Short term, safe investment

Dear Mustachians,

A bit of background first:
I have been investing in VT through IB for almost a year now and my gf also wants to start investing (hopefully she doesn’t grow a mustache). Thing is, she would rather invest in high-quality, high-end real estate in a big European capital.
She is currently sitting on almost CHF30K and would love that number to grow over the next 2-3 years so she has a decent contribution to buy a place.

My take on this:
I don’t see the value of her opening an IB account right now and invest in a dividend-paying ETF. In my opinion it would be better to go for a Custody DEGIRO account and buy only an accumulating ETF (thus avoiding DEGIRO Custody fees that leech on dividends), and withdrawing the cash in 2-3 years.

However, I’m here for the long run and while I know Index funds/ETFs are the way to go for me, I’m not too familiar with the efficiency of ETFs in short term, this is why I’m asking for your opinion on this.

Also, if ETFs would still be the way to go for you in this case, which accumulating ones would you suggest? (ideally from DEGIRO’s list of commission-free ETFs)

Thanks in advance for your input,
iNeedMoney

If you want to invest for 2-3 years then stay away from the stock market. In that period I would not hope for more than 1-2% annual return.

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What about an ultra short-term bond fund like ICSH, as an alternative to keeping USD cash? Don’t know of similar CHF or EUR funds though.

Those are likely to have negative yield if they are safe, just keep cash…

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For short term I’d do p2p lending

Is it a joke? If so it’s really not obvious.

You are right, as he asked for something safe

Dear Mustachians,

I am in a similar situation as myself and my gf have some cash (CHF 150k) that we are currently sitting on and we do have the ambition as well as iNeedMoney gf to use this money to buy a place in 2025.

I am a new comer within the Mustachian community meaning i am not an expert in every strategies possible even if thanks to you and MP i have learnt a lot.

I am currently waiting for the finalisation of my account opening at Degiro for regular and long term investment in ETFs.
However i would like to know which short term strategy i can follow to safely make my money work for 5 years before using everything as a contribution for a flat?
I am asking the question because i don’t know if the period +/- 5 years makes any differences in term of opportunties vs the 2-3 years desribed at the beginning of this topic?

Thank you for your advices.
Cheers,
J

Hi Jean,

On a short time horizon, the savings rate has more impact on your expected capital than the rate of returns, which doesn’t have much time to compound and may go into negatives with assets like stocks and stocks derivatives.

I’d think about what kind of home you want to purchase and what minimal downpayment will be necessary. That amount should not be in the stock market. I’d first max a traditional 3A bank account, then put any excess money in a standard savings account.

If you reach that target and still have cash available after that, that part could be invested. If it turns out well, you can increase the size of your downpayment, allowing either for less mortgage or more house. If it doesn’t perform well, you’d have to decide whether to be happy enough with your safe minimal funds or want to delay your project a few years to give the stock market time to recover (it can take more than a few years, or even never happen, nobody here has a crystal ball).

The thing is, safe assets have poor rates of returns because they’re safe. Investments with good returns are, by default, risky. If you want to buy a place in 2025, you can’t take risks with it unless you have some kind of mitigation policy in place (family willing and able to stand in for you, a minimal amount of safe assets allowing you to reach your target no matter what).

So I’d define my target, pump up my savings rate, reach my goal and then ask myself if I want to reach for a higher target (keep saving in a savings account), realize my real estate project early, or bet any potential bonus on the short term whims of the market, turning my investment into a long term one if it doesn’t perform good enough in your time horizon.

Others might have other strategies.

Edit : Typo and minor formatting.

Edit 2: If the 5 years term is definite, you may consider term deposits as an option but the rates are real low anyway and I’d not consider any gain sufficient enough to compensate the fact that the money is stuck for the contracted time.

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This is a totally made up graphic that should help you visualise the impact of investment horizon on the probability of losses. I am pretty sure more accurate and better looking must exist on the internet.

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Hello Wolverine,

Thank your advices, very appreciated.

It confirms my first impression, meaning there is no fantastic options : the best one is to have a 3A account (which i do already have) and a savings account, otherwise it is too risky according to the goal/the timeline.

I will however investigate more into term deposit since the term is quite definite and especially because my money is mainly available in euro which seems to give (according to first research) more “interesting” options (still not wow!) vs chf/switzerland term deposit.
I need to figure out the potential taxes on earnings in france for instance…

I will also try to increase my saving rates which my be used in different ways as suggested : realize the project early, bet on short term wins on the markets, etc

Thank you !

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There is a high chance that you’ll make some gains in 5 years with stocks, but I wouldn’t bet on it. I wouldn’t invest anything that I’ll need within the next 5-10 years.

You are already contributing the max. in the 3rd pillar. How about additional purchases into your 2nd pillar? Same tax saving effect and also the possibility to withdraw it later for buying property.

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Thanks @Cortana for this chart!

Assuming you’re wanting to buy in Switzerland, there’s a currency risk associated with keeping the money you plan to use for it in euros (say the euro falls or the frank rises and your stockpile doesn’t cover as much downpayment in CHF as you would have liked). If you’re wanting to build/buy in a euro country, then that looks to me like the right thing to do.

If you have family and they have a house, one way to set up a down payment is to increase their mortgage (assuming they can) and use it as a downpayment for your own house. That puts money matters in the family relationship, so carries its own risk of turning bad but some parents are eager to participate in the acquisition of their children homes, so some families might be very at ease with it.

I’d get any arrangement done in a written, enforceable form (including how the family mortgage will get repaid, who will pay the interests, what additional interest your are going to pay in which timeframe, what happens in case of default of either party and inheritance consequences) if I did it. If you have any siblings, I’d discuss it thoroughly with them. That’s the kind of things that can funnel bitterness that may come back at the parents’ death (or earlier).

I’d not plan to go for it myself but that can be an hedge in case you fail to gather the whole downpayment you were planning, allowing you to take more short term risk if that’s what you want to do.

It’s a way among others to turn short term risk into longer term one. As there’s no free lunch, like everything else, it carries its own set of risks.

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Thanks for the charts !
I haven’t done it yet with the 2nd pillar but i plan to do it

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