When to steer clear of stock funds

June 6, 2008

I have $35,000 in a money-market mutual fund earmarked for a new car next year, but I'm tempted to shift the cash into a stock mutual fund that has been producing stellar returns. My friend has been investing in the fund for three years and hasn't lost money yet, so it seems like a safe way to boost my return. What do you think?

I have $35,000 in a money-market mutual fund earmarked for a new car next year, but I'm tempted to shift the cash into a stock mutual fund that has been producing stellar returns. My friend has been investing in the fund for three years and hasn't lost money yet, so it seems like a safe way to boost my return. What do you think?

Don't kid yourself! The stock market is no place for money you'll need in a year or two, no matter how "safe" a particular fund may seem. You'd be making the common investment mistake of taking on far more risk than necessary to meet your financial goal. Instead, figure the amount of return you really need on any money you invest and take the least amount of risk possible to generate it. In this case, stick with a money-market fund or certificates of deposit.