changed goals-- how to reinvest savings?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
anonima
Posts: 31
Joined: Wed Jul 20, 2011 7:27 pm

changed goals-- how to reinvest savings?

Post by anonima »

We've recently taken a step back from our goal of purchasing a home. This is due to absurd real estate market conditions in our city (San Francisco), and the fact that after trying and failing to purchase a home during the last year we found a very reasonably-priced rental that suits our needs.

We had saved up a sizable down payment (~250K) which is in a 5 year CD at our credit union earning 1.71% with a 90 day interest penalty for early withdrawal. If the market conditions were to change significantly, we would again consider buying a home here. However, after some reflection we are not as attached to that goal- we see the benefits but also the tradeoffs, and though we'd like to stay in this expensive area we will never make a home purchase that doesn't make financial sense. So we certainly don't want to have that much money tied down in a CD.

We've discussed moving a little less than half of the CD over to our long-term portfolio at Vanguard, leaving the rest as is so that we would still have the money ready if the market changes in the next 3-5 years. (Rationale being that we'd be leaving enough for a 20% down payment on a home price that would feel acceptable to us.) However, as the goal of home ownership is now less important to us, and the timeline is certainly unpredictable, we're also considering moving the entire amount to our long-term portfolio or treating it as a separate pot of money with its own asset allocation. We're definitely willing to take on some more risk with this pot of money, since the goal of home ownership seems less important on both a personal and financial level.

Does anyone have any advice for how to approach this situation? Many thanks in advance.
HurdyGurdy
Posts: 1177
Joined: Wed May 09, 2012 10:21 pm

Re: changed goals-- how to reinvest savings?

Post by HurdyGurdy »

Moving the amount to your long-term portfolio seems like a good idea.
User avatar
momar
Posts: 1359
Joined: Sun Nov 13, 2011 11:51 am

Re: changed goals-- how to reinvest savings?

Post by momar »

Since you don't care if you buy a home in the future or not, the risk that the market will crash at the time you want to buy a home is not important. And since you managed to save so much, my guess is you will be saving a lot more such that if there is a crash you could still possibly get a great deal. Invest for the long term.

I agree that real estate in the bay area has gotten crazy. But at least in my corner we are still 20% off the 2006 peak (i am guesstimating based on list price of house near mine). And that is a nominal peak, so even more if you account for 7 years of inflation. I suspect it is close to fairly valued now based on rents I have seen, so we won't see another 25% run up in a year. But who knows? I'm also seeing a lot more new construction in the last 6 months.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
Hector
Posts: 1879
Joined: Fri Dec 24, 2010 1:21 pm
Contact:

Re: changed goals-- how to reinvest savings?

Post by Hector »

I would invest 250k for long term knowing I might not able to buy the house in next down term as my portfolio might also be down at that time and I would not like to go out of market at that time
rfburns
Posts: 438
Joined: Sun Oct 18, 2009 1:55 pm

Re: changed goals-- how to reinvest savings?

Post by rfburns »

We've discussed moving a little less than half of the CD over to our long-term portfolio at Vanguard
Please tell us what makes up your long-term portfolio for better discussion.
Topic Author
anonima
Posts: 31
Joined: Wed Jul 20, 2011 7:27 pm

Re: changed goals-- how to reinvest savings?

Post by anonima »

rfburns wrote:
Please tell us what makes up your long-term portfolio for better discussion.
Sorry for overlooking that. Currently, our asset allocation is:

70% equities: 57% domestic (VTSAX), 33% international (VTIAX), 10% REIT (VGSLX)
30% bonds: 50% total bond index (VBTLX), 50% TIPS (VAIPX)

Total is in the mid-six-figures, split about halfway between taxable and retirement accounts.

We also have a money market with 6 months of living expenses and a 529 plan for our infant son.

Thanks so much for all of the input- we truly appreciate it.
rfburns
Posts: 438
Joined: Sun Oct 18, 2009 1:55 pm

Re: changed goals-- how to reinvest savings?

Post by rfburns »

Since you have a sound investment plan it might be prudent to put a portion of your house savings into the market. But I would not put 50%. Maybe 20% with 5 years out.
Post Reply