Need to park about 1,000,000 for 7-8 months

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Punish2324
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Need to park about 1,000,000 for 7-8 months

Post by Punish2324 » Tue Mar 05, 2019 1:50 am

Hi Bogleheads,

I have about 1M to park very safely for 7-8 months when I move to the UK and buy a house there. Am debating between:

1. High Yield Savings Accounts (like Marcus-2.25% APR, Barclay-2.20% APR, AMEX Savings-2.10% APR, etc...)
2. CDs
3. Money Market Funds
4. Any other suggestions?

What's my safest/best option?

retiringwhen
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Re: Need to park about 1,000,000 for 7-8 months

Post by retiringwhen » Tue Mar 05, 2019 7:13 am

The answer is usually VUSXX (Vanguard US Treasury Money Market) as it is the lowest cost US Treasury Fund out there and the safest thing short of buying your own T-bills is a Treasury MM.

Getting FDIC insurance for that amount would require splitting up the funds in three banks and it is unlikely to get a significant rate boost even with teaser CDs with that short of a duration, plus you sound like the when is a bit vague, MM is more liquid...

I argue FDIC insurance is no more safety than T-bills, they are both backed by the US Treasury.

Not sure of the tax situation, but is exempt from state taxes in the USA, not sure for ex-pats though.

bltn
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Re: Need to park about 1,000,000 for 7-8 months

Post by bltn » Tue Mar 05, 2019 7:14 am

Vanguard Prime mmf.

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welderwannabe
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Re: Need to park about 1,000,000 for 7-8 months

Post by welderwannabe » Tue Mar 05, 2019 7:23 am

Buy a 1M 6 month treasury bill. Auction every week.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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tennisplyr
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Re: Need to park about 1,000,000 for 7-8 months

Post by tennisplyr » Tue Mar 05, 2019 7:27 am

Ally Bank is another option.
Those who move forward with a happy spirit will find that things always work out.

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Wiggums
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Re: Need to park about 1,000,000 for 7-8 months

Post by Wiggums » Tue Mar 05, 2019 7:30 am

US Treasury or prime MM are very safe. Easy to move money in and out.

Online banks for CDs

MikeG62
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Re: Need to park about 1,000,000 for 7-8 months

Post by MikeG62 » Tue Mar 05, 2019 8:43 am

welderwannabe wrote:
Tue Mar 05, 2019 7:23 am
Buy a 1M 6 month treasury bill. Auction every week.
+1.

Auction that closed yesterday came in at yield of 2.53% - and it’s state income tax free.
Real Knowledge Comes Only From Experience

HeadTail
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Re: Need to park about 1,000,000 for 7-8 months

Post by HeadTail » Tue Mar 05, 2019 9:06 am

This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)

Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.

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Stinky
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Re: Need to park about 1,000,000 for 7-8 months

Post by Stinky » Tue Mar 05, 2019 9:33 am

retiringwhen wrote:
Tue Mar 05, 2019 7:13 am
The answer is usually VUSXX (Vanguard US Treasury Money Market) as it is the lowest cost US Treasury Fund out there and the safest thing short of buying your own T-bills is a Treasury MM.

Getting FDIC insurance for that amount would require splitting up the funds in three banks and it is unlikely to get a significant rate boost even with teaser CDs with that short of a duration, plus you sound like the when is a bit vague, MM is more liquid...

I argue FDIC insurance is no more safety than T-bills, they are both backed by the US Treasury.

Not sure of the tax situation, but is exempt from state taxes in the USA, not sure for ex-pats though.
+1

Minimize your stress level. Do this, presuming that it isn't tax-inefficient relative to your other options.
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dbr
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Re: Need to park about 1,000,000 for 7-8 months

Post by dbr » Tue Mar 05, 2019 9:34 am

HeadTail wrote:
Tue Mar 05, 2019 9:06 am
This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)

Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.
It could be in the list, but the OP used the term "safest" and probably responders take him at his word. Also short duration bond funds are not usually so short as a few months. Note that as one proceeds to the end of 7-8 months the actual time to needing the money dwindles while a bond fund maintains constant duration.

