Where do I hold $250K?

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Topic Author
authrd
Posts: 29
Joined: Tue Jul 29, 2014 8:14 pm

Where do I hold $250K?

Post by authrd » Wed Jul 04, 2018 5:54 pm

Hi All

I’ve been a member for many years and have benefited from sound advice on asset allocation which I have religiously followed all these years.

We are selling our house and moving to Seattle to pursue a new job opportunity. The company is offering relocation (corporate housing, storage, transfer,etc).

We had paid off our mortgage many years ago and have been living rent free. At some point (1-2 years) We may buy a house in Seattle where Home prices are upwards of $1M.

We expect a windfall of $250K (perhaps more) from he sale of our house. We do not want to rent and deal with the hassle and secondly we will need the cash for down payment on a house in Seattle.

So the big question is where do I keep the $250K for approx 1-2 years? I hate to keep it in a bank account which gives nothing and don’t want to invest all of it in he stock market.

Notes:
1. we are in the 33% federal tax bracket
2. We max out both mine and spouse’s 401k
3. We max out backdoor Roth IRA for both myself and my spouse
4. We have emergency savings for 6 months


Also need to think about tax and capital gains implications.

Any sound suggestions for my situation?

Thanks
Authrd
Last edited by authrd on Wed Jul 04, 2018 6:01 pm, edited 1 time in total.

Nicolas
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Re: Where do I hold $250K?

Post by Nicolas » Wed Jul 04, 2018 5:57 pm

Deleted
Last edited by Nicolas on Wed Sep 05, 2018 8:21 pm, edited 1 time in total.

drk
Posts: 1427
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Location: Seattle

Re: Where do I hold $250K?

Post by drk » Wed Jul 04, 2018 6:17 pm

Take a look at Vanguard's Limited-Term Tax-Exempt fund. With that much cash, you could buy the Admiral version. Its average duration is about two years, currently yielding 1.99% (~2.93% taxable equivalent yield in the 32% bracket). Maybe 80% that and 20% in Total World Stock for a little extra oomph.

johan851
Posts: 142
Joined: Sun Apr 17, 2011 12:59 pm

Re: Where do I hold $250K?

Post by johan851 » Wed Jul 04, 2018 6:56 pm

A money market fund would be the most conservative non-FDIC insured option, but since you're thinking1-2 years you could go with a short term bond. In the 33% bracket I'd also suggest either Vanguard's short term or limited term tax exempt bond fund. Short term has an average duration of 1.1 years and SEC yield of 1.58%, limited term is yielding 1.91% with an average duration of 2.5 years.

I'd lean towards short term if your timeline is less than two years.

jacoavlu
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Joined: Sun Jan 06, 2013 12:06 pm

Re: Where do I hold $250K?

Post by jacoavlu » Wed Jul 04, 2018 7:01 pm

T bills also a good option though in WA there’s no benefit to the fact they’re state tax exempt. As safe as anything with regard to risk of principal loss.

Topic Author
authrd
Posts: 29
Joined: Tue Jul 29, 2014 8:14 pm

Re: Where do I hold $250K?

Post by authrd » Wed Jul 04, 2018 7:29 pm

Thanks for the suggestion on the vanguard short term tax exempt bond fund . Wasn’t aware of that. Will research it.

For a duration of 1 year, would you say the tax exempt fund has best yield post tax compared to online savings or T bills?

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DanMahowny
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Re: Where do I hold $250K?

Post by DanMahowny » Wed Jul 04, 2018 7:40 pm

I'd ladder T-bills.
Funding secured

johan851
Posts: 142
Joined: Sun Apr 17, 2011 12:59 pm

Re: Where do I hold $250K?

Post by johan851 » Wed Jul 04, 2018 7:47 pm

For the 33% bracket, 1.58% tax-free yield (actually 1.66% on the Admiral shares) is equivalent to 2.48% taxable yield. 1.66% / (1-0.33) = 2.48%. The last 52-week T-bill auction yielded ~2.35%. That's in the same ballpark.

Vanguard's ultra short bond fund (corporate bonds) is yielding ~2.5% with an average duration of 0.9 years. There's also a short term treasury fund, but the average duration is longer at 2.2 years. That's yielding 2.24%.

