Where to invest $50K+ down payment money for five years?

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Jesteroftheswamp
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Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sun Jun 10, 2018 7:55 pm

Is a money market account or money market fund still the recommended option?? Five years seems like a pretty long time so I am tempted to put at least SOME of it into stock mutual funds. What do you recommend? Also, even thigh I have $50K currently saved for the down payment, I will continue to save over the course of these five years.

nyclon
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Re: Where to invest $50K+ down payment money for five years?

Post by nyclon » Sun Jun 10, 2018 8:00 pm

Jesteroftheswamp wrote:
Sun Jun 10, 2018 7:55 pm
Is a money market account or money market fund still the recommended option?? Five years seems like a pretty long time so I am tempted to put at least SOME of it into stock mutual funds. What do you recommend? Also, even thigh I have $50K currently saved for the down payment, I will continue to save over the course of these five years.
This is quite a personal decision. CDs are your safest bet. Although your buying power may decrease if real Estate continues to rally, CDs are "safe".

I decided to take more risk and invest the down payment 80/20 in munis/stocks. Prior to that decision, it was in CDs.

sport
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Re: Where to invest $50K+ down payment money for five years?

Post by sport » Sun Jun 10, 2018 8:02 pm

I would use CDs for that purpose. You could get a 5-year CD, or a 3-year CD followed by a 2-year CD if you think rates will increase enough during the first 3 years. Brokered CDs are yielding 3% for 3 years and 3.3% for 5 years.

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Re: Where to invest $50K+ down payment money for five years?

Post by grabiner » Sun Jun 10, 2018 8:03 pm

For five years, you can invest in a five-year CD (if you know that it will be a full five years; you don't want to be forced to break the CD one month early), or an intermediate-term bond fund which has a duration of about five years.

Even in five years, there is substantial risk of losing money in the stock market. If you can stand losing half of whatever you put in stock after inflation, while getting inflation-matching returns from the bond portion, then you can hold some stock.
Wiki David Grabiner

Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sun Jun 10, 2018 8:27 pm

sport wrote:
Sun Jun 10, 2018 8:02 pm
I would use CDs for that purpose. You could get a 5-year CD, or a 3-year CD followed by a 2-year CD if you think rates will increase enough during the first 3 years. Brokered CDs are yielding 3% for 3 years and 3.3% for 5 years.
CD rates are fixed right?? If I buy a CD for three years earning 3%, that rate will not go down on that particular CD - is this correct?

3funder
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Re: Where to invest $50K+ down payment money for five years?

Post by 3funder » Sun Jun 10, 2018 8:31 pm

Five years is actually no time at all for stocks; you could make a quick killing, lose lots of money, or get a flat return if you happen to pick the wrong five-year period over which to invest. Right now, the good times keep a rollin' -- this means you have a strong chance of getting a "bad news bears" outcome. In this situation, cash/money market is king.

Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sun Jun 10, 2018 9:06 pm

sport wrote:
Sun Jun 10, 2018 8:02 pm
I would use CDs for that purpose. You could get a 5-year CD, or a 3-year CD followed by a 2-year CD if you think rates will increase enough during the first 3 years. Brokered CDs are yielding 3% for 3 years and 3.3% for 5 years.
Also, where do u find CDs over 3%? Every CD I find doesn’t offer much if any more than my money market

sport
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Re: Where to invest $50K+ down payment money for five years?

Post by sport » Sun Jun 10, 2018 9:47 pm

Jesteroftheswamp wrote:
Sun Jun 10, 2018 8:27 pm
sport wrote:
Sun Jun 10, 2018 8:02 pm
I would use CDs for that purpose. You could get a 5-year CD, or a 3-year CD followed by a 2-year CD if you think rates will increase enough during the first 3 years. Brokered CDs are yielding 3% for 3 years and 3.3% for 5 years.
CD rates are fixed right?? If I buy a CD for three years earning 3%, that rate will not go down on that particular CD - is this correct?
Yes, CD rates are fixed for the term of the CD. When the CD matures, there will be new rates to choose from.

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Re: Where to invest $50K+ down payment money for five years?

Post by sport » Sun Jun 10, 2018 9:50 pm

Jesteroftheswamp wrote:
Sun Jun 10, 2018 9:06 pm
sport wrote:
Sun Jun 10, 2018 8:02 pm
I would use CDs for that purpose. You could get a 5-year CD, or a 3-year CD followed by a 2-year CD if you think rates will increase enough during the first 3 years. Brokered CDs are yielding 3% for 3 years and 3.3% for 5 years.
Also, where do u find CDs over 3%? Every CD I find doesn’t offer much if any more than my money market
I specifically said "brokered CDs". You find these at a stock broker, such as Vanguard, Fidelity, Schwab, etc. Here is what you can find at Vanguard:
https://personal.vanguard.com/us/FixedIncomeHome

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Re: Where to invest $50K+ down payment money for five years?