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LiveSimple
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Re: Need to park about 1,000,000 for 7-8 months

Post by LiveSimple » Tue Mar 05, 2019 10:22 am

MikeG62 wrote:
Tue Mar 05, 2019 8:43 am
welderwannabe wrote:
Tue Mar 05, 2019 7:23 am
Buy a 1M 6 month treasury bill. Auction every week.
+1.

Auction that closed yesterday came in at yield of 2.53% - and it’s state income tax free.
Please can someone help, how to get the treasury bill in auction ?

retiringwhen
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Re: Need to park about 1,000,000 for 7-8 months

Post by retiringwhen » Tue Mar 05, 2019 10:24 am

dbr wrote:
Tue Mar 05, 2019 9:34 am
HeadTail wrote:
Tue Mar 05, 2019 9:06 am
This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)

Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.
It could be in the list, but the OP used the term "safest" and probably responders take him at his word. Also short duration bond funds are not usually so short as a few months. Note that as one proceeds to the end of 7-8 months the actual time to needing the money dwindles while a bond fund maintains constant duration.
I would never consider a Muni fund as even close to as safe as a CD or Treasury, but then again I live in NJ and know what is happening to some of the worst of those bond issuers, and yes in the past 10 years multiple municipalities have had serious issues with their debt, it is not uncommon, beside becoming an expat makes any tax advantage of a muni-fund moot....

Full disclosure, i plan on some long-term holding of muni-funds as a tax arbitrage, but they will be consider part of my at-risk funds, not cash.

Lastly, I would not buy any short or ultra-short bond funds as the rate risk is not worth taking for a holding period under a year. One could make the case for an ultra-short fund for a holding period of 1-2 years, but they normally hold a somewhat large amount of lower rated corporate debt not just treasuries.

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Wiggums
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Re: Need to park about 1,000,000 for 7-8 months

Post by Wiggums » Tue Mar 05, 2019 10:29 am

LiveSimple wrote:
Tue Mar 05, 2019 10:22 am


Please can someone help, how to get the treasury bill in auction ?
This article has screen shots.

https://thefinancebuff.com/treasury-bi ... rket.html

michaeljmroger
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Re: Need to park about 1,000,000 for 7-8 months

Post by michaeljmroger » Tue Mar 05, 2019 10:35 am

dbr wrote:
Tue Mar 05, 2019 9:34 am
HeadTail wrote:
Tue Mar 05, 2019 9:06 am
This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)

Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.
It could be in the list, but the OP used the term "safest" and probably responders take him at his word. Also short duration bond funds are not usually so short as a few months. Note that as one proceeds to the end of 7-8 months the actual time to needing the money dwindles while a bond fund maintains constant duration.
I think you are confused. HeadTail is talking about a municipal money market fund such as VMSXX, not a bond fund.

dbr
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Re: Need to park about 1,000,000 for 7-8 months

Post by dbr » Tue Mar 05, 2019 10:37 am

michaeljmroger wrote:
Tue Mar 05, 2019 10:35 am
dbr wrote:
Tue Mar 05, 2019 9:34 am
HeadTail wrote:
Tue Mar 05, 2019 9:06 am
This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)

Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.
It could be in the list, but the OP used the term "safest" and probably responders take him at his word. Also short duration bond funds are not usually so short as a few months. Note that as one proceeds to the end of 7-8 months the actual time to needing the money dwindles while a bond fund maintains constant duration.
I think you are confused. HeadTail is talking about a municipal money market fund such as VMSXX, not a bond fund.
Yep, I goofed. Reply can be disregarded after the part about "safest."

nesdog
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Re: Need to park about 1,000,000 for 7-8 months