I think your best bet to balance credit risk, duration, and yield is the short term muni fund. You could get slightly better yield by decreasing credit quality or adding duration, but you don't want to do that with down payment money that you want to use in the next 1-2 years. Individual t-bills are an option - a little more work and a little less yield, but no credit risk.

Topic Author
authrd
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Joined: Tue Jul 29, 2014 8:14 pm

Re: Where do I hold $250K?

Post by authrd » Wed Jul 04, 2018 8:56 pm

Is this the one: Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX)?

0.09% expense ratio
SEC Yield 1.66%

Buy this fund and hold for 1 year for 1.66% tax-exempt yield?

johan851
Posts: 142
Joined: Sun Apr 17, 2011 12:59 pm

Re: Where do I hold $250K?

Post by johan851 » Wed Jul 04, 2018 9:18 pm

The current SEC yield is 1.66%, but there's no guarantee of that yield going forward. The yield may go up or down in coming months, and the price will fluctuate a bit as well.

TGO
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Location: Philadelphia

Re: Where do I hold $250K?

Post by TGO » Wed Jul 04, 2018 11:01 pm

Perhaps a CD would work well. Main Street bank has a 15-month 2.80% product. If you go to deposit accounts.com it will list the CD rates.

Fan_of_website
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Re: Where do I hold $250K?

Post by Fan_of_website » Thu Jul 05, 2018 7:31 pm

One option might be to look at XMPT, VanEck Vectors CEF Municipal Bond ETF, to reduce taxable income. The current yield is around 4.7%, although its expense ratio is high. I would not put all the money in this fund, but perhaps a minority of your capital to boost overall return.

Topic Author
authrd
Posts: 29
Joined: Tue Jul 29, 2014 8:14 pm

Re: Where do I hold $250K?

Post by authrd » Sat Jan 12, 2019 1:10 pm

Hi All

Reviving this thread. I am expecting equity disbursement in the next few days. We are planning to purchase a home in the next 12 months.

Still undecided if I should just keep all the cash in an online savings account (CIT bank is offering 2.45% APY).

Has anyone done the trade off between an online savings account @ say 2.45% versus Other options below

Vanguard Tax exempt short term bond fund
Vanguard money market fund
Vanguard treasury fund

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abuss368
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Re: Where do I hold $250K?

Post by abuss368 » Sat Jan 12, 2019 1:15 pm

authrd wrote:
Wed Jul 04, 2018 5:54 pm
Hi All

I’ve been a member for many years and have benefited from sound advice on asset allocation which I have religiously followed all these years.

We are selling our house and moving to Seattle to pursue a new job opportunity. The company is offering relocation (corporate housing, storage, transfer,etc).

We had paid off our mortgage many years ago and have been living rent free. At some point (1-2 years) We may buy a house in Seattle where Home prices are upwards of $1M.

We expect a windfall of $250K (perhaps more) from he sale of our house. We do not want to rent and deal with the hassle and secondly we will need the cash for down payment on a house in Seattle.

So the big question is where do I keep the $250K for approx 1-2 years? I hate to keep it in a bank account which gives nothing and don’t want to invest all of it in he stock market.

Notes:
1. we are in the 33% federal tax bracket
2. We max out both mine and spouse’s 401k
3. We max out backdoor Roth IRA for both myself and my spouse
4. We have emergency savings for 6 months


Also need to think about tax and capital gains implications.

Any sound suggestions for my situation?

Thanks
Authrd
Congrats on the new position and opportunity! Related to the proceeds of $250,000 from the sale of your existing home, it is more important to protect what you have than to risk it in an attempt for more. As such, I would consider a savings accounts ($250,000 FDIC insurance), money market account (i.e. Vanguard Prime Money Market or Tax Exempt Money Market), or a short term bond fund (i.e. Vanguard Short Term Tax Exempt).
John C. Bogle: "Simplicity is the master key to financial success."

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: Where do I hold $250K?

Post by Dottie57 » Sat Jan 12, 2019 1:17 pm

DanMahowny wrote:
Wed Jul 04, 2018 7:40 pm
I'd ladder T-bills.
+1

Topic Author
authrd
Posts: 29
Joined: Tue Jul 29, 2014 8:14 pm

Re: Where do I hold $250K?

Post by authrd » Sat Jan 12, 2019 1:58 pm

How do I ladder T-bills? And does this strategy have a higher return for the same risk and liquidity?

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