Post by megabad » Mon Jun 11, 2018 4:54 pm

Jesteroftheswamp wrote:
Sun Jun 10, 2018 7:55 pm
Is a money market account or money market fund still the recommended option?? Five years seems like a pretty long time so I am tempted to put at least SOME of it into stock mutual funds. What do you recommend? Also, even thigh I have $50K currently saved for the down payment, I will continue to save over the course of these five years.
Well personally, if it really is a 5 yr time horizon I would dump $10k into I-bonds at the next rate increase. But the rest I would chuck in a MMF or CD depending on tax bracket.

Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Mon Jun 11, 2018 10:22 pm

megabad wrote:
Mon Jun 11, 2018 4:54 pm
Jesteroftheswamp wrote:
Sun Jun 10, 2018 7:55 pm
Is a money market account or money market fund still the recommended option?? Five years seems like a pretty long time so I am tempted to put at least SOME of it into stock mutual funds. What do you recommend? Also, even thigh I have $50K currently saved for the down payment, I will continue to save over the course of these five years.
Well personally, if it really is a 5 yr time horizon I would dump $10k into I-bonds at the next rate increase. But the rest I would chuck in a MMF or CD depending on tax bracket.
Can you shed a little more info on how your decision would be affected by specific tax brackets? Thank you.

megabad
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Re: Where to invest $50K+ down payment money for five years?

Post by megabad » Tue Jun 12, 2018 10:17 am

Jesteroftheswamp wrote:
Mon Jun 11, 2018 10:22 pm
[quote=megabad post_id=3968498 time=<a href="tel:1528754068">1528754068</a> user_id=135277]
[quote=Jesteroftheswamp post_id=3967120 time=<a href="tel:1528678532">1528678532</a> user_id=112492]
Is a money market account or money market fund still the recommended option?? Five years seems like a pretty long time so I am tempted to put at least SOME of it into stock mutual funds. What do you recommend? Also, even thigh I have $50K currently saved for the down payment, I will continue to save over the course of these five years.
Well personally, if it really is a 5 yr time horizon I would dump $10k into I-bonds at the next rate increase. But the rest I would chuck in a MMF or CD depending on tax bracket.
[/quote]

Can you shed a little more info on how your decision would be affected by specific tax brackets? Thank you.
[/quote]

Sorry, should have been more specific. If my tax bracket were so high that the tax equivalent yield on a muni money market fund was higher than the after tax yield of CD rates than I would invest in muni market fund. In practice this would likely look like your first investment goes into I-bonds, your next investments go into CDs if your term is 2,3,4,5 years; but once your time horizon shrinks to a year or two you might consider muni money market fund. That’s all I meant. Doesn’t matter much if your never going to add to your 50k, but if you continue to add to it then it could.

teddytimtam
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Re: Where to invest $50K+ down payment money for five years?

Post by teddytimtam » Tue Jun 12, 2018 4:23 pm

What is your savings rate/month? Or what is your projected savings amount in 5 years?

Depending on the answer of these two questions, then it might be feasible investing 50% in US Total Stock Market while keeping 50% in a money market. Continue adding funds to the money market/stock throughout the 5 years. And slowly reduce stock %, for example 10% each year.

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Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Tue Jun 12, 2018 4:29 pm

OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool

Jags4186
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Re: Where to invest $50K+ down payment money for five years?

Post by Jags4186 » Tue Jun 12, 2018 5:40 pm

What is special about 5 years? Is it because you will need 5 years to save up enough down payment to get the house you want? Because you will be in a different locale? I would not keep money in cash beyond your emergency fund until you are actually serious about looking for a house. I would invest it according to your AA, and when you actually are ready to look, assess your budget, assess how much you’ll need to close, then move funds to cash to cover that. I would consider keeping your bond position in your taxable account to guard against a drop in your available funds when you’re ready close to purchasing. It may not be tax efficient, but it’s no worse than CDs.

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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 1:29 pm

teddytimtam wrote:
Tue Jun 12, 2018 4:23 pm
What is your savings rate/month? Or what is your projected savings amount in 5 years?

Depending on the answer of these two questions, then it might be feasible investing 50% in US Total Stock Market while keeping 50% in a money market. Continue adding funds to the money market/stock throughout the 5 years. And slowly reduce stock %, for example 10% each year.
I save about $2000-$4,000 per month. My projected savings amount in five years is around $150K. I basically did what you recommend, I have saved an additional $20K in Stock Index Funds, however I have now been maxing out my Roth and have ceased putting more money into the index funds outside of retirement accounts.