Post by nesdog » Tue Mar 05, 2019 12:37 pm

I've placed real estate proceeds into several 6 month T-Bills via Treasury Direct. Process was easy and only took a short amount of time. You can purchase shorter term to handle your needs.

printer86
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Re: Need to park about 1,000,000 for 7-8 months

Post by printer86 » Tue Mar 05, 2019 1:04 pm

I am currently building a house with our household funds. My solution is to use FDIC insured savings accounts as follows:

Account # 1: Park $250,000 in our joint savings account at our daily use bank to be used for the first few house construction draws.
Account # 2: Park $250,000 in an Ally savings account in my wife's name for for later draws.
Account # 3: Park $500,000 in a joint Ally savings account for the final draws.

The only change I would recommend for your situation is to replace my account #1 with an Ally savings account in your name.

ivk5
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Re: Need to park about 1,000,000 for 7-8 months

Post by ivk5 » Tue Mar 05, 2019 2:09 pm

Punish2324 wrote:
Tue Mar 05, 2019 1:50 am
I have about 1M to park very safely for 7-8 months when I move to the UK and buy a house there.
I would not speculate on forex rates with your house fund.

As soon as you know these funds are intended to fund a near term GBP liability, they should be in GBP cash or cash equivalent.

integrity
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Re: Need to park about 1,000,000 for 7-8 months

Post by integrity » Tue Mar 05, 2019 2:25 pm

Try this: https://www.maxmyinterest.com/

I first heard about it on this site. haven't used it myself though. You have to sign up for individual accounts at the banks, then the service will split up your money across those banks.

Shallowpockets
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Re: Need to park about 1,000,000 for 7-8 months

Post by Shallowpockets » Tue Mar 05, 2019 2:37 pm

One wonders where the money is now? Is it not parked somewhere at present?

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TomatoTomahto
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Re: Need to park about 1,000,000 for 7-8 months

Post by TomatoTomahto » Tue Mar 05, 2019 3:02 pm

HeadTail wrote:
Tue Mar 05, 2019 9:06 am
This is a purely theoretical question as I don't have that kind of money :-( : Is there any reason why nobody suggests a muni money market fund? I realize that the OP mentioned "very safe", but given the very short duration of MMF (muni or otherwise) the credit risk seems very minimal. Or is this a case where the extra gain is not enough to compensate for the OP's sleep? Put it in another way, when might one consider using the muni MMF vs treasury vs the taxable MMF? (assuming say that one is in the 22% bracket or higher and not live in a state with high state tax...)
Like I said this is a theoretical question, not a flame war. Comments and thoughts are most welcome.
Funny you should ask. We have around that amount in . . . wait for it, a Vanguard Municipal Money Market Fund. It’s safe enough for our purposes: taxes and home improvements that will be happening over the next few months. We are in a high tax bracket.
Okay, I get it; I won't be political or controversial. The Earth is flat.

yogesh
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Re: Need to park about 1,000,000 for 7-8 months

Post by yogesh » Tue Mar 05, 2019 3:10 pm

Here is risk ladder I use:
T-BILLS [Treasury]
VUSXX [Treasury Fund]
FDIC [Insured, backed by Treasury]
VMFXX [Federal]
VMMXX [Prime]
VMSXX [Municipal]
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

yogesh
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Re: Need to park about 1,000,000 for 7-8 months

Post by yogesh » Tue Mar 05, 2019 3:22 pm

integrity wrote:
Tue Mar 05, 2019 2:25 pm
Try this: https://www.maxmyinterest.com/

I first heard about it on this site. haven't used it myself though. You have to sign up for individual accounts at the banks, then the service will split up your money across those banks.
Every CU and checking account should do this for customers as fiduciary. Get the maximum interests to FDIC account.
Now I am asking more :-)
maxmyinterest.com to keep moving cash around online saving accounts for maximum interests on FDIC accounts
maxmydepositbonus.com to keep moving money around brokerages for maximum deposit bonus
minmyexpenseratio.com to keep moving ETFs around brokerages for minimum expense ratio but same asset allocation
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

retiringwhen
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Re: Need to park about 1,000,000 for 7-8 months

