What to do with fairly large amount of money in "maybe" house fund?

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Lynx310650
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What to do with fairly large amount of money in "maybe" house fund?

Post by Lynx310650 » Thu Oct 12, 2017 12:58 pm

We live in the SF Bay Area. We've saved an amount of cash for a down payment based on a hypothetical house purchase based on what we'd want and what we could afford if we were to buy today. That means about a $700k condo, so we have saved $150k in cash that's sitting currently in an online savings account. This is separate from a 6 month emergency fund we also have.

That being said, we are still very much on the fence about buying, especially because we have a very favorable rental situation right now. We definitely don't have a firm timeline to buy. Could be next month if the inspiration hits, could be never. I feel like that's a pretty large sum of money not to invest, but at the same time generally down payment funds should be in a lower risk vehicle. I'd be interested in hearing opinions on what (if anything) to do with that money.

We otherwise max out tax-advantaged retirement accounts.

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aj76er
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Re: What to do with fairly large amount of money in "maybe" house fund?

Post by aj76er » Thu Oct 12, 2017 1:17 pm

How much is this relative to the rest of your portfolio? If >10%, then it could produce a lot of drag due to opportunity cost.

I'd probably invest it into your portfolio (e.g. buy stocks in taxable, sell stocks in tax-shelteted, buy bonds in tax-shelteted).

When it comes time to withdraw, do the opposite - just sell stocks in taxable, buy stocks in tax-shelteted, sell bonds in tax-shelteted.

You could also keep 5% - 10% of your portfolio in cash which is where this money could be parked. In this case, just hold 5% - 10% less bonds in tax-shelteted. If going this route, Ally bank has nice no-penalty CD's you could use. They also have a regular saving account @ >1%.
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mega317
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Re: What to do with fairly large amount of money in "maybe" house fund?

Post by mega317 » Thu Oct 12, 2017 2:05 pm

If a purchase "could be next month", I'd stay in cash or similar. To me the opportunity cost is worth having it ready when you want it.

The idea to exchange bonds and stocks in tax-advantaged is a good one, but if you're in stocks in taxable and they drop, you'll no longer have $150k in the taxable account to use. You either need to tap your emergency fund, put less money down, or lose the house.

I would stay in cash/CDs etc in taxable and as aj76er suggested, you can count it in your fixed income allocation and buy more stocks in tax-advantaged.

Nearly A Moose
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Re: What to do with fairly large amount of money in "maybe" house fund?

Post by Nearly A Moose » Thu Oct 12, 2017 11:30 pm

Vanguard limited term tax exempt municipal bond fund. Slightly better return than savings, very low risk to principal.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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ruralavalon
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Re: What to do with fairly large amount of money in "maybe" house fund?

Post by ruralavalon » Fri Oct 13, 2017 10:32 am

Lynx310650 wrote:
Thu Oct 12, 2017 12:58 pm
We live in the SF Bay Area. We've saved an amount of cash for a down payment based on a hypothetical house purchase based on what we'd want and what we could afford if we were to buy today. That means about a $700k condo, so we have saved $150k in cash that's sitting currently in an online savings account. This is separate from a 6 month emergency fund we also have.

That being said, we are still very much on the fence about buying, especially because we have a very favorable rental situation right now. We definitely don't have a firm timeline to buy. Could be next month if the inspiration hits, could be never. I feel like that's a pretty large sum of money not to invest, but at the same time generally down payment funds should be in a lower risk vehicle. I'd be interested in hearing opinions on what (if anything) to do with that money.

We otherwise max out tax-advantaged retirement accounts.
Since you are uncertain if you will buy a home, and uncertain about when that might be, I think a 60/40 or 50/50 allocation might be reasonable for this $150k.

Right now you are getting a negative real return net of inflation on that money.

You didn't indicate your tax bracket. If in a high bracket consider Vanguard Tax-Managed Balanced Fund (VTMFX) ER 0.09%, with a 50/50 allocation. If not in a high bracket consider Vanguard Balanced Index Fund (VBIAX) ER 0.07%, with a 60/40 allocation.
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ImmigrantSaver
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Re: What to do with fairly large amount of money in "maybe" house fund?

Post by ImmigrantSaver » Fri Oct 13, 2017 11:17 am

I had the similar situation that I asked about in this thread.

viewtopic.php?f=1&t=228482&p=3548664#p3548664

My "housing fund" included not only downpayment but also the fairly high (NYC real estate) amount of the postclosing liquidity requirements. So for now I decided to keep the actual dp in cash and invest the remaining money in stocks at my usual US 55/Int 45 split. So originally my AA was 80/20 (excl. housing fund) and 50/50 averall. The new AA will be 63/37 overall (84/16 excl housing). The plan is to check my "sleep well at night" temperature for the next month and potentially move to 70/30 overall. I will most likely stop at that.

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