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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 1:33 pm

KlangFool wrote:
Tue Jun 12, 2018 4:29 pm
OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool
Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?

Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 1:36 pm

Jags4186 wrote:
Tue Jun 12, 2018 5:40 pm
What is special about 5 years? Is it because you will need 5 years to save up enough down payment to get the house you want? Because you will be in a different locale? I would not keep money in cash beyond your emergency fund until you are actually serious about looking for a house. I would invest it according to your AA, and when you actually are ready to look, assess your budget, assess how much you’ll need to close, then move funds to cash to cover that. I would consider keeping your bond position in your taxable account to guard against a drop in your available funds when you’re ready close to purchasing. It may not be tax efficient, but it’s no worse than CDs.
Five years is just an estimated time frame when I think I will be more motivated to buy a house. It will not take my five years to save for a down payment. Being a single guy with no kids, I have currently decided to not take on the responsibilities of home ownership as I currently rent WAY BELOW my means, allowing me to save more, and be more flexible in living situations. Ultimately, I do not wish to buy a house and drastically risk my ability to save, along with all of the other responsibikities. So five years is just a projected timeframe and is not set in stone. Hell, I may buy in two years, never know.

Texanbybirth
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Re: Where to invest $50K+ down payment money for five years?

Post by Texanbybirth » Fri Jun 15, 2018 1:41 pm

The poster livesoft suggested a while back that we invest our house downpayment until we were ready to move. If I had listened to him, we'd have had about $15k more money in our down payment. (Our window wasn't as long as 5 years either.)

I'd wait to see what his advice is now. :happy

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ray.james
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Re: Where to invest $50K+ down payment money for five years?

Post by ray.james » Fri Jun 15, 2018 2:09 pm

Hello
I am not sure where you are. We are in CA and our down payment goal is higher than yours. We chose "limited term tax exempt fund" as our down payment. If you are in high tax rate,
50% ca/national intermediate term
50% limited term tax exempt is not bad.

If you want a little risk - 25% stocks and the rest 75% intermediate term bond fund is not bad either and liquidate to full bonds in year 3/4.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Where to invest $50K+ down payment money for five years?

Post by sport » Fri Jun 15, 2018 2:28 pm

Texanbybirth wrote:
Fri Jun 15, 2018 1:41 pm
The poster livesoft suggested a while back that we invest our house downpayment until we were ready to move. If I had listened to him, we'd have had about $15k more money in our down payment. (Our window wasn't as long as 5 years either.)

I'd wait to see what his advice is now. :happy
Market change cuts both ways. You also could have had $15k less. That is the problem.

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Re: Where to invest $50K+ down payment money for five years?

Post by CountOnIt » Fri Jun 15, 2018 2:49 pm

megabad wrote:
Mon Jun 11, 2018 4:54 pm
Well personally, if it really is a 5 yr time horizon I would dump $10k into I-bonds at the next rate increase.
^ +1
I would recommend:
  • Before you make too many drastic moves, obviously make sure you maintain an emergency fund.
  • Buy $10K/year in I-bonds for the next 5 years (and transition this into being your E-fund). (You will only buy I-bonds for 4 years if you really want to use these funds in 5 years.)
  • If it suits your personality, I would keep a chunk of cash to transfer between banks and collect sign-up bonuses over the 5 years. You can get good returns doing this while maintaining the money in risk-free accounts.
  • Invest the rest in low cost index funds...but you need to decide if you are willing to accept the related risks.
Nobody is going to be able to tell you exactly how much to keep risk-free. That is a decision you need to make, but you want to make sure your risk free funds are working as hard for you as possible. I highly recommend transitioning I-bonds into acting as your emergency fund. Because of the annual purchase limits, you might as well buy now and build a position. They have a one-year mandatory holding period before they are liquid - So you want your initial purchases to be made with funds outside of your actual E-Fund (so you maintain overall liquidity wile the first year passes). It sounds like you the the liquidity and time to do this now.

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Re: Where to invest $50K+ down payment money for five years?

Post by Toons » Fri Jun 15, 2018 2:52 pm

5 years.
Lifestrategy Income,
Reinvest the dividends.

:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 2:54 pm

CountOnIt wrote:
Fri Jun 15, 2018 2:49 pm
megabad wrote:
Mon Jun 11, 2018 4:54 pm
Well personally, if it really is a 5 yr time horizon I would dump $10k into I-bonds at the next rate increase.
^ +1
I would recommend:
  • Before you make too many drastic moves, obviously make sure you maintain an emergency fund.
  • Buy $10K/year in I-bonds for the next 5 years (and transition this into being your E-fund). (You will only buy I-bonds for 4 years if you really want to use these funds in 5 years.)
  • If it suits your personality, I would keep a chunk of cash to transfer between banks and collect sign-up bonuses over the 5 years. You can get good returns doing this while maintaining the money in risk-free accounts.
  • Invest the rest in low cost index funds...but you need to decide if you are willing to accept the related risks.
Nobody is going to be able to tell you exactly how much to keep risk-free. That is a decision you need to make, but you want to make sure your risk free funds are working as hard for you as possible. I highly recommend transitioning I-bonds into acting as your emergency fund. Because of the annual purchase limits, you might as well buy now and build a position. They have a one-year mandatory holding period before they are liquid - So you want your initial purchases to be made with funds outside of your actual E-Fund (so you maintain overall liquidity wile the first year passes). It sounds like you the the liquidity and time to do this now.
Thanks for the advice. What are some good resources involving Ibonds? I am almost completely ignorant on the subject, save for the little i read in Boglehesds Guide, which did not seem to praise them very highly.

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Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Fri Jun 15, 2018 2:59 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 1:33 pm
KlangFool wrote:
Tue Jun 12, 2018 4:29 pm
OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool
Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?
Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool
Last edited by KlangFool on Fri Jun 15, 2018 3:01 pm, edited 1 time in total.

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Re: Where to invest $50K+ down payment money for five years?

Post by Meg77 » Fri Jun 15, 2018 3:01 pm

5 year CDs are paying the same as 2 year CDs. No need to fix for the long term. YES you could get a 2 year CD at 2% if you look (Capital One 360 is offering this currently I think) but that is barely more than the Vanguard prime money market - which is totally liquid and also has the potential to go UP if rates continue to rise.

Long story short, don't bother with CDs. A total bond market fund would be my preference for a mid term period like that. They are yielding over 3% currently. Not nothing, but low risk - and may continue to rise. Or just a money market. Nothing wrong with that either. Stocks are very likely to suffer a major correction during the next 5 years jsut based on how long it's been since we've seen one. No reason to mess with that risk with funds you need in 5 years or less.
"An investment in knowledge pays the best interest." - Benjamin Franklin

CountOnIt
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Re: Where to invest $50K+ down payment money for five years?

Post by CountOnIt » Fri Jun 15, 2018 3:14 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 2:54 pm
Thanks for the advice. What are some good resources involving Ibonds? I am almost completely ignorant on the subject, save for the little i read in Boglehesds Guide, which did not seem to praise them very highly.
You buy them directly on the treasurydirect.gov website. They also have information on there you can explore. People complain about the website, but the nice thing is that you pay $0 in transaction costs/management fees.

The key points:
  • The investment is risk free. Wild fluctuations will not change the value of your principle investment (unlike a bond fund).
  • Must hold for 12 months after purchasing (no liquidity during this period).
  • After 12 months you have very good liquidity (can redeem bonds relatively quickly - You do not have to worry about market fluctuations at time of redemption).
  • If you redeem in the first 5 years, you forfeit the most recent 3 months interest (even with this forfeiture, the rate is still competitive with many other risk-free investment options - currently yielding 2.52%).
  • I-Bonds have a fixed component and a variable component. The variable component is tied to inflation (I-Bond), so you money will always keep up with inflation.
  • Taxes can be differed until redemption - so you have more powerful compounding than in a money market.
  • People sometimes postpone purchasing in hopes of receiving a higher fixed interest rate. This can be fruitful, but it is important to consider where you are holding the money while you are waiting for this higher rate - if it is not receiving a good yield, then you may be better off investing today and start earning interest today. The additional interest can sometimes outperform the increase in interest rate - or the difference may be trivial considering the amount of time stressing over it. Don't succumb to paralysis by analysis.
  • If you have a dependent that has higher-ed expenses in the year you redeem, you may be able to exclude the interest from your income. You should by no means count on this, but it is nice to have this built in as a potential benefit.
Pro tip: Buy at the end of the month and sell at the start of the month. The treasury treats all transactions that occur within the same calendar month the same - so you are not earning any additional interest if you buy your bond on the 1st rather than the 30th.

I-Bonds aren't the answer to everything, but I think they are a good tool to have in the toolbox.

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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 7:14 pm

KlangFool wrote:
Fri Jun 15, 2018 2:59 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 1:33 pm
KlangFool wrote:
Tue Jun 12, 2018 4:29 pm
OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool
Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?
Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool

I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?

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Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Fri Jun 15, 2018 7:31 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:14 pm
KlangFool wrote:
Fri Jun 15, 2018 2:59 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 1:33 pm
KlangFool wrote:
Tue Jun 12, 2018 4:29 pm
OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool
Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?
Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool

I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?
Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool

Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 7:49 pm

KlangFool wrote:
Fri Jun 15, 2018 7:31 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:14 pm
KlangFool wrote:
Fri Jun 15, 2018 2:59 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 1:33 pm
KlangFool wrote:
Tue Jun 12, 2018 4:29 pm
OP,

Why do you need to save 50K specifically for the house down payment? If your annual saving is high enough, you do not need to save for the house down payment.

