Creating Effective Long Term Non-Retirement Savings

Most Americans have the problem of not saving enough money for the future. They live on much more than they make, have all sorts of debt, and haven't done really anything for retirement planning. They certainly have financial problems to deal with, but what about people on the other end of the spectrum? These people have no debt, are diligently saving money for retirement, live on much less than they make, and still have money left over at the end of the month. Wouldn't that be a nice problem to have?

These people don't have a lot of desire to get toys, new cars, and other miscellaneous "stuff", but desire long term financial stability. They've usually maxed out their Roth IRA and are diligently putting money away into 401K plans, 403B plans, and the like, but there's still money left over for long term savings. They money isn't doing a whole lot of good sitting in a savings account, but they would like to be able to earn some extra money on that income and keep it relatively liquid for when the time comes to use it. This money could be for buying a home, moving to another part of the country, going on a grand vacation, or fulfilling a lifelong dream. Putting the money into a tax-beneficial account isn't a good idea, because then you can't get at the money until retirement. So where should that money go?

Although I'm fairly young, I recently ran into a similar situation such as this. I have no debt, college is paid for, I'm maxing out my Roth IRA, but don't have a 401k available yet, and have extra money sitting around in an account with ING Direct not doing much of anything. I researched a number of options to place the money where it could sit for five or ten years before I decide that I want to buy a house. After thoroughly researching money market accounts, CD ladders, precious metals, stocks, bonds, and the like, I ended up going with a good old fashioned mutual fund.

The one I chose was the Vanguard STAR fund. It's a mix of essentially everything that Vanguard has available, so the money's very diversified. It has a good mix of stocks, bonds, short-term reserves, and investments in all sorts of different industries. It's averaged an 11% rate of return since inception, so it's doing pretty well. Unlike most of Vanguard's funds, it only requires $1000 to open the account. After the initial $1000, you can throw as much or as little money as you'd like in there. Overall it's a great place to put your long term savings that's not for retirement. You'll have to pay capital gains taxes, but that's just part of life.

If you want to take the money out in two or three years for a specific purpose, chances are you should throw your money into a high-yield online savings account and let the money be. However, if you plan on leaving the money alone for quite a while and don't have any specific purpose for it in the near future, investing in a good balanced mutual fund such as the Vanguard Star fund is a great place to put one's long term savings.