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I have a two year investment horizon, and I will make regular monthly contributions. I prefer investment options with medium to low risk.

Are mutual funds a good choice for such a short investment horizon? What other investment types should I consider?

EDIT: More details that may help with the answers

  • US based (sorry first question on this site)
  • Was referring specifically to growth stock mutual funds with proven track records but open to other ideas
  • Obviously there is potential for loss but I am looking for above 4% growth
  • I can handle downside risk provided it is minimal and the potential growth outweighs the risk
  • Also wondering if loads on stock mutual funds are worth it for short term (2 year) investments
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    Are you saving money towards a specific goal? Do you need the money to grow, or just preserve it's value in the face of inflation (which isn't really an issue over such a short horizon). Mutual funds can encompass a wide range of investment themselves (fixed income, stocks, etc.) so some funds might not be a good choice. – John Bensin Jul 9 '13 at 18:57
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    Also, based on your website, I tagged this as a US question. Please correct me if that isn't the case. – John Bensin Jul 9 '13 at 18:59
  • U.S. is correct... and looking for preservation with potential upside. Looking as in investment, not as an inflation play. – csi Jul 9 '13 at 20:43
  • What do you want to call a "proven track record"? Fund managers change often for one point but another is to consider how well will the stock market do in the next 2 years that no one knows for sure. – JB King Jul 10 '13 at 18:34
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First, you don't state where you are and this is a rather global site. There are people from Canada, US, and many other countries here so "mutual funds" that mean one thing to you may be a bit different for someone in a foreign country for one point. Thanks for stating that point in a tag.

Second, mutual funds are merely a type of investment vehicle, there is something to be said for what is in the fund which could be an investment company, trust or a few other possibilities. Within North America there are money market mutual funds, bond mutual funds, stock mutual funds, mutual funds of other mutual funds and funds that are a combination of any and all of the former choices. Thus, something like a money market mutual fund would be low risk but quite likely low return as well. Short-term bond funds would bring up the risk a tick though this depends on how you handle the volatility of the fund's NAV changing. There is also something to be said for open-end, ETF and closed-end funds that are a few types to consider as well.

Third, taxes are something not even mentioned here which could impact which kinds of funds make sense as some funds may invest in instruments with favorable tax-treatment.

Aside from funds, I'd look at CDs and Treasuries would be my suggestion. With a rather short time frame, stocks could be quite dangerous to my mind.


I'd only suggest stocks if you are investing for at least 5 years. In 2 years there is a lot that can happen with stocks where if you look at history there was a record of stocks going down about 1 in every 4 years on average. Something to consider is what kind of downside would you accept here? Are you OK if what you save gets cut in half? This is what can happen with some growth funds in the short-term which is what a 2 year time horizon looks like. If you do with a stock mutual fund, it would be a gamble to my mind. Don't forget that if the fund goes down 10% and then comes up 10%, you're still down 1% since the down will take more.

  • Mutual funds isn't even a type of investment as you say starting out the second paragraph; it's simply one possible way to purchase whatever asset class(es) the mutual fund happens to invest in (and usually relatively accessible to individual investors). A hedge fund might even go as far as to have long and short positions in precious metals, stocks, corporate bonds, government bonds, foreign currency etc etc - all at once. By buying that theoretical fund, you aren't buying "a hedge fund" or "a mutual fund", you are buying into a wide variety of asset classes all at once. – a CVn Jul 9 '13 at 19:56
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    If a mutual fund isn't a type of investment, what would you classify it in contrast to options, shares of stocks, individual bond issues and other securities that exist? – JB King Jul 9 '13 at 19:59
  • I thought I already answered that in my previous comment; I would classify it as a way to purchase some other asset. By buying a stock mutual fund, you are buying stocks; indirectly, but still stocks. By buying a bond mutual fund, you are buying bonds. By buying a mix mutual fund, you might be buying stocks and bonds at once. And so on. – a CVn Jul 9 '13 at 20:01
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    I like "a type of investment vehicle" must better :) – a CVn Jul 9 '13 at 20:02
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I assume you mean Stock Mutual funds.

2008 wasn't that long ago. Down 37%. 07/08 combined were down 34%, or 07/09 down 20%. The point of the long term is that over time, a decade will almost ensure a positive return.

2 years is too short, in my opinion.

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    "I assume you mean Stock Mutual funds." That sounds like a very big assumption based on the question. Thanks for making it clear. (And no, I am not the downvoter.) – a CVn Jul 9 '13 at 19:58
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    "The point of the long term is that over time, a decade will almost ensure a positive return." If you bought a fund tracking the US market in January 2000 you would be still way behind in January 2010 and just breaking even now (not including inflation or dividends). – Victor Jul 9 '13 at 21:42
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    @Victor - I choose my words carefully. The almost was chosen over always, and to emphasize that if 10 years is almost then 2 years is clearly a bad idea. – JoeTaxpayer Jul 9 '13 at 23:19
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    @MichaelKjörling - thanks, I'm not sensitive. I might have answered, "sure, a money market mutual fund is what you should save in." OP hasn't clarified his intent, yet. – JoeTaxpayer Jul 10 '13 at 0:14

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