Post by retiringwhen » Tue Mar 05, 2019 3:34 pm

integrity wrote:
Tue Mar 05, 2019 2:25 pm
Try this: https://www.maxmyinterest.com/

I first heard about it on this site. haven't used it myself though. You have to sign up for individual accounts at the banks, then the service will split up your money across those banks.
For an annual ER of 0.08% (that is the fee this service costs), I would just buy VUSXX that has an ER of 0.09% and is a more liquid solution with no complicated schemes to get insurance but simply buys the underlying investments that ARE the insurance for an FDIC account (the full faith and credit of the US Treasury).

Seems to me that these schemes are really just Rube Goldberg machines to make people think investing is hard.

If you want to hold CD's for a known duration, that is a different thing, and maybe a service to find those could demonstrate some value, but frankly, the Vanguard or other broker's CD brokerage pages probably provide you all the information you need to buy CDs.

integrity
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Re: Need to park about 1,000,000 for 7-8 months

Post by integrity » Tue Mar 05, 2019 3:47 pm

I don't think there is anything illiquid about maxmyinterest.com. The funds get deposited in online checking and savings accounts.

Again, I'm not a cheerleader, but I think it's an interesting idea and if I had enough cash to use it, I'd certainly think about it.

VUSXX is fine as well.

retiringwhen
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Re: Need to park about 1,000,000 for 7-8 months

Post by retiringwhen » Tue Mar 05, 2019 3:58 pm

I find the idea of a robo-advisor for cash to be an extreme idea.

I wonder if it takes in account the tax-equivalent yields for various funds? If so, there may be some utility.

BTW, I would consider a tool moving your cash around in the background as a level of complexity that does actually decrease liquidity (I also assumed and I may be wrong, that they invested in CDs too.) If I needed cash fast, I would have to have things like ACH setup for all of these accounts! What a nightmare. Today, If I need cash, it is in one of three places with varying degrees of access limitation (credit union money market, Vanguard brokerage money market or Vanguard IRA money market.)

Every day, I get more into the Taylor Larimore mind-set of simplicity. It wins almost every time. Definitely less stressful in all cases.

GrowthSeeker
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Re: Need to park about 1,000,000 for 7-8 months

Post by GrowthSeeker » Tue Mar 05, 2019 4:13 pm

integrity wrote:
Tue Mar 05, 2019 2:25 pm
Try this: https://www.maxmyinterest.com/

I first heard about it on this site. haven't used it myself though. You have to sign up for individual accounts at the banks, then the service will split up your money across those banks.
It looks like they charge an 8 basis point fee.
Just because you're paranoid doesn't mean they're NOT out to get you.

yogesh
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Re: Need to park about 1,000,000 for 7-8 months

Post by yogesh » Tue Mar 05, 2019 4:24 pm

Simplicy comes with automation. Look at millenial investing with Acorn/M1/SoFi where they are challenging both brick morter and brokerages on the premise of simplicity using robotic automation. I am in 40s and I would definitely pay someone to manage the whole thing like bucket spillover strategy completely automated:

Paycheck->401K/TargetDateIndexFund
Paycheck->Checking (BillPay/ACH/Expense with $$ cap: 2 month expenses)
Checking->Emergency Saving ($$ cap at 6 month expenses)
Checking->Investment ($$ everything above invest into VT+VTEB 70/30)
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

MikeG62
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Re: Need to park about 1,000,000 for 7-8 months

Post by MikeG62 » Tue Mar 05, 2019 5:41 pm

LiveSimple wrote:
Tue Mar 05, 2019 10:22 am
MikeG62 wrote:
Tue Mar 05, 2019 8:43 am
welderwannabe wrote:
Tue Mar 05, 2019 7:23 am
Buy a 1M 6 month treasury bill. Auction every week.
+1.

