What investment should I put my money in to amass a $5,000 down payment for a house?
–D. Backstrom, Fort Lauderdale, Florida
It depends on two things: your time frame and risk tolerance. If you’re looking to reap big gains in a short amount of time, consider individual stocks, especially those of large-cap growth companies. But if you have a longer time horizon and little stomach for market ups and downs, put your money into longer-term, less risky investments.
“If your time frame is less than a year, you should think about individual stocks. The risks are more involved, but the return is greater,” says Walt Clark, president of Clark Capital Investments L.L.C., a financial planning firm in Columbia, Maryland. But he only recommends this course of action for people able to tolerate market volatility.
For example, if you invested $1,500 in Sun Microsystems (Nasdaq: SUNW) at the end of 1998, held the stock for a year and then sold it, the original sum soars to $5,426.29, up more than 260%. The result: the gain is slightly more than enough for your down payment.
A less risky alternative is to purchase a recently established growth-stock mutual fund. Such mutual funds have fewer assets under management. Thus, these vehicles have more flexibility to buy and sell within the portfolio, increasing share value for the investor, Clark says.
If you can afford to wait a couple of years put your money in a one-year or a five-year certificate of deposit (See “Locking in yields,” Moneywise, March 2000). Another option is to invest in zero-coupon bonds (See “Getting something for nothing,” Moneywise, April 2000).
Talk with a financial advisor to decide the best way to achieve your goal.