Looking to invest 80k for 3-5 years

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basefifty
Posts: 18
Joined: Mon Dec 22, 2014 11:46 am

Looking to invest 80k for 3-5 years

Post by basefifty » Tue Nov 13, 2018 4:23 pm

Hi, we are looking to invest around $80k (which is currently cash earning <1%). Time frame is around 3-5 years until we would probably use it as a downpayment on a house. We (age early 40s) are pretty heavy in stocks in all of our other retirement and non-retirement investments so we want to be pretty conservative with this $80k

Any thoughts, including tax considerations (since this will be in a taxable account), on what to put this in? I've seen savings accounts like: PNC High Yield Savings Account – 2.35% APY, or what about CDs, Treasuries, Muni Bonds, other Bonds etc?

Thanks!

TheOscarGuy
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Joined: Sat Oct 06, 2012 1:10 pm
Location: Where I wanna be.

Re: Looking to invest 80k for 3-5 years

Post by TheOscarGuy » Tue Nov 13, 2018 4:25 pm

basefifty wrote:
Tue Nov 13, 2018 4:23 pm
Hi, we are looking to invest around $80k (which is currently cash earning <1%). Time frame is around 3-5 years until we would probably use it as a downpayment on a house. We (age early 40s) are pretty heavy in stocks in all of our other retirement and non-retirement investments so we want to be pretty conservative with this $80k

Any thoughts, including tax considerations (since this will be in a taxable account), on what to put this in? I've seen savings accounts like: PNC High Yield Savings Account – 2.35% APY, or what about CDs, Treasuries, Muni Bonds, other Bonds etc?

Thanks!
Savings account would be my choice. 3-5 years is too short a time horizon to be chasing small gains for increased risk.

basefifty
Posts: 18
Joined: Mon Dec 22, 2014 11:46 am

Re: Looking to invest 80k for 3-5 years

Post by basefifty » Tue Nov 13, 2018 5:08 pm

Thanks. Since I'll pay around 30% taxes on the 2.35% savings account (ie. net return around 1.65%) is there anything that can do better than that, given the requirements? I've never dabbled in things like muni bonds...

hayman
Posts: 6
Joined: Tue Nov 13, 2018 5:04 pm

Re: Looking to invest 80k for 3-5 years

Post by hayman » Tue Nov 13, 2018 5:10 pm

Money markets are currently around 2%.

ivk5
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Joined: Thu Sep 22, 2016 9:05 am

Re: Looking to invest 80k for 3-5 years

Post by ivk5 » Tue Nov 13, 2018 5:43 pm

state of residence and marginal state/federal tax rates?

Do you know how to calculate Tax equivalent yields so you can compare munis, treasuries, and taxable options?

PaleoWorx
Posts: 24
Joined: Sat Nov 10, 2018 2:48 pm

Re: Looking to invest 80k for 3-5 years

Post by PaleoWorx » Tue Nov 13, 2018 6:49 pm

if you invest, would you be ok with unexpectedly losing 50% of your investment due to 'unannounced' recession ?
proceed according to your answer

Willmunny
Posts: 23
Joined: Mon Jun 16, 2014 6:35 pm

Re: Looking to invest 80k for 3-5 years

Post by Willmunny » Tue Nov 13, 2018 7:27 pm

It looks like the 3 year treasury rate is around 2.94%. Unlike a CD, you would not have to worry about the early withdrawal penalty if you needed to sell after, for example, 2 years and 11 months. However, there is a risk of principal loss if you sell prior to maturity (depending on existing rates at that time). I believe in a taxable account they are exempt from state and local income taxes.

ivk5
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Joined: Thu Sep 22, 2016 9:05 am

Re: Looking to invest 80k for 3-5 years

Post by ivk5 » Wed Nov 14, 2018 12:14 am

PaleoWorx wrote:
Tue Nov 13, 2018 6:49 pm
if you invest, would you be ok with unexpectedly losing 50% of your investment due to 'unannounced' recession ?
proceed according to your answer
Most would not recommend taking equity risk with funds needed in this timeframe.

Momus
Posts: 538
Joined: Tue Feb 21, 2012 9:23 pm

Re: Looking to invest 80k for 3-5 years

Post by Momus » Wed Nov 14, 2018 12:44 am

4% 5 year CD Connexus Credit Union. To join, donate $5.