Auction that closed yesterday came in at yield of 2.53% - and it’s state income tax free.
viewtopic.php?f=1&t=248432&p=3983877&hi ... y#p3983877

Please can someone help, how to get the treasury bill in auction ?

See here:

viewtopic.php?f=1&t=248432&p=3983877&hi ... y#p3983877
Real Knowledge Comes Only From Experience

aspiringboglehead
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Re: Need to park about 1,000,000 for 7-8 months

Post by aspiringboglehead » Tue Mar 05, 2019 5:46 pm

ivk5 wrote:
Tue Mar 05, 2019 2:09 pm
I would not speculate on forex rates with your house fund.

As soon as you know these funds are intended to fund a near term GBP liability, they should be in GBP cash or cash equivalent.
I agree. At the very least, I would reduce some of the currency risk by parking some of the money in UK Treasury bills, even though the rates are lower.

scoreboard
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Re: Need to park about 1,000,000 for 7-8 months

Post by scoreboard » Tue Mar 05, 2019 6:26 pm

Short Tesla and end up with $2 million? :D

IHateCasinos
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Re: Need to park about 1,000,000 for 7-8 months

Post by IHateCasinos » Tue Mar 05, 2019 6:48 pm

much more relevant in my mind would be the exchange rate that you get.
2 things, as someone who does forex often:
1. buying forward cover is quite simple from one of the big guys and could well be worth it.
2. using Transferwise.com when you actually send the funds over, to drastically reduce your costs of conversion to GBP. i have done >USD100'000. its a game changer.

the forex rate swing can be 2% any day, so holding it in USD might not win the eventual number. and if you think stocks are a gamble, wait until you try forex. Hence the forward contract. (its priced at the interest rate differential plus about15bps)

Marc.

megabad
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Re: Need to park about 1,000,000 for 7-8 months

Post by megabad » Tue Mar 05, 2019 7:02 pm

IHateCasinos wrote:
Tue Mar 05, 2019 6:48 pm
2. using Transferwise.com when you actually send the funds over, to drastically reduce your costs of conversion to GBP. i have done >USD100'000. its a game changer.
+1 Actually a third party of some kind (like Transferwise) is required for many of the "parking" options that OP has listed. Most banks with high interest rates do not allow international wires. Those that do have absolutely horrendous exchange rates. I would consider Transferwise a necessity at $1,000,000 USD. Basically my big bank's fees for that Transfer would be >20,000 USD. I think Transferwise would be something like $4,000 USD.

ericcohen
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Re: Need to park about 1,000,000 for 7-8 months

Post by ericcohen » Tue Mar 05, 2019 7:23 pm

Buy money market FMPXX and earn ~ $2000 a month in interest per million. MM is more liquid than treasury. No transaction costs and no bid-ask spread to cover.

https://fundresearch.fidelity.com/mutua ... /316175207

:sharebeer

AlohaJoe
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Re: Need to park about 1,000,000 for 7-8 months

Post by AlohaJoe » Tue Mar 05, 2019 8:02 pm

ivk5 wrote:
Tue Mar 05, 2019 2:09 pm
Punish2324 wrote:
Tue Mar 05, 2019 1:50 am
I have about 1M to park very safely for 7-8 months when I move to the UK and buy a house there.
I would not speculate on forex rates with your house fund.

As soon as you know these funds are intended to fund a near term GBP liability, they should be in GBP cash or cash equivalent.
I agree. All the people talking about Treasuries being safe? They aren't safe for the OP's situation.

If you want that money to be safe then you need to exchange it to GBP today and invest it in Gilts.

Otherwise you expose yourself to exchange rate risk. If you convert today $1,00,000 becomes £760,000. But if you had done it on January 1, you would have had £787,000.

