Short term investment of 4-5 years

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redli0nswift
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Joined: Thu Oct 26, 2017 12:02 pm

Short term investment of 4-5 years

Post by redli0nswift » Thu Oct 26, 2017 12:08 pm

I'm looking to save for two cars (30k total) and a house downpayment (60k) for a total of $90k, at a rate of $30k per year. The cars won't be purchased for ~4 years from now and the house ~5 or more years. Given the amounts and the time period I'm torn between:

Ally savings currently 1.2%

I-Bonds at inflation which is currently 1.96%

Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX) or similar muni bond fund.

Given my particular situation, your thoughts?

runner3081
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Re: Short term investment of 4-5 years

Post by runner3081 » Thu Oct 26, 2017 2:19 pm

Savings or CD's. Not enough money to do anything fancier and add risk and make it worthwhile.

dbr
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Re: Short term investment of 4-5 years

Post by dbr » Thu Oct 26, 2017 2:22 pm

I bonds have a penalty for withdrawals before five years and also an annual purchase limit. That doesn't mean they can't help.

I wouldn't put the money in a muni bond fund unless the consequences of that fund being down in value just when you want the money are not of consequence.

mega317
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Re: Short term investment of 4-5 years

Post by mega317 » Thu Oct 26, 2017 2:25 pm

Well you can certainly do better than 1.2% if you're looking at 4 years. Ally 5 year CD, even after paying the early withdrawal penalty, will be 2% after 4 years.
VWALX is fine but you could see a ~10% drop. Are you willing to risk that? Some like to use shorter-term tax-exempt bond funds.
I bonds would be good, with the limitation of 10k per year and remember you can't redeem them for the first year.
5 year treasuries are around 2%, also not taxed by the state, and pretty liquid.

In the end, it seriously doesn't matter. You're splitting hairs over ~1% which over 4 years of increasing balance is in the range of $3,000 total.

My own experience: I was saving in the Ally savings account for our down payment. Our timeline was uncertain, we were just going to casually look for a while until we found something. I would have liked to take a little more risk, but if when we had found a house I told my wife we only had, say 95% of what was invested and that would have affected our offer, she wouldn't have been pleased.

inbox788
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Re: Short term investment of 4-5 years

Post by inbox788 » Thu Oct 26, 2017 2:32 pm

I would just lump it all in my AA and forget about it. Who knows when you'll buy the house, and cars may last you longer than 4 years. Also, if the low interest rate environment continues, it may be cheaper to lease or finance a car as it's been for the better part of a decade.

redli0nswift
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Re: Short term investment of 4-5 years

Post by redli0nswift » Thu Oct 26, 2017 3:23 pm

mega317 wrote:
Thu Oct 26, 2017 2:25 pm

In the end, it seriously doesn't matter. You're splitting hairs over ~1% which over 4 years of increasing balance is in the range of $3,000 total.

My own experience: I was saving in the Ally savings account for our down payment. Our timeline was uncertain, we were just going to casually look for a while until we found something. I would have liked to take a little more risk, but if when we had found a house I told my wife we only had, say 95% of what was invested and that would have affected our offer, she wouldn't have been pleased.
Yeah, this comment hits home. Doing the math shows I don't stand to gain much, ~$10k on the high end (VASIX). I will just keep it at Ally and I will probably put some into CDs.

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Pranav
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Location: Austin, Texas, United States

Re: Short term investment of 4-5 years

Post by Pranav » Thu Oct 26, 2017 3:39 pm

As you may know, the I-Bonds limit you mentioned is per person.
Pranav

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