I plan to buy a home in two years. What is the best investment strategy for that time period?

CDs offer too small a return and stocks are too risky in the short term. What should I do?

CD returns are low, but with your plans that is still your best option. The market is too risky for money you will need in two years. Try to find a bank that is offering a special rate for new accounts. I have seen them as high as 7% for 7 months. After the initial period, look for another special. Or move it into another CD to avoid an automatic rollover into a a long term that would result in your paying a penalty.

Your time frame is too short for stocks. The best advice I can give is just accumulate cash and stash it into a savings account or CD. Perhaps you should reconsider your time frame if you need more cash than you are able to save.

I would suggest CD's or a money market account but since you feel the return is too small, perhaps you should consider loaning money to people via a site like

www.prosper.com

I don't have any experience with this but I've read an article stating that some folks are able to average 10% return on their loans.

Another possible place to park it would be in a junk bond fund (commonly called high yield bond funds). There is more risk there but the returns are usually in the 6-7% range.

I am doing the same thing that you are doing right now. I want to buy a house in 1.5 years. First off, the best strategy is to pay down any credit card debt because it is extremely difficult to find an investment that pays you higher interest rates that what you have to pay for credit cards.

I know that I am short term but I strongly suggest you put some money into the stock market. I am buying Pfizer (PFE) because based on the stock price and dividend offered, you are getting 5% of dividends every year. The great thing about dividends that people forget about is that dividend income will be taxed at a MAXIMUM of 15% while if you are in the 28% bracket, you will be paying 28% interest to the government for your bank interest income. Sure stocks can decline but if you get a slow price moving company like Pfizer, you probably won't lose much but there is always the added bonus of possibly selling for more. Look at PFE's chart. They have been increasing for years and years! So don't count out stocks.

Then for the other part of our savings, we are NOT GOING FOR CD's!!! What if you need the money or find a better investment? You can't get your money without forfeiting your interest you already owned. I opened a savings account at this bank~
http://www.ufbdirect.com/ufbdirect/
It pays 5.31 APY for a savings account and all you need is a dollar to start the account. Try it out!