Investing proceeds from home sale

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ndm502
Posts: 2
Joined: Sat Mar 03, 2018 10:44 pm

Investing proceeds from home sale

Post by ndm502 » Tue Mar 13, 2018 8:15 pm

My wife and I are in the process of selling our home, and are determining how best to handle to proceeds from the sale, which we expect to be ~$270,000. It'd be great to get some input on how we might best take advantage of this windfall.

Some relevant details:
- Outside of a few small purchases, we do not intend to spend most of this money--we want it to be saved
- We will be debt-free after the sale is finalized, aside from a 0% interest car loan ($16,000 remaining)
- We are planning on buying another house in 1-3 years, and expect to need at least $100,000 for a downpayment
- We have existing IRAs with Vanguard, and want to continue to work with them, and expect to open a standard taxable account into which we'd invest this money
- We have 6-9 mos of expense savings already in the bank as cash
- My wife and I are 33 and 43 years old, respectively
- We just had our first child and would like to consider how we might fund his and any future siblings' education; but we are not entirely sure that a 529 plan is necessary

Our questions are:
1. What investment vehicle would be best for the $100,000, given the shorter horizon? Would a Prime Money Market Fund be best, or a standard taxable account with the money invested in the Total Stock Market Index Fund, or some other savings vehicle?
2. We've used the Vanguard Target Retirement funds for our IRAs. Would this be a suitable fund for the remaining $170,000, which will be in a taxable account? Or would it be better to use the Total Stock Market Index Fund, which may be more tax efficient? Or something else entirely?
3. Any other guidance or advice on how best to manage this influx of cash in orer to maximize long-term returns?

Thanks in advance!

chevca
Posts: 1873
Joined: Wed Jul 26, 2017 11:22 am

Re: Investing proceeds from home sale

Post by chevca » Tue Mar 13, 2018 9:12 pm

ndm502 wrote:
Tue Mar 13, 2018 8:15 pm
Some relevant details:
- Outside of a few small purchases, we do not intend to spend most of this money--we want it to be saved
- We will be debt-free after the sale is finalized, aside from a 0% interest car loan ($16,000 remaining)
- We are planning on buying another house in 1-3 years, and expect to need at least $100,000 for a downpayment
A few small purchases like, a new house? Debt free, except for that upcoming mortgage to go along with the new house? :happy

Why not put it all towards the next house? Or, at least earmark it for the next house and evaluate what to do then? Mortgage rates could be higher in a year of three.

krow36
Posts: 1804
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Investing proceeds from home sale

Post by krow36 » Tue Mar 13, 2018 9:19 pm

ndm502 wrote:
Tue Mar 13, 2018 8:15 pm
Our questions are:
1. What investment vehicle would be best for the $100,000, given the shorter horizon? Would a Prime Money Market Fund be best, or a standard taxable account with the money invested in the Total Stock Market Index Fund, or some other savings vehicle? I would use a savings account if you expect to need it within 1-3 years.
2. We've used the Vanguard Target Retirement funds for our IRAs. Would this be a suitable fund for the remaining $170,000, which will be in a taxable account? Or would it be better to use the Total Stock Market Index Fund, which may be more tax efficient? Or something else entirely? There are problems with using a balanced fund like a TR fund in a taxable account. It would be better to use TSM or Total International Stock Mkt funds in your taxable account.
3. Any other guidance or advice on how best to manage this influx of cash in orer to maximize long-term returns? If you used Laura's format for asking questions, it would be much easier for us to make suggestions.
viewtopic.php?f=1&t=6212
Are you maxing out your employer's retirement accounts? Is there a 457 plan available? What state are you in? If you are not maxing out all retirement accounts, you could do so by using the windfall for your daily expenses rather than your salary.
Last edited by krow36 on Tue Mar 13, 2018 9:22 pm, edited 1 time in total.

delamer
Posts: 5780
Joined: Tue Feb 08, 2011 6:13 pm

Re: Investing proceeds from home sale

Post by delamer » Tue Mar 13, 2018 9:21 pm

Money you need in 1 to 3 years should be in cash equivalents. So the Prime Money Market fund would be a good option.

Do you receive a state tax deduction for contributions to a 529 plan? If so, I’d at least contribute to the amount of the deduction. We contributed even more, because of the value of being able to avoid taxes on earnings and withdrawals due to our tax bracket (federal and local).

It is generally better to keep stocks in taxable accounts and bonds in tax-deferred, because of the favorable tax treatment of qualified dividends and long-term gains. So you might want to rejigger your IRAs to hold more bonds and your new taxable to hold stocks.

broslami
Posts: 88
Joined: Wed Dec 27, 2017 10:06 pm

Re: Investing proceeds from home sale

Post by broslami » Tue Mar 13, 2018 9:46 pm

I'd stay all in cash. I like the 360 MMA - it's not the highest interest rate, but it's there when I need it, has a decent web interface, and I have other accounts so the convenience works.

As interest rates rise over the next few years, there should be downward pressure on home prices.

A few years from now being able to go in with a full cash offer will put you in a massive advantage, especially if you find the home of your dreams and there's competitive bidders. You'll also be able to shrug off unaffordable interest rates.

Odds are rates will increase quite a bit by then...of course nothing is certain, but putting your chips there is probably a solid bet that would pay off more often than not.

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