Adam P: you can open a tax-free savings account or get a short-term GIC with a (slightly) better interest rate (check ING). Given the inflation rate, every cent counts !!

]]>We put some of our money into a pretty secure mutual fund (CDs and bonds) that returned 6% last year. That’s for our short-term goals (buying a house int he next few years)

The rest of our saved money went into our ROTHs. That’s for the long term stuff.

Like I was telling her, we might see faster growth if we threw everything into higher risk mutual funds, but we’d be sad if the market tanked again right before we bought a house and needed the money.

]]>I worked with your numbers and after the first year, I agree, you’d have $1015.10 but after the second year, you’d have $1030.44 NOT $2045.23. I used your interest rate and figured 12 compoundings a year where many banks only figure interest quarterly.

You might want to check your calculations and I’m guessing that a correction is probably worth posting on this one.

]]>You could have taken the historical 1 yr average CODI of 4.09% as a comparison, but that would weaken the argument and case, and therefore point out the flaws of the post.

Using the actual historical rates of return the savings account would have actually grown to nearly the same figure…about $23K after 15 years. And it was ahead for most of the time until the very end of 2010. All with zero risk and fully insured.

]]>In addition to the time scale of what you’re saving for, how flexible your goal is is another important factor. If you’re saving to buy a house in three years, but you don’t mind pushing the purchase back to four years or five years, it may be appropriate to put some of the money in something riskier than a savings account.

]]>I’m thinking a short term bond fund seems to be about the best combination of outpacing inflation (savings account problem) and less volatility (stock markets). If interest rates go up suddenly, my bonds will be worth less, but so will house prices (in theory) as the mortgage would be too expensive otherwise since wages are going up slower than house prices.

But you ignore bond indexes in your analysis completely? What’s the reason there? It just seems so straw man to pick the most conservative (savings account) and compare it to a high risk portfolio(100% equity). Where’s the middle man?

]]>