Basics of Investing

Archive for January, 2006

Question: What should I do with my tax refund?

I am receiving a little over $3,000 in my refund. I already know I want to save it until I move from Boston to L.A. in Aug/Sept and use it for a downpayment on a car. But until then, is there anything I can do with it for a short term (6-7 months) that I can have it work for me? Ex: Safe investment, interest, etc.
More on me: I’m graduating college in May. I will be moving to LA to do an internship and start my career. Will be looking to purchase my first car since High School.

Answer: Typically, I’d say “save your tax refunds,” but I think a car purchase after you move is a good expense (assuming it’s not a luxury car!).

Since you NEED the money in 6-7 months, you’ll want to stick to a safe investment. A 6-month CD isn’t going to pay well, but you won’t lose it. At current rates, a 6-month $3000 CD might gain $150 of so. Not too bad. That could be almost a whole car payment.

If you have a car and could, if the bad happens, keep driving it, an index fund wouldn’t be too bad. You do risk losing part of the $3000. But, if you leave the money there long enough, it’s likely to come back up. Only do this if you’re willing to forego the car for another year or more OR if you have another source of funds for it.

If you’ve never invested before, I’d say go with the CD and take your 5-5.5% interest.

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