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How to Use an Investment Account for a Travel Fund

 

When someone says “investing,” the majority of people think about long-term investments rather than short-term, because of the many advantages it brings: less effect from short-term fluctuations, fewer transaction costs, and tax advantages on capital gains, to name a few. However, short-term investing has its perks as well. You get more flexibility, there’s potential for considerable returns in a short amount of time, and you can see tangible results. Plus, you can use your investment account for short-term financial goals, saving money for a vacation.

 

Most investors would gasp at the idea of using a taxable investment account to meet such short-term goals, but there already is plenty of advice out there for those who want to use them for emergency funds, so why not use them for vacation funds as well? It isn’t that much different when you think about it, as you can borrow the principles of saving for an emergency fund and simply apply them to save for a travel fund. Here’s how you can make your travel dreams come true.

 

Set money aside each month

 

Just like you would do with an emergency fund or a tax-free savings account, put aside a set amount of money every month that is in your budget. It doesn’t have to be a huge number, as long as you stick to it every month. To make it even easier, make these automatic payments. That way, you won’t even have to think about it. The money will routinely be deposited into your investment account, and you can watch the number grow each month.

 

At the same time, you can plan on budgeting your trip early and keep an eye on the more expensive parts of your trip, like flights and accommodation. If you use a comparison website to compare cheap flights and compare hotel prices, when you see prices dipping, you can book early and stretch your travel budget to better match the amount in your investment account.

 

Index to reduce the risk

 

Most people’s concerns about short-term investing are the risks involved, as well as choosing the right stocks for short-term growth. Indexing removes the need to choose stocks and instead exposes you to a wider market segment so you can take advantage of the entire market’s performance, rather than worrying about one security in particular. It’s also generally more low-cost because, depending on your broker, you get charged a relatively low annual fee and don’t have to worry about a transaction fee for each stock you buy.

 

Know the tax laws

 

Keep in mind, when you sell you will have to pay tax on your capital gains. Understanding how much you could be paying is beneficial, so you aren’t surprised if you take out funds for your vacation and have to pay a fee you weren’t expecting. Also, it’s worth noting that if you sell at a loss, you could receive a tax benefit, so even though you lost on your portfolio, in a way your trip could be tax deductible.

 

Understand the risks

 

This method isn’t ideal for everyone – you should know the level of risk you’re willing to take before going this route. Fortunately, there are ways to mitigate this unsure feeling. If you watch the market a few months before your planned trip date and notice it is doing well, you might be alright to keep your savings the way they are, but if you worry an event will jeopardize the market and affect your savings, you can always move your investments from stocks to cash.