Down payment allocation advice - flexible timeline.

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ImmigrantSaver
Posts: 127
Joined: Tue Nov 22, 2016 6:24 pm

Down payment allocation advice - flexible timeline.

Post by ImmigrantSaver » Tue Sep 26, 2017 10:46 am

Hi everyone!

I have 300k in the savings account earmarked for down payment and emergency fund (250/50 split)

Last year I have been seriously considering to purchase a studio coop in Manhattan. Unfortunately (or fortunately) all my offers have been outbid and I decided to take a summer off to sit back and reconsider. After careful consideration I decided to postpone the purchase altogether for the time being and keep renting and saving for a bigger place down the road.

I am really mentally bothered to have so much money sitting in cash for undetermined period of time. And I am willing to take a little bit of risk. So here is my proposed allocation and I would greatly appreciate your feedback.

Keep 100k in online savings account.
Allocate 50k to limited term munis (VMLUX)
Allocate 100k to intermediate term munis (VWIUX)
Allocate 50k to VTSAX for growth opportunity.

I think I am comfortable losing as much as 50k as I would be able to catch up fairly quickly with yearly bonus. Or postpone buying, or buying a cheaper place etc

What do you think of this plan?

Some other info:
Maxing out 401k (incl mega backdoor) - 300k balance
Maxing backdoor Roth 11k balance
Taxable account 150k

Overall retirement allocation (away from ef/down payment) is 80/20 (55/45 US/international)

No debt.

Thank you in advance!
IS

aristotelian
Posts: 3033
Joined: Wed Jan 11, 2017 8:05 pm

Re: Down payment allocation advice - flexible timeline.

Post by aristotelian » Tue Sep 26, 2017 10:55 am

What is your marginal tax bracket? I would guess muni bonds in your taxable account would be a good choice.

livesoft
Posts: 56607
Joined: Thu Mar 01, 2007 8:00 pm

Re: Down payment allocation advice - flexible timeline.

Post by livesoft » Tue Sep 26, 2017 10:55 am

When I lived in NY I used 100% equity fund to save for a down payment. I was flexible and didn't mind the ups and downs.

Vanguard has New York tax-exempt funds. Have you considered them? https://personal.vanguard.com/us/funds/ ... IntExt=INT

Your $50K to Total Stock Market just seem too small to make a difference to me. How much are you adding to your downpayment fund every year?
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ImmigrantSaver
Posts: 127
Joined: Tue Nov 22, 2016 6:24 pm

Re: Down payment allocation advice - flexible timeline.

Post by ImmigrantSaver » Tue Sep 26, 2017 11:17 am

My marginal tax rate is 33%. I should able to add 80-90k net per year from bonus.

I haven't really considered NY tax exempt because it's not diversified. But maybe I should look into it?

livesoft
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Re: Down payment allocation advice - flexible timeline.

Post by livesoft » Tue Sep 26, 2017 12:57 pm

Think about the fact that you will be adding $80K to $90K to this pile every year. In reality, the growth or loss of the pile invested in the stock market really won't matter that much with that amount of contributions in that scenario. I'd go 100% VTSAX in this situation.
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Jack FFR1846
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Re: Down payment allocation advice - flexible timeline.

Post by Jack FFR1846 » Tue Sep 26, 2017 1:03 pm

Keep 100k in online savings account.
Perfect for money needed in 5 years or less.
Allocate 50k to limited term munis (VMLUX)
Allocate 100k to intermediate term munis (VWIUX)
Allocate 50k to VTSAX for growth opportunity.
Perfect for money NOT needed for more than 5 years.


Think of "ROI". That means return OF investment. Sometimes you don't want all of your money working hard for you because it might get overtired and run away and you never see it again.
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mega317
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Re: Down payment allocation advice - flexible timeline.

Post by mega317 » Tue Sep 26, 2017 1:44 pm

Jack FFR1846 wrote:
Tue Sep 26, 2017 1:03 pm
Allocate 50k to limited term munis (VMLUX)
Allocate 100k to intermediate term munis (VWIUX)
Allocate 50k to VTSAX for growth opportunity.
Perfect for money NOT needed for more than 5 years.
While this is good advice I think it's a little simplified. For a portfolio of just those components since 2002 the max drawdown was 11%. Some people would like to take that risk for an average return of, in this case, 5%. Maybe things work out and you can buy a little more house or do a little more work on it right away. If you have losses you could buy less house or delay the purchase until you save more.

ImmigrantSaver
Posts: 127
Joined: Tue Nov 22, 2016 6:24 pm

Re: Down payment allocation advice - flexible timeline.

Post by ImmigrantSaver » Tue Sep 26, 2017 2:14 pm

Thank you everyone for your input. Points taken. I just need to determine my own comfort level as I admit I mentally anchored somewhat to that 300 figure and need to work throught that. I think it would be more beneficial to consider my overall portfolio as one unit rather than downpayment/retirement buckets.

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