In other words, you lost £27,000 over a 3-month period -- even if you invest in Treasuries or Vanguard Money Market or anything else. Over the past 12 months the GBP/USD exchange rate has changed by at least +/- £40,000.

sergio
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Re: Need to park about 1,000,000 for 7-8 months

Post by sergio » Tue Mar 05, 2019 8:03 pm

Gold bars.

printer86
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Re: Need to park about 1,000,000 for 7-8 months

Post by printer86 » Tue Mar 05, 2019 9:01 pm

How does the OP deal with the looming brexit date?

DJN
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Re: Need to park about 1,000,000 for 7-8 months

Post by DJN » Tue Mar 05, 2019 9:33 pm

Brexit should be a real concern over the OP timeframe:
1/3 in dollar accounts
1/3 in sterling accounts
1/3 in euro accounts
ASAP and before the end of March or maybe that's now the end of April? Not science but crude o/a approach might ameliorate the ups and downs over the next 3 -4 months.

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whodidntante
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Re: Need to park about 1,000,000 for 7-8 months

Post by whodidntante » Tue Mar 05, 2019 10:58 pm

printer86 wrote:
Tue Mar 05, 2019 9:01 pm
How does the OP deal with the looming brexit date?
I suggest a hammock.

inbox788
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Re: Need to park about 1,000,000 for 7-8 months

Post by inbox788 » Wed Mar 06, 2019 3:19 am

Wiggums wrote:
Tue Mar 05, 2019 7:30 am
US Treasury or prime MM are very safe. Easy to move money in and out.

Online banks for CDs
The difference between Vanguard Federal MM vs Prime MM is usually no more than a free lunch, but with that much parked, you might be talking about dozens of free lunches, so I'd pick the Prime MM myself.
DJN wrote:
Tue Mar 05, 2019 9:33 pm
Brexit should be a real concern over the OP timeframe:
1/3 in dollar accounts
1/3 in sterling accounts
1/3 in euro accounts
ASAP and before the end of March or maybe that's now the end of April? Not science but crude o/a approach might ameliorate the ups and downs over the next 3 -4 months.
Nice way to hedge any outcome. I'd be looking into what the conventional wisdom were with regard to Brexit on the US/pound and EU/pound exchange rates as well as what it might to do the UK real estate market. My speculation is that the real estate would decrease and the US dollar gain strength, so while I was going to suggest converting it all to UK-pounds immediately to eliminate all currency exchange risk, I'm thinking 50/50 US/UK may be more prudent. Adding the EU is just another hedge. With 8 months, you could dollar cost average (pound average) 1/8M each month.

Look into Interactive Brokers. I've never used it myself, but have heard they're very low fees.
http://blog.plsoucy.com/2012/11/best-wa ... e-on-fees/

ivk5
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Re: Need to park about 1,000,000 for 7-8 months

Post by ivk5 » Wed Mar 06, 2019 3:46 am

Unclear to me why to hedge unless there is a chance of change in OP’s plans. If OP is buying a house in GBP in a fixed timeframe regardless, I would strongly urge holding the funds in GBP or risk losing substantial purchasing power (an uncompensated risk).

typical.investor
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Re: Need to park about 1,000,000 for 7-8 months

Post by typical.investor » Wed Mar 06, 2019 3:56 am

ivk5 wrote:
Wed Mar 06, 2019 3:46 am
Unclear to me why to hedge unless there is a chance of change in OP’s plans. If OP is buying a house in GBP in a fixed timeframe regardless, I would strongly urge holding the funds in GBP or risk losing substantial purchasing power (an uncompensated risk).
I agree. If GBP drops after Brexit (or no Brexit) and you had already converted before that, so what? You are buying UK goods in GBP so still have the same amount.

If GBP rises after Brexit (or no Brexit), and then you convert USD or EURO, you will not be able to buy as much of a house.

