Question

Reese is taking a vacation in 6 months. Although she has plenty of money to cover her trip, she would love to have even more spending money. Since she has a little extra money above and beyond her monthly budget, savings plan, and money already set aside for vacation, she has decided to invest it in a risky account. She believes this will give her a big return on her investment within the next 6 months. How would you respond to Reese's decision?

A.
Your plan is very well thought out. By investing in a risky account you should see a very large return on your investment within the next 3 to 6 months. Just make sure you watch your investment closely so you know if you need to increase the amount you invest to make enough by the time you leave for vacation.

B.
It would be wiser to save money in a guaranteed investment account such as a savings account, checking account, or CD. This will allow you to know exactly what you are saving from a day to day basis. Also, guaranteed accounts offer the largest returns in the shortest period of time.

C.
It isn't wise to depend on your investment to increase in value within the next 3 to 6 months. In case of fluctuation of value, you will need to be able to wait until it rebounds. Make other plans to save extra money for vacation or be satisfied with what you have already saved.

D.
Consider investing all of the money you have already saved for your vacation instead of the little extra money beyond what you need or already have set aside. By investing more in a risky account you should have a huge return in 6 months. Maybe that will be enough to cover two vacations.

Answer 1

C.

It's not wise to rely on a risky investment to grow within a short, fixed horizon like 3–6 months. Markets can fluctuate, and you may need to wait much longer for a rebound. Keep only truly extra discretionary funds in high‑risk investments; for money you need for a near‑term goal, use liquid, low‑risk options (high‑yield savings, money market, short CDs) or have a backup plan.