It's recommended that u do not invest any funds that you'll need for the next 3 years. But while saving for wedding/reno/kids, isn’t 3 years too much of an opportunity cost to not be investing? - Seedly
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Anonymous

Asked on 01 Mar 2020

It's recommended that u do not invest any funds that you'll need for the next 3 years. But while saving for wedding/reno/kids, isn’t 3 years too much of an opportunity cost to not be investing?

If you can invest in a platform that allows you withdraw your money after this period of time, why shouldn't you invest the funds that you'll eventually need?

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Afterall it is a guideline. The purpose of investing is to achieve your above goals. Maybe spread out your goals apart to give yourself time . Set realistic goals. Do monitor your cash flow too

You can choose stocks as stocks are liquid in nature. I believe you are tempted to go into the market as you see the current situation as an opportunity. Choose a portion of your capital based on your risk profile. The amount is something you can afford to lose. And the goal is to optimise for 3 years. I would recommend dividend style as the price is less volatile. The aim is to collect dividends. Reit is an excellent choice based on your needs.

However, do make periodic check and research on your portfolio (every quarterly or related events). Jump into opportunities and take the profit when the reit/stock is overvalued.

Another investment option is p2p lending platform which is often classified as riskier options by many. The loans issued usually between 1 months- 12 months so it is easy to regulate within your time frame. The rule of thumb is higher the interest rate, the higher the risk. Choose property-secured loans and/or guaranteed loans(funding societies) to reduce your risk involved.

If you have any queries about p2p lendings, look up on the reviews in seedly or PM me​​​

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Because you don't have holding power couple with a specific time bound commitment, you shouldn't take the risk.

Don't FOMO.

If markets are down and your house is here or your wedding costs are here, you're forced to sell at a loss or end up not having enough to pay for them.

If the commitment is flexible, like retirement where you can retire 3 years earlier or later, then sure, you can afford a little more risk than something die die need in exactly 20 months away.

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You are correct to some extent. In fact, this is a common dilemma that a lot of my clients faced. Here is the real problem:

If I invest my renovation budget and the market drops by 10% at the end of 3 years, then can I only renovate 90% of my house?

If I don't invest my renovation budget and the market rises by 15% at the end of 3 years, then there goes my cinema-sized TV.

With this purpose in mind, it is all about taking calculated risk that matters. Here is one idea that may work.

Firstly, let's assume the goal is to have $50k at the end of three years.

Next, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

Thereafter, we create a budget from our cashflow to save $20k a year (can be any amount). The best way to do this is via automation and this is how I do mine: https://www.blog.pzl.sg/how-to-create-a-monthly-budget/

Based on the above calculation at zero growth rate (for simplicity), our annual savings work out to be $60k while we need $50k for our goal. In other words, we have $10k that we do not need as part of our goal. As a result, can we invest this set of money?

Having mentioned that, invest only money that you can afford to lose. This is because investment only yields non-guaranteed returns. Therefore, you should only take calculated risk. When in doubt, speak with an experienced professional who is able to help you through the process.

All in all, there are various ways that we can work out in order not to lose out on the opportunity cost. The above is one actionable item that I have done for myself as I am facing the same problem now! Haha. Therefore, it definitely makes sense to conduct comprehensive financial planning to this end.

Here is everything about me and what I do best.

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Davin
Davin
Level 7. Grand Master
Answered on 09 Mar 2020

If I am sure that I need the money 3 years down the road, I will consider something like single premium endowment plan or even saving bonds. 3 years is just too short to absorb market volatility hence I will go for low risk tool.

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Simple answer is risk.

If the amount may drop during this 3 years period, are you ok with it?

If you go after the gains but ignore the risks, you may not have the funds that you need 3 years later.

I make videos about interesting stuff at youtube here​​​

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Rais M
Rais M
Level 7. Grand Master
Answered on 01 Mar 2020

This is just a guideline. You can also set different budgets or savings for different purposes.

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Rave Ong Ci De
Rave Ong Ci De
Level 6. Master
Answered on 01 Mar 2020

It's a guideline, and you may choose whether you want to follow it or not. Ultimately, you need to know the rationale behind this guideline and whether/how much it applies to your individual circumstances.

Also, this is not mutually exclusive. If you budget well, you would be able to save for your wedding/reno/kids and have money to invest. ​​​

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