This talk of hedging sounds like an attempt to time the market and buy GBP at some expected low in the future.

And why is anyone saying to save in USD to purchase in GBP?

inbox788
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Re: Need to park about 1,000,000 for 7-8 months

Post by inbox788 » Wed Mar 06, 2019 1:04 pm

typical.investor wrote:
Wed Mar 06, 2019 3:56 am
And why is anyone saying to save in USD to purchase in GBP?
I think OP is currently saving in USD, and action need to be taken to convert (need to overcome inertia). Brexit could be nothing, or a blip or a step up or down. It's a known unknown.

If you're going to make a $1M decision, 7 years or 7 weeks or 7 days from now, which day do you pick? Or is it the day you get the first, second or third job offer. Or the day you decide on which offer you choose to accept? Or the day you land? Spreading out risk a little may help avoid extreme results vs. getting very lucky or unlucky.

ivk5
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Re: Need to park about 1,000,000 for 7-8 months

Post by ivk5 » Wed Mar 06, 2019 1:27 pm

inbox788 wrote:
Wed Mar 06, 2019 1:04 pm
typical.investor wrote:
Wed Mar 06, 2019 3:56 am
And why is anyone saying to save in USD to purchase in GBP?
I think OP is currently saving in USD, and action need to be taken to convert (need to overcome inertia). Brexit could be nothing, or a blip or a step up or down. It's a known unknown.

If you're going to make a $1M decision, 7 years or 7 weeks or 7 days from now, which day do you pick? Or is it the day you get the first, second or third job offer. Or the day you decide on which offer you choose to accept? Or the day you land? Spreading out risk a little may help avoid extreme results vs. getting very lucky or unlucky.
Distinguishing action and inaction is a non sequitur and economically meaningless. OP is making an active choice each day to stay in USD, just as each day I stay invested I am effectively lump summing into the market.

Once the decision is made that triggers a known future GBP liability, anything other than immediate conversion (to lock in ability to fund liability) is currency speculation.

If the decision is not so binary, that’s another story and perhaps stretching out the conversion makes more sense (as plans firm up).

inbox788
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Re: Need to park about 1,000,000 for 7-8 months

Post by inbox788 » Wed Mar 06, 2019 2:38 pm

ivk5 wrote:
Wed Mar 06, 2019 1:27 pm
inbox788 wrote:
Wed Mar 06, 2019 1:04 pm
typical.investor wrote:
Wed Mar 06, 2019 3:56 am
And why is anyone saying to save in USD to purchase in GBP?
I think OP is currently saving in USD, and action need to be taken to convert (need to overcome inertia). Brexit could be nothing, or a blip or a step up or down. It's a known unknown.

If you're going to make a $1M decision, 7 years or 7 weeks or 7 days from now, which day do you pick? Or is it the day you get the first, second or third job offer. Or the day you decide on which offer you choose to accept? Or the day you land? Spreading out risk a little may help avoid extreme results vs. getting very lucky or unlucky.
Distinguishing action and inaction is a non sequitur and economically meaningless. OP is making an active choice each day to stay in USD, just as each day I stay invested I am effectively lump summing into the market.

Once the decision is made that triggers a known future GBP liability, anything other than immediate conversion (to lock in ability to fund liability) is currency speculation.

If the decision is not so binary, that’s another story and perhaps stretching out the conversion makes more sense (as plans firm up).
I'm not sure the behavioral economist would agree about economically meaningless. Just look at automatic enrollment opt in vs opt out in 401k plans. https://humaninterest.com/blog/the-powe ... nrollment/

I think at this time, it's a passive choice to stay in USD, not active. At some point, an active step must be taken to align the plan with reality. It's not clear if OP is ahead or behind or just right on top of the matter. I'm still trying to figure what this "trigger" event/decision would be.

