Short-Term Investment

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commissionfree
Posts: 4
Joined: Wed Oct 02, 2019 11:50 am

Short-Term Investment

Post by commissionfree » Thu Nov 07, 2019 2:26 pm

Hi all,

I've been reading this site for several months now and have started getting my finances in order. Currently maxing out retirement accounts.

My question for the forum:

I am beginning to put away money for a down-payment on a house. (Not looking for advice on whether or not to buy a house.). I am currently planning to put money in a high-yield savings account. I would expect to use the money in the next 2 - 5 years.

Is savings account the best way to go? A financial advisor is advising Griffin Institutional Access Real Estate Fund (GIREX). 1.97 net ER , but he thinks it's great for short term savings with quarterly liquidity. He would put me in c-shares. Haven't had the gumption to sit down and determine how much total is lost in fees, but it has had solid returns of 5-7% since inception in 2014. I suspect Bogleheads will quickly shoot this down, but wanted to get thoughts.

Any other ideas for a 5-7% expected return fund that can be used for a short-term period?

Thanks

Silk McCue
Posts: 3307
Joined: Thu Feb 25, 2016 7:11 pm

Re: Short-Term Investment

Post by Silk McCue » Thu Nov 07, 2019 3:36 pm

Welcome to Bogleheads!

If there were such a thing as a "safe" 5-7% expected return we would all be in it. It simply doesn't exist without real risk. No way to separate risk from reward. If you are saving for down-payment you can't afford any chance of loss on the principal you are putting towards that purpose.

HOWEVER, I did just share the following on another thread here today and have copied it here for you to consider. You just need to understand the rules and follow them. They are a long established entity.

---

I saw this on recent thread on Bogleheads that others are utilizing. You have to follow the rules but you can earn 4% on up to $30k. I would expect, but am not certain, that you could each open your own checking account.

https://orionfcu.com/checking/#premiumchecking
4% APY PREMIUM CHECKING

Orion believes your checking account should pay you.
With 4% APY Premium Checking, you can earn more than $1,000 a year in interest and also get:

Free checks
Online and mobile banking
Out-of-network ATM fee reimbursement (when Premium Perks Qualifiers are met. See conditions below)
Free bill pay

To earn your 4% APY interest, be eligible for ATM Fee Reimbursements, and waive the $5 monthly fee, just meet these two simple qualifiers per month:

Electronic deposits totaling at least $500/mo Electronic deposits include: direct deposit, mobile deposit, and electronic transfers from another financial institution.
Perform at least 8 signature-based card transactions It's easy! When using your card, choose the credit option and bypass using your PIN.
Cheers

sport
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Location: Cleveland, OH

Re: Short-Term Investment

Post by sport » Thu Nov 07, 2019 3:38 pm

There is no reason to expect real estate to perform the next 5 years the way it performed the last 5 years. The only way you can get 5% to 7% is by taking risk. This fund would not be suitable for short term investing. The fund has high fees in addition to what you pay this "advisor". Since you are looking at possibly needing the money within 2 years, I would suggest CDs or very short term bonds. I would also dump this "advisor" ASAP. It seems he/she is looking out for their own welfare rather than yours.

DesertDiva
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Location: In the desert

Re: Short-Term Investment

Post by DesertDiva » Thu Nov 07, 2019 3:51 pm

sport wrote:
Thu Nov 07, 2019 3:38 pm
There is no reason to expect real estate to perform the next 5 years the way it performed the last 5 years. The only way you can get 5% to 7% is by taking risk. This fund would not be suitable for short term investing. The fund has high fees in addition to what you pay this "advisor". Since you are looking at possibly needing the money within 2 years, I would suggest CDs or very short term bonds. I would also dump this "advisor" ASAP. It seems he/she is looking out for their own welfare rather than yours.
+1
The expense ratio is insane. CDs are more suitable for your needs.

retired@50
Posts: 477
Joined: Tue Oct 01, 2019 2:36 pm

Re: Short-Term Investment

Post by retired@50 » Thu Nov 07, 2019 3:58 pm

I'd stay away from the fund (GIREX) and the adviser. There is simply no way to safely earn that kind of interest (5-7%) in today's interest rate environment without taking plenty of risk. Further, the expense ratio you mentioned would be eating your lunch all the while. If you're willing to take this much risk, you may as well put part of your house down payment in the Vanguard Total Stock Market Fund (VTSAX) and cross your fingers.

Most short term savers aren't willing to risk (lose) any portion of the money they set aside for the house down payment. I'd suggest a money market fund, (VMMXX) or a CD, or, for a touch of risk, the Ultra Short Term Bond Fund (VUBFX) which has traded between $9.95 and $10.05 for the past several years.