KlangFool
Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?
Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool

I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?
Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool
1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 7:56 pm

CountOnIt wrote:
Fri Jun 15, 2018 3:14 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 2:54 pm
Thanks for the advice. What are some good resources involving Ibonds? I am almost completely ignorant on the subject, save for the little i read in Boglehesds Guide, which did not seem to praise them very highly.
You buy them directly on the treasurydirect.gov website. They also have information on there you can explore. People complain about the website, but the nice thing is that you pay $0 in transaction costs/management fees.

The key points:
  • The investment is risk free. Wild fluctuations will not change the value of your principle investment (unlike a bond fund).
  • Must hold for 12 months after purchasing (no liquidity during this period).
  • After 12 months you have very good liquidity (can redeem bonds relatively quickly - You do not have to worry about market fluctuations at time of redemption).
  • If you redeem in the first 5 years, you forfeit the most recent 3 months interest (even with this forfeiture, the rate is still competitive with many other risk-free investment options - currently yielding 2.52%).
  • I-Bonds have a fixed component and a variable component. The variable component is tied to inflation (I-Bond), so you money will always keep up with inflation.
  • Taxes can be differed until redemption - so you have more powerful compounding than in a money market.
  • People sometimes postpone purchasing in hopes of receiving a higher fixed interest rate. This can be fruitful, but it is important to consider where you are holding the money while you are waiting for this higher rate - if it is not receiving a good yield, then you may be better off investing today and start earning interest today. The additional interest can sometimes outperform the increase in interest rate - or the difference may be trivial considering the amount of time stressing over it. Don't succumb to paralysis by analysis.
  • If you have a dependent that has higher-ed expenses in the year you redeem, you may be able to exclude the interest from your income. You should by no means count on this, but it is nice to have this built in as a potential benefit.
Pro tip: Buy at the end of the month and sell at the start of the month. The treasury treats all transactions that occur within the same calendar month the same - so you are not earning any additional interest if you buy your bond on the 1st rather than the 30th.

I-Bonds aren't the answer to everything, but I think they are a good tool to have in the toolbox.
Thanks a lot for this, I will read it then read it again. Does the concept remain the same if I save for only two years?? My problem is that I do not know how big of a house I want, so I don’t really know how much I need to save for, and thus don’t have any way to determine what my down payment needs to be. So I just save and save and save assuming I will have made up my mind in 2-5 years

KlangFool
Posts: 10639
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Fri Jun 15, 2018 8:16 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:49 pm
KlangFool wrote:
Fri Jun 15, 2018 7:31 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:14 pm
KlangFool wrote:
Fri Jun 15, 2018 2:59 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 1:33 pm


Not sure what you mean. I already have $50K saved in money market account. Can you elaborate a little on what you’re getting at?
Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool

I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?
Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool
1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy
Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 8:33 pm

Meg77 wrote:
Fri Jun 15, 2018 3:01 pm
5 year CDs are paying the same as 2 year CDs. No need to fix for the long term. YES you could get a 2 year CD at 2% if you look (Capital One 360 is offering this currently I think) but that is barely more than the Vanguard prime money market - which is totally liquid and also has the potential to go UP if rates continue to rise.

Long story short, don't bother with CDs. A total bond market fund would be my preference for a mid term period like that. They are yielding over 3% currently. Not nothing, but low risk - and may continue to rise. Or just a money market. Nothing wrong with that either. Stocks are very likely to suffer a major correction during the next 5 years jsut based on how long it's been since we've seen one. No reason to mess with that risk with funds you need in 5 years or less.
Regarding the 3% on the bond fund, what about after taxes? Bond funds are infamous for being tax disadvantaged, I’d be willing to bet the real rate of return is closer to what you get in a money market account

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 8:35 pm

KlangFool wrote:
Fri Jun 15, 2018 8:16 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:49 pm
KlangFool wrote:
Fri Jun 15, 2018 7:31 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:14 pm
KlangFool wrote:
Fri Jun 15, 2018 2:59 pm


Jesteroftheswamp,

For example, if your annual saving is 50K, why do you do need to save 50K and wait 5 years for the house down payment? If and when you want to buy a house, you just direct your annual saving for the house down payment.

Your annual saving is 24K to 48K per year. If and when you want to buy a house, you just stop your annual saving for 1 to 1.5 year. Why do you need to keep 50K for the house down payment now?

KlangFool

I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?
Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool
1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy
Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I would need to sell if I have all of my money tied up in index funds instead of in MMA, down payment may be $100K. And if the market is down I’d pretty much be screwed.

