A question I probably get asked a couple times a year goes something like this: “I just sold my house and I won’t be buying a new one for another year. What should I do with that money in the meantime?”.
It’s an easy question to answer, but I think the answer is disappointing. The answer (particularly now, with decent savings and CD rates) is to put the money into a savings account or short term CD. A boring response to be sure. But let’s look at the alternatives. For investment, you really have 4 basic choices. Bank investments like CDs or savings, stocks, bonds or real estate. That’s pretty much the universe for the average person. Now let’s look at the time frames. Stocks, bonds and real estate are all long term investments, 3 years and up. You don’t want to buy a mutual fund (for example) and have it temporarily decline when you need that money. You’d then have to make a choice from several bad options.
Though it’s boring, if you’ll need that chunk of cash in the next 1 to 2 years, put it in the bank at the highest rate you can get (check bankrate.com for good savings and CD rates) and forget about it. Boring, but smart.