Where to store a house fund when you don't want a house for a while?

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investor1
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Where to store a house fund when you don't want a house for a while?

Post by investor1 » Fri Aug 05, 2016 9:31 pm

Howdy,

Some time ago, I convinced myself that I wanted to be a home owner. While I'm sure that will be the case down the road, it just isn't at the moment. I have been saving for a down payment for years and have roughly $100k sitting in a high interest savings account for this sole purpose.

I recently accepted a job offer in another city. While I am sure I'll love the job, I already know I don't want to settle in this city long term, so I don't plan on buying a house while I am there. I will likely be there for 5-10 years, and am unsure where I'll land next.

For this reason, I've decided that it is inefficient to keep my down payment fund in a savings account. I'd like to move it elsewhere to somewhere that I get a greater return, and I'd like your feedback on where that might be.

I'd like to keep these funds separate from my retirement portfolio since I see them being used for a house at some point, and I'm one of those stubborn bucket thinking types.

The first thing that pops into my mind is to open a taxable account and invest in TSM/TBM/TISM using an AA where I am comfortable for a 10 year run.

What are your thoughts? I-bonds? REITS? CD ladder?

mhalley
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Re: Where to store a house fund when you don't want a house for a while?

Post by mhalley » Fri Aug 05, 2016 9:41 pm

For a 10 yr time horizon I think a 3 fund portfolio with a conservative aa would be ok.

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Taylor Larimore
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Re: Where to store a house fund when you don't want a house for a while?

Post by Taylor Larimore » Fri Aug 05, 2016 10:00 pm

The first thing that pops into my mind is to open a taxable account and invest in TSM/TBM/TISM using an AA where I am comfortable for a 10 year run.
investor1:

The Three-Fund Portfolio should work, but Total Bond Market is not suitable in a taxable account if your income-tax bracket is over 25%. If such is the case, use Vanguard Tax-Exempt Intermediate-Term Fund.

With a 10-year time-frame, I would start with at least 50% bonds; then increase bonds about 5%/year.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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whodidntante
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Re: Where to store a house fund when you don't want a house for a while?

Post by whodidntante » Fri Aug 05, 2016 10:05 pm

I would invest it according to my general risk tolerance for long term investments and stop thinking of it as house money.

Morik
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Re: Where to store a house fund when you don't want a house for a while?

Post by Morik » Fri Aug 05, 2016 11:06 pm

I have a 10 year timeframe on a house down payment.
I currently have it in a 50/50 stock/bond split, market weight international, 3 fund portfolio.

(I tilt in my retirement account but don't feel this is long term enough to accept the extra volatility.)

I plan to glide down to 0% equities at 3 years out, and to be transitioning to lower and lower bond duration over time as well (by mixing cash as a 0 duration bond fund in with intermediate term bonds), all cash by 2 years out.

Ganacel
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Re: Where to store a house fund when you don't want a house for a while?

Post by Ganacel » Sat Aug 06, 2016 3:56 am

I have my house fund in I-bonds. You can't move the whole $100,000 immediately this way, but you could put some of it in I-bonds ($10,000 now and then another $10,000 in January), which will allow that money to keep up with inflation and be waiting and available to you in 5-10 years when you're ready to buy the house (or as early as one year from now if you don't mind a small early withdrawal penalty). If you're married, you can double those amounts to buying $20,000 of I-bonds now and another $20,000 in six months, which will get $40,000 moved. (There's also a way to buy some extra I-bonds via pre-paying additional taxes and getting an I-bond "refund," but I've never done that, so I'll just mention it as an option and leave the details to those who are more in the know.)

whomever
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Re: Where to store a house fund when you don't want a house for a while?

Post by whomever » Sat Aug 06, 2016 8:14 am

Ten years is long enough that you have to think about returns.

At 2% compounded, $1000 turns into $1219.
At 5% compounded, $1000 turns into $1629.

So I'd thing hard about how the situation where the ten years has passed, and you're thinking about buying that house, but I invested in stocks and the market had tanked in year 9, so what had become $1500 is presently worth only $750. That would mean you wouldn't buy the house, and would just keep doing whatever you were doing (renting, living in current small house, ...) until the recovery (hopefully) arrives. You can argue either side of that - on one hand, perhaps, staying in a modest house might seem like a good idea anyway in the depths of a recession. OTOH, you'd be missing buying at (probably) a good price.

If the money was for college, then your timeline doesn't have any flexibility. If your timeline is more flexible, you may be more willing/able to reach for more risk/return. Only you can say. That's how I'd frame the question, though - where will I be if the market tanks? If the market soars? If the market just muddles along? What's my Plan A and Plan B for each of those? How happy/unhappy will each of those alternatives leave me?

investor1
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Re: Where to store a house fund when you don't want a house for a while?

Post by investor1 » Sat Aug 06, 2016 10:27 am

Thanks for the advice, everyone. I think I'll go with a three fund portfolio with a conservative AA and a glide path similar to that of my retirement portfolio.

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raven15
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Re: Where to store a house fund when you don't want a house for a while?

Post by raven15 » Sat Aug 06, 2016 10:50 am

I am planning to use value averaging to slowly build a deep reserve of bonds. Basically when I get to admiral shares in my stocks, I will add or sell as much as needed to keep them growing at 2% per quarter plus inflation. The rest will go into bonds. This will have me at 100% stocks in the first year, about 40% stocks in 4 years, and gradually sliding down to about 20% after ten years, if I didn't buy a house by then and depending on how things go. Value averaging is a very efficient way to invest, and can potentially add a few percentages to the return on money invested in stocks.
It's Time. Adding Interest.

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dm200
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Re: Where to store a house fund when you don't want a house for a while?

Post by dm200 » Sat Aug 06, 2016 11:04 am

With such a long timeframe, one approach is to max out retirement funding (401k, IRA, etc.) - and then, as the timeframe is closer, divert any excess to saving for house.

investor1
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Re: Where to store a house fund when you don't want a house for a while?

Post by investor1 » Sat Aug 06, 2016 12:11 pm

dm200 wrote:With such a long timeframe, one approach is to max out retirement funding (401k, IRA, etc.) - and then, as the timeframe is closer, divert any excess to saving for house.
Yep, I've been doing that for years as well.

wdr1
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Re: Where to store a house fund when you don't want a house for a while?

Post by wdr1 » Sat Aug 06, 2016 1:09 pm

I parked mine in VWIUX & VCADX

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