KlangFool
Posts: 10639
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Fri Jun 15, 2018 8:41 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm
KlangFool wrote:
Fri Jun 15, 2018 8:16 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:49 pm
KlangFool wrote:
Fri Jun 15, 2018 7:31 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:14 pm



I’m just going to contribute to that amount since I am indecisive. What I do know for sure is I want a house, and I want to buy it in 2-5 years. I also want enough money liquid so should I decide to buy in two years, I have over 50K ready to go. Should I decide to buy in five years, I’ll have well over 100K ready to go.

*also, I need to clarify the title. I have $50K currently saved for a down payment. I originally planned on buying soon but I have decided to wait - no other reason other than not wanting to be locked down with the responsibility of a house right now. Would my investment outlook change if I save this money (and continue to contribute as the larger the DP the better) for two years instead of five?
Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool
1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy
Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Fri Jun 15, 2018 9:00 pm

KlangFool wrote:
Fri Jun 15, 2018 8:41 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm
KlangFool wrote:
Fri Jun 15, 2018 8:16 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:49 pm
KlangFool wrote:
Fri Jun 15, 2018 7:31 pm


Jesteroftheswamp,

1) What is your overall portfolio size?

2) What is your opportunity cost by doing this?

KlangFool
1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy
Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool
So you advice putting that $25K into the stock index fund? Since I already have $20K in Banguard Total Stock index that would make the total $45K. Would you recommend putting that $25K there even if I may buy a house in two years?

KlangFool
Posts: 10639
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest $50K+ down payment money for five years?

Post by KlangFool » Fri Jun 15, 2018 9:18 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 9:00 pm
KlangFool wrote:
Fri Jun 15, 2018 8:41 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm
KlangFool wrote:
Fri Jun 15, 2018 8:16 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 7:49 pm


1. My portfolio size meaning all of my investments? If so I have a 401K, max out Roth, and about 22K in Vanguard Index Funds and about 3k in Vanguard Total Bond Fund (all held outside of retirement). I also have the $50K currently in a money market account earning 1.6%. $15-20K of this is my emergency fund and so will remain indefinitely in this account, wih the remainder being my down paymentt money that I will continue saving for.

2. The opportunity cost is the hypothetical 6%-15% growth/return I could get by investing my down payment money into index funds, VS the 1.6% I am currently earning. Obviously theindex funds are much riskier, especially with a two-five year time frame, and thus have a chance of returning less than the MMA at a time when I decide to buy
Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool
So you advice putting that $25K into the stock index fund? Since I already have $20K in Banguard Total Stock index that would make the total $45K. Would you recommend putting that $25K there even if I may buy a house in two years?
What is your Asset Allocation? AA? 60/40? Just invest that 25K according to your AA as part of the one portfolio,

Why does it matters if you buy the house in X number of years? You do not need to sell that 25K?

KlangFool

fujiters
Posts: 135
Joined: Tue Mar 06, 2018 2:17 pm

Re: Where to invest $50K+ down payment money for five years?

Post by fujiters » Sat Jun 16, 2018 4:07 am

KlangFool wrote:
Fri Jun 15, 2018 9:18 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 9:00 pm
KlangFool wrote:
Fri Jun 15, 2018 8:41 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm
KlangFool wrote:
Fri Jun 15, 2018 8:16 pm


Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool
So you advice putting that $25K into the stock index fund? Since I already have $20K in Banguard Total Stock index that would make the total $45K. Would you recommend putting that $25K there even if I may buy a house in two years?
What is your Asset Allocation? AA? 60/40? Just invest that 25K according to your AA as part of the one portfolio,

Why does it matters if you buy the house in X number of years? You do not need to sell that 25K?

KlangFool
This.

It doesn't make sense to think about this money as your "down payment money". The money you will use for your down payment is the money you will be saving in the year you buy the house.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sat Jun 16, 2018 12:23 pm

KlangFool wrote:
Fri Jun 15, 2018 9:18 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 9:00 pm
KlangFool wrote:
Fri Jun 15, 2018 8:41 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm
KlangFool wrote:
Fri Jun 15, 2018 8:16 pm


Jesteroftheswamp,

<<1. My portfolio size meaning all of my investments?>>

Yes. So, if your overall portfolio is only 200K, you have kept 50K aka 25% of your portfolio not invested. In 5 years, you would keep 100K away from investing.

<<thus have a chance of returning less than the MMA at a time when I decide to buy>>

1) When you want to buy, you can use your annual saving to pay for the house down payment. So, why do you need to sell anything?

2) And, if you are unemployed aka no annual savings at that time, you will not be buying a house. So, that is not an issue either.

