What are my best options for short term growth?
I have saved $2,000 for emergencies and have $5,000 to invest. I don't want to be risky with it as I am changing professions. I have done some research about ETFs, money markets, stocks, bonds, and mutual funds. However, I don't believe I have learned enough to make a very wise decision.
It sounds as if you have much less to invest, in my opinion, if you may need it for your career change. Short-term investing is gambling. Investing is a long-term proposition.
I would consider how much you may need and if it may be all, then keep it in a FDIC-insured high-yield savings account until you have more clarity. However, $2,000 is not going to cover most emergencies or replacement of income for any substantial period of time. What would you have if you had 3 months without income, the need to replace / fix a car or major asset, and a health issue for example? I think you may have greater needs for an emergency fund, especially considering the unknowns with your income.
Great questions. Everyone wants growth with very little risk, but to better question is, how much cash do you need for emergencies? I would first want you to look at your monthly and yearly spending and suggest you keep 3-6 months in reserves. This way that $5,000 can be invested more comfortably.
The next question is if you are investing for a long or short period. If you were planning to invest for less than 5 years, I would recommend investing conservatively. If you plan on investing longer, then you can be more growth-focused, and lastly, if you decide to invest for retirement, then I would look at a retirement account and preferably a Roth IRA since the growth is tax-free.
In regards to the best investment option, an ETF could be your best bet. There are many benefits including low costs, liquidity, and tax benefits versus a mutual fund as mutual funds can cause capital gain distributions to you even if you lost money in your investment by the portfolio managers activity within the fund.
Bonds are the least risky out of all your options, but bonds aren't really looked for growth they are mainly looked for income stream.
Equities can give you the best short-term growth, but you are positioning yourself with risk but you get rewarded for that risk.
ETFs reduce your risk by investing in many company in a broad index than can focus on domestic or international large, mid and small-cap companies.
Good luck and hope this helps!