Chapter 13. Invest for Short- and Intermediate-Term Goals

"I'm hoping you can give my new wife and me some recommendations for where to invest the money we're saving for a down payment for our first house. We hope to buy in about five years and we'd like to keep our money safe, but CD rates are so low."

Eric's e-mail seemed positively quaint when I received it in early 2005. The housing market wasn't a fully formed bubble yet, but signs of froth were everywhere. Aided and abetted by lax lending standards, young people and grandparents alike were rushing headlong into the world of home-buying, financing condos and houses with little or no money down and, in the worst instances, poor credit and shaky employment histories. Why wait to save up for a down payment when someone will finance the whole thing right away and you're guaranteed to double your money in the space of a few years?

We now know why. As the subprime crisis morphed into a housing market crisis, a financial freeze-up, and, eventually, a full-blown global economic recession, many individuals gained a newfound appreciation for the merits of deferring gratification and saving for their futures. The household savings rate in the United States rose to 6.9 percent in mid-2009, its highest level since 1993, after dipping into negative territory just a year earlier. Individuals like Eric and his wife are still planning to buy houses and cars and take trips, but, like Eric and his wife, they're doing it the old-fashioned way: They're ...

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