KlangFool
I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool
So you advice putting that $25K into the stock index fund? Since I already have $20K in Banguard Total Stock index that would make the total $45K. Would you recommend putting that $25K there even if I may buy a house in two years?
What is your Asset Allocation? AA? 60/40? Just invest that 25K according to your AA as part of the one portfolio,

Why does it matters if you buy the house in X number of years? You do not need to sell that 25K?

KlangFool
AA is probably closer to 90/10, I only have about 3K in bond funds across all of my investments. The reason it matters is because I sign a six month lease in my apartment; in six months when my lease is up I may find a good deal on a house, a condo, or a duplex and want to move ASAP. So wouldn’t it make sense to have that money in a MMA? Should I choose to move within six months or a year, it will be because I’ve found a good deal on property and thus don’t have time to save up for another year - I will need/want my money immediately. Does that make sense?

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sat Jun 16, 2018 12:26 pm

fujiters wrote:
Sat Jun 16, 2018 4:07 am
KlangFool wrote:
Fri Jun 15, 2018 9:18 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 9:00 pm
KlangFool wrote:
Fri Jun 15, 2018 8:41 pm
Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:35 pm


I’m having trouble with “1)” - sure I may be able to save (hypothetically) $30K annually, but I’d like to have the money in a liquid account ready to go for if/when I need it. What am I missing here?? I feel like I am misunderstand you on this point
Jesteroftheswamp,

1) You have 25K emergency fund.

2) You are saving 25K to 50K per year.

3) If you do not keep the extra 25K as the house down payment in reserve, you could invest this 25K in the stock index fund.

If and when you choose to buy, you have

A) 25K in the emergency fund.

B) Your monthly saving.

C) Your stock index fund in the taxable account.

You will have 50K from (A) to (C).

It is a one portfolio concept. If you keep everything invested as one portfolio, you could invest longer without separating everything into 1 year, 5 year, 10 year bucket.

KlangFool
So you advice putting that $25K into the stock index fund? Since I already have $20K in Banguard Total Stock index that would make the total $45K. Would you recommend putting that $25K there even if I may buy a house in two years?
What is your Asset Allocation? AA? 60/40? Just invest that 25K according to your AA as part of the one portfolio,

Why does it matters if you buy the house in X number of years? You do not need to sell that 25K?

KlangFool
This.

It doesn't make sense to think about this money as your "down payment money". The money you will use for your down payment is the money you will be saving in the year you buy the house.
In the year I choose to buy my house, I’d rather have a relatively larger down payment than smaller. So if I can save $50K in a year as a down payment that’s great, however I’d probably want to put at least $150K down to avoid as much debt as possible. Also, I sin six month lease on my apartment. Should I find a good deal on property when my lease is up - which could be 6 months from now or 6 months after that - I want to have that money liquid and ready and not in index funds. Does that make sense?

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welderwannabe
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Re: Where to invest $50K+ down payment money for five years?

Post by welderwannabe » Sat Jun 16, 2018 3:58 pm

Money market, CD, or possibly a short term bond fund (or even ultra-short). I wouldn't go any more aggressive than that.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Sandtrap
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Re: Where to invest $50K+ down payment money for five years?

Post by Sandtrap » Sat Jun 16, 2018 4:09 pm

For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
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Jesteroftheswamp
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Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sat Jun 16, 2018 5:25 pm

Sandtrap wrote:
Sat Jun 16, 2018 4:09 pm
For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
Image
Where did you find those treasury rates??

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Sandtrap
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Re: Where to invest $50K+ down payment money for five years?

Post by Sandtrap » Sat Jun 16, 2018 5:26 pm

Jesteroftheswamp wrote:
Sat Jun 16, 2018 5:25 pm
Sandtrap wrote:
Sat Jun 16, 2018 4:09 pm
For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
Image
Where did you find those treasury rates??
Vanguard listing. Go to website.
j

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sat Jun 16, 2018 7:09 pm

Sandtrap wrote:
Sat Jun 16, 2018 5:26 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 5:25 pm
Sandtrap wrote:
Sat Jun 16, 2018 4:09 pm
For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
Image
Where did you find those treasury rates??
Vanguard listing. Go to website.
j
So I can buy a very safe, pretty much risk free T-Bill from Vanguard earning over 2% just by holding for a year?!?

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Where to invest $50K+ down payment money for five years?

Post by Sandtrap » Sat Jun 16, 2018 8:19 pm

Jesteroftheswamp wrote:
Sat Jun 16, 2018 7:09 pm
Sandtrap wrote:
Sat Jun 16, 2018 5:26 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 5:25 pm
Sandtrap wrote:
Sat Jun 16, 2018 4:09 pm
For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
Image
Where did you find those treasury rates??
Vanguard listing. Go to website.
j
So I can buy a very safe, pretty much risk free T-Bill from Vanguard earning over 2% just by holding for a year?!?
Vanguard Fixed Desk with rate table.
https://personal.vanguard.com/us/funds/bonds/bonddesk

Jesteroftheswamp
Posts: 105
Joined: Fri Sep 02, 2016 4:25 pm

Re: Where to invest $50K+ down payment money for five years?

