What to do with cash earmarked for house & business plans 2-5 years out

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What to do with cash earmarked for house & business plans 2-5 years out

Post by allones » Mon Jun 18, 2018 10:57 am

Hello, new-ish Boglehead’er here. I’ve been lurking on the forums for about a year educating myself and am in a spot where I’d really appreciate some planning advice.

I am trying to plan for two major non-retirement investments in the next 2-5 years. The timing is effectively out of my hands and depends on my partner’s career and the next opening for a promotion (which will involve a move to back to our hometown).
- Down payment for a house in a HCOL area. Currently budgeting about $100k to get us to 20% down in order to avoid PMI.
- Funds to start a hospitality business in a MCOL area. I’m about to embark on the business plan and anticipate working with an investor or two, but very ballpark at this point think I’d need ~$75 - $100k to have some skin in the game.

My questions:
- Do you have suggestions for making this large amount of cash work harder in the interim? I’m okay with $100k+ sitting in money market accounts for a couple years, but if our wait stretches out three years beyond that, I’d like a little more return. CD Ladders? Something else?
- The house takes priority, so if I’m unable to save the full amount of funds for the business, is there an approach to pull funds from my taxable account with a minimum amount of consequence? I’m trying to find ways to generate extra income because this would be a last-resort move, but I’m curious about strategies just in case

I’d be very grateful for input on how to navigate big plans that are not concrete. Thank you.

Edited for brevity.
Last edited by allones on Mon Jun 18, 2018 3:04 pm, edited 1 time in total.

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Tyler Aspect
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Re: What to do with cash earmarked for house & business plans 2-5 years out

Post by Tyler Aspect » Mon Jun 18, 2018 12:46 pm

2 year US Treasury Notes are my standard answer for uncertain timing investment up to a few years out.

You are unlikely to subtract out the supposed tech heavy of the Total Stock Market Index with tilting to sector funds. Each sector fund is much more volatile compared to the overall index, and sector funds have higher expense ratios.
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Re: What to do with cash earmarked for house & business plans 2-5 years out

Post by dbr » Mon Jun 18, 2018 1:00 pm

More return means more risk and more uncertainty in planning means more risk whether in opportunity cost or in the realization of bad outcomes. The general answer is that there is no solution to this dilemma. It is just a matter of making choices.

I personally would be content with lower returns and more certainty of having the money, but a person can compromise that choice by investing a portion in stocks if they choose.

CDs and 2 year Treasuries (as one person suggested) sound reasonable.

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