And whether you call it market timing or not, Brexit is an event that is coming soon and will have consequences. It might be a binary event, or it might get dragged out into a longer process (than it already is), but a known uncertainty event milestone is ahead that will increase volatility. If the risk of job offer being cancelled may be higher with a hard brexit, should that be ignored?

https://www.independent.co.uk/news/busi ... 09911.html

We all know it's winter and there are storms, but a storm is coming and this winter has been worse than most, and the coming storm may be the biggest of them all, do you alter your travel plans or make any special preparations?

printer86
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Re: Need to park about 1,000,000 for 7-8 months

Post by printer86 » Wed Mar 06, 2019 7:11 pm

If I had to decide which currency to be parked in right now, I would pick the one that I feel will be the more stable one during my "parked" timeline. In my opinion, the looming Brexit creates more uncertainty in the Pound than the Dollar. Therefore, I would be parking my money in US based FDIC insured vehicles until I needed to make a spending decision.

cowbman
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Re: Need to park about 1,000,000 for 7-8 months

Post by cowbman » Wed Mar 06, 2019 7:55 pm

ericcohen wrote:
Tue Mar 05, 2019 7:23 pm
Buy money market FMPXX and earn ~ $2000 a month in interest per million. MM is more liquid than treasury. No transaction costs and no bid-ask spread to cover.

https://fundresearch.fidelity.com/mutua ... /316175207

:sharebeer
This is no better than offerings from Vanguard or even online savings accounts/CD's. With a sum of 1 MM, I'd probably just buy Treasuries directly. 6 month treasuries are offering 2.53% and 1 years are 2.54% plus no state/local income taxes. US Treasury is as safe as you get to boot.

Topic Author
Punish2324
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Re: Need to park about 1,000,000 for 7-8 months

Post by Punish2324 » Wed Mar 06, 2019 8:45 pm

ivk5 wrote:
Tue Mar 05, 2019 2:09 pm
Punish2324 wrote:
Tue Mar 05, 2019 1:50 am
I have about 1M to park very safely for 7-8 months when I move to the UK and buy a house there.
I would not speculate on forex rates with your house fund.

As soon as you know these funds are intended to fund a near term GBP liability, they should be in GBP cash or cash equivalent.
Hmm, interesting. Thanks for pointing that out. What do you mean by GBP cash or cash equivalent. Please elaborate. The money is currently in a property that will be selling soon.

Topic Author
Punish2324
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Joined: Tue Mar 05, 2019 1:39 am

Re: Need to park about 1,000,000 for 7-8 months

Post by Punish2324 » Wed Mar 06, 2019 8:46 pm

Shallowpockets wrote:
Tue Mar 05, 2019 2:37 pm
One wonders where the money is now? Is it not parked somewhere at present?
It is in a house which is on sale. The sell should go through soon.

aspiringboglehead
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Re: Need to park about 1,000,000 for 7-8 months

Post by aspiringboglehead » Wed Mar 06, 2019 9:15 pm

Punish2324 wrote:
Wed Mar 06, 2019 8:45 pm
Hmm, interesting. Thanks for pointing that out. What do you mean by GBP cash or cash equivalent. Please elaborate. The money is currently in a property that will be selling soon.
The idea is that if you're sure you're going to use the money to buy a house in the UK (in GBP, or Great British Pounds), you're (by definition) speculating on the currency-exchange rates until you convert it to pounds. The sooner you convert the money and deposit it as cash in a British bank account, the earlier you are avoiding that speculation. A "cash equivalent" in this context would be a UK savings account, a UK bank CD (known more commonly there as a bank bond), or UK Treasury bills.

(Note that you can hedge against currency risk even before you have the dollars in hand, by means of foreign-exchange futures, and there's a good argument that you should do that as soon as you know you have a need to make a large purchase in pounds. But that may be more complicated an approach than you are looking for.)

If converting all the money to a foreign currency at once is psychologically difficult for you, you might consider converting portions of it periodically until you make the house purchase.

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