I put 60% of my mid-range in to Bonds. At times when the rate is really good, I’ll throw closer to 80% at bonds. I prefer I-bonds over all bond types. I guess it’s the 2-part percentage rate that makes me feel like I’m gambling and the fact that the I-bond has been a top performer (as far as bonds go) since introduced.
I usually am a bit hesitant on putting a good deal of money into mutual funds. I got burned during the dot.com bubble and lost 82% on all of my mutual fund money. Now 4-5 years later, I’m about 40% up with my mutual funds.
I usually put 20% of mid range savings into mutual funds. I like to buy in diversified sectors. Even though they don’t get ridiculous return rates, if you pick a good one, you can get about 10% annually. I’ll take 10% any day.
I usually put any money I have left into Index Funds. An index fund is a company that just invests in other companies across several sectors. Mutual funds are more focused on a single industry or sector. These usually return 10-12% for me. As of late, I have been focusing my index money into: Vanguard 500 Index. Someone gave me a tip (Yeah, like I know a guy) and I have been doing very well with it.
How should you do this?
You have to decide on your own when you reach this stage. It real involves the nature of your work and how comfortable you are with being cash strapped. It you have a very steady career track and you don’t real care if you get kicked out on the street, then start your mid-range savings right away. If you are like most, you will wait until your short term savings goal is met.
I would advise you to start out small. Start out with 90% bonds (not going to lose your money there) and may be grab a SPDR or Index Fund along the way and see how it works out for you. Start to put more money into indexs and and SPDRs when you have money that you can wait on for closer to seven years, you will surely come away on top.