Investing for an 8 Year Horizon

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Investing for an 8 Year Horizon

Post by delrinson » Tue Mar 13, 2018 7:04 pm

I have an asset allocation model that I'm content with. But in addition to my AA, I would like to have a certain amount in cash and fixed income securities eight years from now. At or around that time, we will sell our house, relocate and buy another one without a mortgage, and would like to have enough in cash and short duration bonds to handle a good five years of expenses. Between now and then, we need to make some progress, ideally without selling any VTI, VXUS, VNQ, or... Berkshire! Other than is required to rebalance.

My question: assuming I keep my AA intact, what combination of instruments should I use to beef up my "safe assets" over the next eight years?

I'm a bit leery of a total bond ETF over that duration...more attracted to intermediate and short. And a healthy amount in Ally savings. Not thrilled with CDs...would rather do short bonds. Is that as about as much risk as I should take with that kind of horizon?

Just wondering, if the narrowly focused goal is eight years from now, what instruments should I consider?


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Re: Investing for an 8 Year Horizon

Post by Sandtrap » Tue Mar 13, 2018 7:18 pm


An 8 year horizon requires, security of principal, liquidity (access) because you may need it sooner if a life and financial positions change, and a modest level of return without undue risk.
What fulfills this requirement?

If approached as apart from your primary portfolio which you seem to allude to, then:
High Yield Accounts and CD's are a good approach.
If not CD's, short term bonds, etc. but there's more volatility.

Equities are out unless you are prepared for cash invested in equities to lose up to 50% or more in value in a market downturn?
But, you can also simply invest in the entirety of a well balanced low cost portfolio for the next 8 years and then withdraw the funds when needed. That would be a comprehensive approach. Setup an adequate amount in an Emergency Fund, Short term in a CD ladder, and longer term in a balanced portfolio of low cost index funds.
Would that work for you?

What is your existing allocation?
What funds comprise your allocation to "fixed" (bonds, etc)?
Can you edit your original post to include your portfolio?
What do you describe as "safe assets"?


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Re: Investing for an 8 Year Horizon

Post by Tyler Aspect » Tue Mar 13, 2018 7:25 pm

It is entirely appropriate to take advantage of a mortgage if your new home costs more than your old home. Anything you want to invest for a period of 8 years that are completely safe will probably return much less compared to stock funds.

Remember if your house purchase were to occur after age 60, then you also have the possibility to pay any extra cost from your tax deferred account. To have up to 5 years of expense in cash is quite excessive, because that is already up to 20% of your portfolio earning a low rate of return.
Last edited by Tyler Aspect on Tue Mar 13, 2018 11:41 pm, edited 1 time in total.
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Re: Investing for an 8 Year Horizon

Post by radiowave » Tue Mar 13, 2018 7:28 pm

I agree with Sandtrap, bulk up on CDs, treasury bills and notes.
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Re: Investing for an 8 Year Horizon

Post by delrinson » Tue Mar 13, 2018 8:41 pm

My current AA consists of:

Cash/Bonds 20%
Domestic Equity 40%
Int'l Equity 15%
Domestic REIT 15%
Berkshire Hathaway 10%

As I say, I'm perfectly comfortable with that AA. But, hopefully in a way not inconsistent with a commitment to my AA, I would like significantly to augment cash and cash equivalents as we head into retirement. I've got eight years.

As to what I mean by safe, I guess short-term corporate is the limit of my definition of safe for the purpose I have in mind. Anything further down the risk/reward continuum might not be worth it. I'm even hesitant to use intermediate bonds, especially with interest rates only going up.

I'm also motivated by wanting to make a more conservative estimate of the eventual resale value of our house.

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Re: Investing for an 8 Year Horizon

Post by delrinson » Tue Mar 13, 2018 8:46 pm

Although, as I think about it, maybe intermediate bonds would be a good choice if they were earmarked more for later in that period of early retirement.

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