Where to invest excess cash?

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phillylawgirl
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Joined: Fri Feb 10, 2012 11:44 am

Where to invest excess cash?

Post by phillylawgirl » Fri Feb 10, 2012 11:58 am

I am seeking advice on where I can invest excess cash reserves. I am early-thirties, married with one child and another on the way. We currently live on one income although we are a two income family. We have 6 months in emergency cash held at ING, we both have employer 401ks with a match that we each contribute the max to each year and we save $500/month in a 529 for our 2 year old and plan to do the same for the next child. We have no credit card debt or auto loans. Our only debt is our mortgage at 3% and $90,000 in student loans that are fixed at 1.625%. We have no interest in paying down the mortgage or student loans at this time given the interest rates. We paid off a second mortgage on the home last year and have substantial equity in the home already.

After paying our expenses and the savings allocations discussed above, we have approximately $4000/month to invest, plus annual bonuses. We would like to move to a larger home in the next 3-5 years and would likely use a substantial portion of these savings as a down payment on our next home, along with proceeds from the sale of our current home. The money is currently sitting at ING earning .80% and I am wondering if I can find somewhere better to invest the funds given our somewhat short time horizon for use of the funds. We are willing to take some moderate risk in returns for potential gains greater than .8%, since we don't actually need to move within 3-5 years and we do not need all of the funds for a down payment.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Where to invest excess cash?

Post by dbr » Fri Feb 10, 2012 12:29 pm

The money you really, really need for the house down payment can just stay where it is, as far as I am concerned. There is nothing for you to gain by looking for a better place to invest.

If there is excess money and you are willing to take a little more overall risk, it might be time to start building tax efficient equity investments into your taxable portfolio. The key statement here is "we do not need all of the funds for a down payment." This can be based on what supports your overall asset allocation plan.

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Liquid
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Re: Where to invest excess cash?

Post by Liquid » Fri Feb 10, 2012 12:38 pm

You could consider high yield checking accounts, 2% on unrestricted balances should be available, but you may have to do X number of debit card purchases, or other requirements.

bdpb
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Re: Where to invest excess cash?

Post by bdpb » Fri Feb 10, 2012 6:08 pm

Any money not destined for the next house should go into your retirement portfolio.
Allocate and locate as per your plan.

Any money destined for the next house should be paying down the current mortgage.
Where else are you going to get a 3% return with no risk?

alanf56
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Joined: Mon Nov 29, 2010 11:31 pm

Re: Where to invest excess cash?

Post by alanf56 » Fri Feb 10, 2012 6:14 pm

Liquid wrote:You could consider high yield checking accounts, 2% on unrestricted balances should be available, but you may have to do X number of debit card purchases, or other requirements.
I would like to find 2% on unrestricted balances. Everything I see has restrictions. Mostly around 25K

hazlitt777
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Location: Wisconsin

Re: Where to invest excess cash?

Post by hazlitt777 » Fri Feb 10, 2012 7:50 pm

Just diversify it 25% world stocks, 25% long term treasury bonds, 25% gold bullion, and 25% short term treasury bonds....rebalance and let it ride.

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novastepp
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Location: Indiana

Re: Where to invest excess cash?

Post by novastepp » Fri Feb 10, 2012 8:52 pm

I-Bonds is another good option.

nonnie
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Location: Northern California

Re: Where to invest excess cash?

Post by nonnie » Fri Feb 10, 2012 11:58 pm

Ally Bank has 1.73 % CDs with only a 60 day early redemption penalty. I just went to the website and it said 4.16%, I oened a "chat" and was told they were wrong and then they changed before my eyes.
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Saving$
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Re: Where to invest excess cash?

Post by Saving$ » Sat Feb 11, 2012 10:30 pm

bdpb wrote:Any money destined for the next house should be paying down the current mortgage.
Where else are you going to get a 3% return with no risk?
This is true, however if they have the cash in a bank account, they may have a stronger negotiating position on a new house, as they may not need a financing contingency. Needing a loan on the new house could limit their options, so it might be worth the interest rate differential btwn paying off the mortgage and interest on a savings account.
Also, account for the tax deduction of interest payments on the 3%, so the real marginal rate may be only 2.5%. Theoretically, the taxes on interest in a bank account also reduce that return, so .8% may really work out to only .6% or so.

And check out Alliant Credit Union. Their interest rate is currently .995%, insured to $250k. You can join if you are a member of your local PTA.

nonnie
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Location: Northern California

Re: Where to invest excess cash?

Post by nonnie » Sat Feb 11, 2012 10:55 pm

Saving$ wrote: This is true, however if they have the cash in a bank account, they may have a stronger negotiating position on a new house, as they may not need a financing contingency. Needing a loan on the new house could limit their options, so it might be worth the interest rate differential btwn paying off the mortgage and interest on a savings account.
Also, account for the tax deduction of interest payments on the 3%, so the real marginal rate may be only 2.5%. Theoretically, the taxes on interest in a bank account also reduce that return, so .8% may really work out to only .6% or so.

And check out Alliant Credit Union. Their interest rate is currently .995%, insured to $250k. You can join if you are a member of your local PTA.
Great advice. This scenario you describe just happened to us --I posted about it in another thread. We made an offer last Wed and it was accepted on Thursady over another offer because ours was all cash with no financing contingency. We'll be taking 2/3 of the funds out of Alliant Credit Union and the rest by cashing in some of our Ally Bank 2.4% CDs with only a 60 day early redemption penalty that will still earn about 1.87% after only 9 months.

http://www.depositaccounts.com/blog/201 ... ities.html

Nonnie
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papito23
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Location: midwest

Re: Where to invest excess cash?

Post by papito23 » Sat Feb 11, 2012 11:08 pm

If you are talking minimum three years, I would say Total Bond Market. I think the majority of people here would disagree (?) but it sounds like you have the ability to take risk (if coupled with actual tolerance, then you're good to go).

I admit I base most of that on looking at the 1997-date returns (https://personal.vanguard.com/us/funds/ ... t=tab%3A1a) and only seeing one negative year (-0.76%, 1999)... even though I know that past performance doesn't guarantee anything. However, I don't believe it means nothing - what else can the laymen and women base their assumptions on?
A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise. -Aldo Leopold's Golden Rule of Ecology

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