There are good things to do with your short-term money (funds you will need within a few years, for example), and less good things to do with it. Here's a rundown of some of your options:

Retirement accounts: Tempted to take out loans from your 401(k) or withdraw contributions (the money you've deposited) from your Roth IRA penalty-free? Unless you have a taste for cat food, don't shortchange your future. If you must, though, take the loan from your 401(k), because you can't replace borrowed Roth contributions. Don't even consider taking money out of a regular IRA unless you don't mind donating around half of it to Uncle Sam in the form of taxes and penalties.

Collectibles: If you need to raise funds from collectibles such as coins and antiques in a hurry, the sharks smell blood in the water, and you are less likely to get a good price for Great Aunt Betsy's Colonial-era sewing kit.

Long-term bonds: When you buy a bond, you are guaranteed a set amount of interest plus the return of your principal on the maturity date. Before that, all bets are off. If you want your principal back before the maturity date, you have to sell the bond for the going price, which could be less than face value. The longer the term, the more sensitive bond prices are to interest rate changes.

The stock market: This is a big no-no. Ask yourself: Why do stocks pay more than fixed-income investments over the long run? Because sometimes (the year 2000 comes to mind) stocks pay less over the short run. An average annual return of around 4% is a reasonable average for fixed-income investments. The market does better than that most of the time, but not always. From 1926 to 2000, the market returned less than 4% in one out of every three years, and most of those lower returns were negative. If you are saving for a down payment on a home, car, college, or new chin in the next few years, there is a significant possibility that a stock investment will be in the red when the time comes to buy those things. Just take a look at this table of returns for three very different companies to see the wide range of returns:

2003

2004

2005

Target (NYSE:TGT)

28.0%

35.2%

5.9%

Brinker International (NYSE:EAT)

2.8%

5.8%

10.2%

Callaway (NYSE:ELY)

27.2%

-19.9%

2.5%


Learn more about how to manage your short-term savings in our Savings Center.

As you get closer to retirement, how much should you invest in stocks? Our Rule Your Retirement calculators can help, and you can try them free for a month -- and get advice on the newsletter's discussion boards.