Investing Options for Possible Down Payment in Taxable Account?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
coastcoaster
Posts: 2
Joined: Tue Mar 24, 2020 7:07 pm

Investing Options for Possible Down Payment in Taxable Account?

Post by coastcoaster » Tue Mar 24, 2020 8:41 pm

Hello everyone,

I used the advice on the wiki and in the forum to do our household investment asset allocation about 18 months ago, aiming for a 75/25 stock/bond ratio. I really appreciate this website and its contributors for cutting through so much of what I find confusing or daunting about investing. Our vitals: 40 and 35 y.o.'s, one child, gross annual income ~ $265,000, with approx 160,000 equity in house. We max out tax-advantaged accounts, and have $25,000 or more annually to invest elsewhere. Our current investment balances are as follows.

TSP (His)
F Fund: 125,000
C Fund: 20,000
I Fund: 80,000
S Fund 4,000

Fidelity 401k (Hers)
FXAIX: 110,000
FSMAX: 23,000

Roth IRAs (combined)
VTSAX: 35,000

Vanguard Taxable
VBIAX: 48,000

The taxable account (VBIAX) was pre-Feb/March crash loosely intended for a house down payment in 2-3 years, but plans were not 100% concrete, nor was the geographic region of house purchase, so price could vary considerably. I know that the standard advice is to keep that money in a low-risk money market or savings account. But we didn't do that, and have done plenty of hindsight agonizing in the last few weeks with VBIAX down ~20% from its high.

With that lesson decidedly learned, I am questioning what to do with the money in the taxable account. We would like to move within the next three years. There is still a decent, say 50%, chance that we would need more than our then-current home equity to move into a new home, but that will depend on home location, housing market at time of move, and other factors.

So, recognizing this may fall into asking people to predict the future, I would appreciate any advice or any thoughts on:

1. What to do with $48,000 in VBIAX? Keep it there (or similar funds)? Take the loss and move to a CD?

2. Where to invest or save the $25,000 annually that we had been investing after maxing out tax-advantage accounts? Keep investing in VBIAX in the taxable account? Or set aside in a savings or money market to hedge against future downturn?

Thank you.

nix4me
Posts: 381
Joined: Sat Oct 13, 2018 9:32 am

Re: Investing Options for Possible Down Payment in Taxable Account?

Post by nix4me » Tue Mar 24, 2020 8:58 pm

Never sell in a down market unless you need to eat.

Id leave it there and wait. Also - there is a good chance that the housing market is next to crash as it always seems to lag wall st. So that house you might buy might be on sale for much cheaper in the future. The likeli hood that the market fully recovers within 3 years is very high.

Topic Author
coastcoaster
Posts: 2
Joined: Tue Mar 24, 2020 7:07 pm

Re: Investing Options for Possible Down Payment in Taxable Account?

Post by coastcoaster » Tue Mar 24, 2020 9:26 pm

nix4me wrote:
Tue Mar 24, 2020 8:58 pm
Also - there is a good chance that the housing market is next to crash as it always seems to lag wall st. So that house you might buy might be on sale for much cheaper in the future.
Very good point. Thanks!

Fishing50
Posts: 380
Joined: Tue Sep 27, 2016 1:18 am

Re: Investing Options for Possible Down Payment in Taxable Account?

Post by Fishing50 » Wed Mar 25, 2020 7:59 am

TSP tells me you are military or govt civilian, we're approaching military retirement.

I recommend taking this opportunity to tax loss harvest, selling VBIAX to purchase US and intl total market equity index funds to hold only equities only in taxable account for tax efficiency. https://www.bogleheads.org/wiki/Tax-eff ... _placement In the future the bond income taxed at normal income rates will not be optimal, especially on top of a possible pension and social security after years of compound growth.

If it's a 'possible' house, it's possibly not a house. As stated in the thread, the housing market is unpredictable. We bought a house with NFCU (Navy Federal Credit Union) that does not require a down payment. Our 2003/2004 car fund is still invested in IWB (Russell 1000), and we'll probably never sell it although we now take dividends in cash instead of reinvesting.

You are savers and have 01x highly reliable income, so you can assume some extra risk in taxable.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

Post Reply