Post by Jesteroftheswamp » Sun Jun 17, 2018 8:10 pm

Sandtrap wrote:
Sat Jun 16, 2018 8:19 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 7:09 pm
Sandtrap wrote:
Sat Jun 16, 2018 5:26 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 5:25 pm
Sandtrap wrote:
Sat Jun 16, 2018 4:09 pm
For a 5 year time horizon.
1 Security of principal.
2 Liquidity

If you have funds in equities and the value of those funds drop by 30% when you need it. Then what?
If you have substantial income streams and funds already invested, then you could absorb the shock of that. But, if not, then what?
There is also a moderate approach of putting a percentage of your funds in a CD ladder, high yield account, MM, etc, and also some in a Total Stock index fund but that is not for everyone and depends on your financial situation. Most here would not do so unless they already had a substantial balanced portfolio to absorb the shock of a loss.

But again, you express that you value liquidity, ability to take advantage of a good deal on a home when it comes up. That means, again, CD's, etc.

FYI
Image
Where did you find those treasury rates??
Vanguard listing. Go to website.
j
So I can buy a very safe, pretty much risk free T-Bill from Vanguard earning over 2% just by holding for a year?!?
Vanguard Fixed Desk with rate table.
https://personal.vanguard.com/us/funds/bonds/bonddesk
Would purchasing bonds individually be better than a bond index fund?? Where do you find the coupon rate in those individual bonds?

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Where to invest $50K+ down payment money for five years?

Post by Sandtrap » Sun Jun 17, 2018 10:22 pm

Jesteroftheswamp wrote:
Sun Jun 17, 2018 8:10 pm
Sandtrap wrote:
Sat Jun 16, 2018 8:19 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 7:09 pm
Sandtrap wrote:
Sat Jun 16, 2018 5:26 pm
Jesteroftheswamp wrote:
Sat Jun 16, 2018 5:25 pm


Where did you find those treasury rates??
Vanguard listing. Go to website.
j
So I can buy a very safe, pretty much risk free T-Bill from Vanguard earning over 2% just by holding for a year?!?
Vanguard Fixed Desk with rate table.
https://personal.vanguard.com/us/funds/bonds/bonddesk
Would purchasing bonds individually be better than a bond index fund?? Where do you find the coupon rate in those individual bonds?
This is a deep subject and depends on your financial situation, need for liquidity, length you expect to hold, etc, etc, etc.
For many, the bond index fund, whether short/intermed/long term, has liquidity, diversification, etc, etc. Vanguard Total Bond, or Tax Exempt or Muni depending on Tax Bracket and availability per State, and so forth.
Search the forum archives on this as there are a zillion threads (discussions) on this.
aloha,
j

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Meg77
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Re: Where to invest $50K+ down payment money for five years?

Post by Meg77 » Mon Jun 18, 2018 4:23 pm

Jesteroftheswamp wrote:
Fri Jun 15, 2018 8:33 pm
Meg77 wrote:
Fri Jun 15, 2018 3:01 pm
5 year CDs are paying the same as 2 year CDs. No need to fix for the long term. YES you could get a 2 year CD at 2% if you look (Capital One 360 is offering this currently I think) but that is barely more than the Vanguard prime money market - which is totally liquid and also has the potential to go UP if rates continue to rise.

Long story short, don't bother with CDs. A total bond market fund would be my preference for a mid term period like that. They are yielding over 3% currently. Not nothing, but low risk - and may continue to rise. Or just a money market. Nothing wrong with that either. Stocks are very likely to suffer a major correction during the next 5 years jsut based on how long it's been since we've seen one. No reason to mess with that risk with funds you need in 5 years or less.
Regarding the 3% on the bond fund, what about after taxes? Bond funds are infamous for being tax disadvantaged, I’d be willing to bet the real rate of return is closer to what you get in a money market account
Money markets are taxable too - as are stock index funds and anything else held in a taxable account. So yeah, any interest/dividend or distributed gain on any investment made will be reduced by taxes. Municipal money markets and bond funds can be an alternative, but the equivalent yields don't make it worth it except in the highest tax brackets.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Wakefield1
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Re: Where to invest $50K+ down payment money for five years?

Post by Wakefield1 » Mon Jun 18, 2018 6:44 pm

Just noticed that interest rates on CDs at my Credit Union have increased significantly again (Arlington Community Federal Credit Union)
"no penalty" 15 month CDs starting at minimum $500.

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