Ask the Pro: Short-term Investment Options

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06/02/2006

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Dear YOUNG MONEY,

I am a student at Virginia Wesleyan College. I am writing a paper on short-term investing. I need to recommend the best short-term investment for $200,000. I need to incorporate stocks, mutual funds, bonds, money market accounts, and more. Can you help me? What would your recommendation be?

Tuwanga White

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Dear Tuwanga,

I'm not sure what you mean by "best" short-term investment, so I will answer from several perspectives. Short-term investing is typically designed to protect capital and minimize or eliminate potential downside risk. If this is the goal, then depending on the time horizon, I would include bank CD', treasury bills, commercial paper, short-term bonds and money markets as possibilities. If I knew the exact time horizon for the $200,000 investment, I could tell you which of these would yield the highest potential return. Also, if taxes are taken into account, it may be better to invest in tax-free vehicles such as municipal bonds

If the objective were to invest short-term for the highest potential return, with no regard for risk, then I would recommend an allocation of 100% equities. A selection of individual stocks, indexes, growth mutual funds, etc. would give you the greatest upside potential.

Keep in mind that with this type of strategy you will be assuming greater risk. If you prefer to manage risk and be more conservative, then a more balanced allocation of equities, bonds and money market would be advisable. In this case, more information is needed before specific recommendations can be made.

To Your Success,

Thomas Kane
Financial Advisor
Raymond James Financial Services