Regards,

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Jerry55
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Re: Short-Term Investment

Post by Jerry55 » Thu Nov 07, 2019 5:44 pm

commissionfree wrote:
Thu Nov 07, 2019 2:26 pm
I am beginning to put away money for a down-payment on a house. (Not looking for advice on whether or not to buy a house.). I am currently planning to put money in a high-yield savings account. I would expect to use the money in the next 2 - 5 years.
Safety and Liquidity. Take the ~2% in real interest rates and leave it.
This is money that should never be at risk, IMO
Solid Returns ? Sounds more like Solid Waste to me.
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

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arcticpineapplecorp.
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Re: Short-Term Investment

Post by arcticpineapplecorp. » Thu Nov 07, 2019 7:42 pm

commissionfree wrote:
Thu Nov 07, 2019 2:26 pm
Hi all,

I've been reading this site for several months now and have started getting my finances in order. Currently maxing out retirement accounts.

My question for the forum:

I am beginning to put away money for a down-payment on a house. (Not looking for advice on whether or not to buy a house.). I am currently planning to put money in a high-yield savings account. I would expect to use the money in the next 2 - 5 years.

Is savings account the best way to go? A financial advisor is advising Griffin Institutional Access Real Estate Fund (GIREX). 1.97 net ER , but he thinks it's great for short term savings with quarterly liquidity. He would put me in c-shares. Haven't had the gumption to sit down and determine how much total is lost in fees, but it has had solid returns of 5-7% since inception in 2014. I suspect Bogleheads will quickly shoot this down, but wanted to get thoughts.

Any other ideas for a 5-7% expected return fund that can be used for a short-term period?

Thanks
You're likely not dealing with a fiduciary. If you were, your advisor wouldn't be putting you in any funds with a C (or B or A) share in the name. That's a load you're paying to the person who's selling you the fund. There's no reason to pay any load on funds when there are no-load funds available. Vanguard for instance sells no load funds only. So more of your money is staying invested for your benefit.
level load that includes annual charges for fund marketing, distribution, and servicing, set at a fixed percentage. The investor pays this fee throughout the year.
source: https://www.investopedia.com/terms/c/cshare.asp
Do you want to pay for the marketing, distribution, etc. of a fund?

Also, expense ratios that are lower rather than higher are to your benefit. A 1.97% expense ratio is way high. If the fund grows at 6% (your average between 5%-7%) then paying 2% in fees means you're losing a 1/3rd of your return each year.

Jack Bogle used to talk about this. He'd say, something to the effect of, "Investors put up 100% of the capital, take 100% of the risk, but wind up with 2/3rds of the return". That makes no sense.

If you went with Vanguard's REIT index fund instead (not recommending it, but looking at a lower cost option), there's no load and the Expense ratio is only 0.12% which makes it 1.85% cheaper per year. That's nothing to sneeze at.

Also, here are some concerns with this fund your advisor is trying to sell you:
There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value...

The Fund’s investment in Private Investment Funds will require it to bear a pro rata share of the vehicles’ expenses, including management and performance fees. Also, once an investment is made in a Private Investment Fund, neither the Advisor nor any Sub-Advisor will be able to exercise control over investment decisions made by the Private Investment Fund.

The Fund will not invest in real estate directly, but, because the Fund will concentrate its investments in securities of REITs and other real estate industry issuers, its portfolio will be significantly impacted by the performance of the real estate market and may experience more volatility and be exposed to greater risk than a more diversified portfolio. The value of companies engaged in the real estate industry is affected by: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii) risks related to local economic conditions, overbuilding and increased competition; (iv) increases in property taxes and operating expenses; (v) changes in zoning laws; (vi) casualty and condemnation losses; (vii) variations in rental income, neighborhood values or the appeal of property to tenants; (viii) the availability of financing and (ix) changes in interest rates and leverage.

source: https://www.griffincapital.com/griffin- ... sk-factors
did you read the prospectus? If not, you should know what you're buying before you buy:
https://www.griffincapital.com/Document ... lassAC.pdf
Liquidity Risk. There currently is no secondary market for the Fund’s shares and the Adviser does not expect that a secondary market will develop. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. The Fund’s investments also are subject to liquidity risk. Liquidity risk exists when particular investments of the Fund would be difficult to purchase or sell, possibly preventing the Fund from selling such illiquid securities at an advantageous time or price, or possibly requiring the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations
there's about 30 risks:
Allocation Risk.
Private Investment Fund Risk.
Lack of Control Over Private Investment Funds and Other Portfolio Investments.
Issuer and Non-Diversification Risk.
Liquidity Risk.
Management Risk.
Market Risk.
Correlation Risk.
Repurchase Policy Risks.
Distribution Policy Risk.
Cybersecurity Risk.
Real Estate Industry Concentration Risk.
REIT Risk.
REOC Risk.
Mortgage-Backed Securities Risk.
Underlying Funds Risk.
Rehypothecated Securities Risk.
Use of Leverage by the Fund.
Use of Leverage by Underlying Funds.
Valuation of Private Investment Funds.
Preferred Securities Risk.
Convertible Securities Risk.
High Yield Securities Risk.
Fixed Income Risk.
Option Writing Risk.
Foreign Securities and Emerging Markets Risk.
Leveraging Risk.
Credit Risk.

