Money Wise:Financial Q & A

Brian Watson, CFP

Q: What is the best place to save money for a large purchase, such as a house or wedding, without having to worry about paying penalties upon withdrawing the money?

A: If the time horizon for the money is short, say six months or a year or two, the best place will be a CD or a Money Market account. These investments are very conservative and will provide a modest level of growth while protecting the principal. In the case of a CD, make sure you don't choose a length of time that is greater than you have. For example, if you need the money in one year, choose no longer than a one year CD. Although rates for a two-year CD will be higher than a one-year CD, you will pay a penalty if you withdraw money before the CD matures.

If your time horizon is longer than a few years, you could consider investments that may provide a higher rate of return than a CD or Money Market account, but would also have more volatility as well. One example would be a combination of stock and bond mutual funds. The shorter the time horizon, the less exposure you would allocate to the stock funds and more to the bond funds. A longer time horizon could warrant more exposure to stocks and less to bonds.