Dump all the money there, done...

At the end of 5 years, collect 96k, not bad for no risk :-D

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vineviz
Posts: 2329
Joined: Tue May 15, 2018 1:55 pm

Re: Looking to invest 80k for 3-5 years

Post by vineviz » Wed Nov 14, 2018 8:21 am

basefifty wrote:
Tue Nov 13, 2018 4:23 pm
Hi, we are looking to invest around $80k (which is currently cash earning <1%). Time frame is around 3-5 years until we would probably use it as a downpayment on a house. We (age early 40s) are pretty heavy in stocks in all of our other retirement and non-retirement investments so we want to be pretty conservative with this $80k

Any thoughts, including tax considerations (since this will be in a taxable account), on what to put this in? I've seen savings accounts like: PNC High Yield Savings Account – 2.35% APY, or what about CDs, Treasuries, Muni Bonds, other Bonds etc?

Thanks!
I’d suggest looking at a target maturity bond ETF that mature in 2021 or 2022. They invest in a diversified set of bonds that mature in the target year, which maximizes yield while slowly reducing risk as the date approaches.

You can use your marginal tax rate to decide between corporate or municipal versions.

E.g https://www.ishares.com/us/products/276 ... i-bond-etf

Or https://www.invesco.com/portal/site/us/ ... uctId=BSCL
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

basefifty
Posts: 18
Joined: Mon Dec 22, 2014 11:46 am

Re: Looking to invest 80k for 3-5 years

Post by basefifty » Wed Nov 14, 2018 4:21 pm

vineviz wrote:
Wed Nov 14, 2018 8:21 am
basefifty wrote:
Tue Nov 13, 2018 4:23 pm
Hi, we are looking to invest around $80k (which is currently cash earning <1%). Time frame is around 3-5 years until we would probably use it as a downpayment on a house. We (age early 40s) are pretty heavy in stocks in all of our other retirement and non-retirement investments so we want to be pretty conservative with this $80k

Any thoughts, including tax considerations (since this will be in a taxable account), on what to put this in? I've seen savings accounts like: PNC High Yield Savings Account – 2.35% APY, or what about CDs, Treasuries, Muni Bonds, other Bonds etc?

Thanks!
I’d suggest looking at a target maturity bond ETF that mature in 2021 or 2022. They invest in a diversified set of bonds that mature in the target year, which maximizes yield while slowly reducing risk as the date approaches.

You can use your marginal tax rate to decide between corporate or municipal versions.

E.g https://www.ishares.com/us/products/276 ... i-bond-etf

Or https://www.invesco.com/portal/site/us/ ... uctId=BSCL

Thanks all for the responses. I am in MA - Federal marginal tax rate = 22%, MA state tax rate = 5.1%. So a 3-year Treasury of 3.01% (state tax free) would return around 2.35% if I'm not mistaken

I'm pretty new to bonds, but isn't there a pretty significant downside risk to bond funds, given rising interest rates at the moment?

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vineviz
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Joined: Tue May 15, 2018 1:55 pm

Re: Looking to invest 80k for 3-5 years

Post by vineviz » Wed Nov 14, 2018 5:37 pm

basefifty wrote:
Wed Nov 14, 2018 4:21 pm
I'm pretty new to bonds, but isn't there a pretty significant downside risk to bond funds, given rising interest rates at the moment?
Not really.

Future rate hikes are pretty much already priced into bonds (i.e. the market already thinks that interest rates are rising") so there isn't much downside if the Fed raises rates as expected.

And the ETFs I mentioned, because they are especially designed to hold the bonds to maturity (which not all bond funds do) can be relied on to produce the initial stated yield-to-maturity IF you hold the fund until it liquidates in 2021, 2022, or whatever. That will be true no matter what rates do.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

BSBHead
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Joined: Sun Nov 11, 2018 12:45 pm

Re: Looking to invest 80k for 3-5 years

Post by BSBHead » Wed Nov 14, 2018 10:07 pm

Just to add on here. Prime MM funds do not necessarily price in all expected future interest rate increases. If you watch the day-to-day movements during this increasing rate cycle, the funds gradually increase to the anticipated Fed Funds day that rates are set and then adjust for the difference once the rate is increased. Given the flat yield curve, I really don't see a lot of value in adding duration for 3-5 years v. staying liquid (and short) in a Prime MM fund.

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