And my favorites: Risk of conflicts:
Possible Competition Between Underlying Funds and Between the Fund and the Underlying Funds.
Allocation of Investment Opportunities Risk.

If this hasn't convinced you let's look at the rate of return the advisor is "touting". How did it do over the same time period (from date of inception) versus Vanguard's REIT index fund (publicly traded, highly liquid, low cost e.r., no load). See for yourself:

Image

$10,000 investment in each starting 6/30/14 would be worth:
total return: +53.90% Vanguard's REIT index fund ($15,389.96)
total return: +9.76% GIREX ($10,976)

Your post title says it all. Short term investment is an oxymoron. You can't invest for the short term, because investing involves risk. But you can't afford to take risk since you need the money in a short term. So you're stuck with low rates of interest in exchange for taking less risk (risk and return are tied together). That means savings accounts, cds matching when you need the money, short term bond funds. Not real estate.

Real estate seems not risky, until it is. The Reit fund fell sharply in 2008. If you needed the money then, you'd be getting a lot less back than you expected. At least with Vanguard's fund you could have sold. With a fund like your advisor's selling, there seems to be a liquidity risk.

I'd recommend finding a new advisor, one who's 100% all the time a fiduciary, acting in your best interest, not theirs.
Last edited by arcticpineapplecorp. on Thu Nov 07, 2019 8:20 pm, edited 1 time in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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abuss368
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Re: Short-Term Investment

Post by abuss368 » Thu Nov 07, 2019 8:07 pm

Welcome to the forum. I would consider a savings account, money market fund, or a very short term bond fund if you want to stretch a little for yield (and understand the risks of moving further out the branch of a tree).
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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1789
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Re: Short-Term Investment

Post by 1789 » Fri Nov 08, 2019 2:44 am

Just stay away from that advisor. You can use vanguard prime money market fund (VMMXX) to park your money for a down payment on a house.
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Valuethinker
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Re: Short-Term Investment

Post by Valuethinker » Fri Nov 08, 2019 5:05 am

commissionfree wrote:
Thu Nov 07, 2019 2:26 pm
Hi all,

I've been reading this site for several months now and have started getting my finances in order. Currently maxing out retirement accounts.

My question for the forum:

I am beginning to put away money for a down-payment on a house. (Not looking for advice on whether or not to buy a house.). I am currently planning to put money in a high-yield savings account. I would expect to use the money in the next 2 - 5 years.

Is savings account the best way to go? A financial advisor is advising Griffin Institutional Access Real Estate Fund (GIREX). 1.97 net ER , but he thinks it's great for short term savings with quarterly liquidity. He would put me in c-shares. Haven't had the gumption to sit down and determine how much total is lost in fees, but it has had solid returns of 5-7% since inception in 2014. I suspect Bogleheads will quickly shoot this down, but wanted to get thoughts.

Any other ideas for a 5-7% expected return fund that can be used for a short-term period?

Thanks
There is no safe way to get that return. There are lots of promised returns of that magnitude, which can translate into huge losses - lots of products with hidden kickers if things go bad.

I would have CDs which are cashable (or just ladder them out to 2 years maturity, say). That's really the only safe investment. You will get meager returns but your capital is preserved.

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Stinky
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Re: Short-Term Investment

Post by Stinky » Fri Nov 08, 2019 5:54 am

commissionfree wrote:
Thu Nov 07, 2019 2:26 pm

I suspect Bogleheads will quickly shoot this down, but wanted to get thoughts.
Welcome to the Forum! Glad that you posted your question before you acted on this horrible idea.

Your suspicion was correct. The Bogleheads are quickly shooting this down.

Your “advisor” was giving you extremely bad advice. Go with a money market fund or something similar for your intended purpose.

If I were you, I wouldn’t use this “advisor” again.

Bogleheads don’t shoot down every idea. But the shoot the bad ones down pretty quickly.

Best of luck to you.
It's a GREAT day to be alive - Travis Tritt

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