Yesterday’s post was all about how a long-term investment philosophy can give you great returns with almost no risk.

However, the key constraint with that philosophy is that you must be able to part with you cash for many years. Sometimes, that’s just not practical. 

Today’s post will discuss options for those times when you’re saving for a shorter-term goal – maybe a home down payment or, as we’ll be discussing later this chapter, your personal liberty. 

Investing for the medium-term

If you’ll need to withdraw from your investments within the next ten years, the stock market is rather risky.

The classic advice here is to select funds that blend stocks and bonds.

The shorter your time-horizon, the greater the balance should shift towards bonds. Your bank should have several of these balanced funds available. 

Another safe investment is to pay off your home loan faster.

In this case, your very secure investment return is the reduction in the amount of interest you have to pay. 

You can always increase your loan later if you need to cash out this investment. The only risk is if you temporarily lose your income and the bank does not want to increase your loan when needed. 

Don’t obsess about maximizing returns

In general, you should view investments of less than five years more like savings. The awesome power of compounding simply does not have enough time to work its magic over such short timeframes. 

Thus, simply choose something that’s safe and highly practical and set it up.

A couple of percentage points of higher or lower returns will not matter much if you’re just investing for a few years. 

However, just leaving your money in the bank is not recommended.

This actually makes a guaranteed loss (savings accounts nowadays pay less interest than inflation). It’s also too easy to use money in a conveniently accessible savings account for unnecessary consumption, getting you stuck on the hedonic treadmill. 

Split your strategy 

Everyone should have some exposure to the stock market, even if its just a few percent of their monthly income.

Regardless of your other plans, set up a small monthly stock market investment and just forget about it. 

Any other savings you can spare can go to shorter-term financial goals, following the options given in today’s post.

The way you split your investments is completely up to you. It’s just important to have both:

Short-term for reaching clear goals within the next couple of years and long-term for enjoying genuine freedom later in life.