From selling to renting - what to do with proceeds?

[HockeyFan99]

We are selling our condo in DC and, assuming the sale goes through (fingers crossed), we will be fortunate enough to make back our down payment (low six figures).

We are relocating to NYC (for a new job), but do not have the means - or the certainty about how long we may stay - to be able to buy in NYC.

As a result, we expect to be renting in NYC for the foreseeable future. We also now have a lump sum of cash that we spent years saving for to buy our home, and not a clue what to do with the money.

Putting everything into the market now seems risky, but so does simply leaving it in a savings account returning less than inflation, especially without any near-term plan to buy another home.

Thus, we are looking for advice on what we might do with the money. We could possibly:

- Put the money toward our student loans, although all are at relatively low interest rates (3.5% or less)
- Put more money into a 529 account (we have a 1 YO son, and have been saving ~$10K/year for the past several years, but could certainly stand to save more)
- Continue to save cash for a future housing down payment, although without any clear indication of when/where that might be
- Put additional money into the stock market for retirement (we are both 37, and currently maxing out our retirement accounts and trying to save a little extra each year on top of that)

None of these options seem great, and so we are wondering if there are other options we aren't considering? Is there a non-equity investment that might be less risky and a good fit if we think we might want to use the money to try our hand at home ownership again in, say, another 3-5 years? Or if that is our time horizon should we just keep the money in the bank and accept some deterioration due to inflation?

Advice most welcome, and thank you all in advance from one of the "frequent reader / infrequent poster" types!

[PFInterest]

there are other options than the stock market....CDs, IBonds, NY Munis, other FI, etc.

[btenny]

I would put the sales proceeds in a taxable investment account with a 60/40 allocation. I suggest VTEB as the tax fee bond part and VTI as the stock part. You will pay a little tax on the dividends from VTI but not much. Since NYC is a new home area for you I would not do anything with this money for few years that makes it hard to retrieve if you want to buy a home in the future. So investing it in the market in stand alone account lets you see and know you have down payment money.

Good Luck,

[bloom2708]

How much in student loan debt? Can the amount make you "free of the dinosaur" that will be with you for years to come?

If renting for the foreseeable future, paying down/off student loan debt and shoring up your Emergency Fund seem like good options.

[Meg77]

I would pay off the student loans and then focus on rebuilding cash with the monthly savings. If you're considering letting the money languish in savings for a few years anyway, you may as well make a little yield on it by paying off the debt.

You're maxing out retirement and well on your way to have college savings covered. You don't have any other major goals like buying a home. I realize paying off cheap debt is pretty far down on the priority list but - congratulations! - that's where you are now.

Besides, you wouldn't borrow money at 3.5% to pad your checking account or to invest in the stock market near all time highs or to have on hand "just in case" some other investment opportunity arises. If you don't pay off those loans, that's exactly what you're doing.

[HockeyFan99]

Thanks for the suggestions everyone - we really appreciate it!

The student loan debt is around $80K total, with about $25K at 3.5% and the rest at 1.85%. It does seem like paying off at least the higher interest portion, and then repaying our savings with what we would have spent each month on the loans, makes sense.

As far as investing in the market, this is going to be a horribly naive question, but with stocks at an all-time high, does that make bonds more likely to hold their value, or equally risky? (Or am I just asking for trouble by trying to predict one way or the other?)

We do think it is very unlikely that we'll want to buy anything in the next two years, but beyond that our ability to predict our life trajectory deteriorates very rapidly, so I suppose for the balance (after paying off loans) I'm looking for an investment option that is better than cash but relatively stable. I suppose that's bonds? Is there a consensus index fund or mix of funds for this sort of scenario / time horizon?

[bayview]

Think about a target retirement or similar fund. Once you pick the AA, the fund does all the work for you, and it helps avoid the OMG-ing involved in putting a chunk of money into the market. It also dials back the obsessive looking and second-guessing over the individual elements of the fund.

After a while, when the dust settles, if you get some clarity about what you want to do, you can then just switch out of the target fund. In the meantime, it's earning some money without you feeling like you have committed to some sort of crazy market value.

[Bogle_Feet]

We also now have a lump sum of cash that we spent years saving for to buy our home, and not a clue what to do with the money.

Putting everything into the market now seems risky

Ever heard of bonds? https://finance.yahoo.com/chart/BND
Does this look "risky"?

[LeeMKE]

+1 Meg77

A 3.5% return on your capital is certain and really good for the first $80,000. Then send those payments to your taxable account to build up the emergency fund and eventually build another home down payment. I'm holding CD ladders right now: if interest rates rise, bonds fall, so I'm not adding new money to bonds right now. And, as you've mentioned, stocks are at a high that may not last.