Q: We are going overseas to work, and probably will be gone for at least two years. We have $100,000 I'd like to invest while we're gone, but we need to be able to access it in case we come back early. What would you recommend?
A: There are a couple of key questions that have a bearing on the range of options open to you:
- What is the probability that you will be returning early? Is that just a remote possibility, or closer to a 50/50 chance?
- How much of the money would you need to access upon your return, and what are your intentions for the remainder of that money?
These questions are related because they define just how accessible the money needs to be. If there is a good chance that you will return early and need to access a considerable amount of the money, then savings accounts or money market accounts may be your best option. If you think the chance of returning early is pretty slim, then you might consider a two-year certificate of deposit (CD) to get a little bit higher rate. If you go with a CD, you can always hedge against the possibility of an early return by looking for a CD with a relatively small penalty for early withdrawal.
To think a little further out, if you are only going to need a small portion of the $100,000 whenever you return, then you might set aside that amount in a deposit account, and make more of a long-term investment with the remainder. A mutual fund that combines stocks and bonds could give you a diversified portfolio geared toward a long-term goal such as retirement.
If you go this route, avoid sales loads and look for a fund with reasonable fees (in the neighborhood of 1 percent) and an above-average return over a full market cycle. A market cycle is a full range of rising and falling periods, so you can get a feel for how the fund does in good markets and bad. For example, if you look at a fund's performance from the fourth quarter of 2007 until the present, you'll get to see how it did during a very serious bear market and then in the subsequent recovery.
Finally, if you decide to stay conservative and put the money in a deposit account, be sure to shop around for a competitive rate. With $100,000 you may qualify for a jumbo rate, which is a little bit better rate for larger depositors. These days, savings accounts often do not have a special jumbo rate, but many money market accounts and CDs do, so those might be your best options.
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