Short-term investment for luxury spending (not a must)

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portquery
Posts: 18
Joined: Thu Mar 14, 2019 2:53 pm

Short-term investment for luxury spending (not a must)

Post by portquery »

We want to buy a bigger house and sell the current one. However, it is not a must. We saved $160k+ in cash for down payment. When we started looking recently, we realized it is a crazy seller's market in our region right now. We decided we can wait a little bit and invest the cash using a short-term strategy. If the market stays healthy and we find our house at a reasonable price, we withdraw the money needed for down payment. If market crashes, we just hold it off until it rebounds.

Here is my strategy: 50% bond and 50% stock in taxable account. Our taxable accounts have total stock and international stock for normal retirement investment. 401ks have all bonds.

$80k in Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX)
$80k in total stock and total international stock bended in normal retirement savings

Is this a good strategy? thank you.
adestefan
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Joined: Fri Jan 06, 2017 7:22 pm

Re: Short-term investment for luxury spending (not a must)

Post by adestefan »

How much of your $160k are you willing to lose? Answer that question and then you’ll know if you’re okay.
Topic Author
portquery
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Joined: Thu Mar 14, 2019 2:53 pm

Re: Short-term investment for luxury spending (not a must)

Post by portquery »

Thanks for your reply. If market crashes, we will just treat the money as our normal long term retirement investment and don't buy the house To answer your question, I am willing to lose $50k short term. I am assuming it will eventually rebound long term though.
adestefan wrote: Sat Feb 20, 2021 11:51 am How much of your $160k are you willing to lose? Answer that question and then you’ll know if you’re okay.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Short-term investment for luxury spending (not a must)

Post by dbr »

portquery wrote: Sat Feb 20, 2021 12:02 pm Thanks for your reply. If market crashes, we will just treat the money as our normal long term retirement investment and don't buy the house To answer your question, I am willing to lose $50k short term. I am assuming it will eventually rebound long term though.
adestefan wrote: Sat Feb 20, 2021 11:51 am How much of your $160k are you willing to lose? Answer that question and then you’ll know if you’re okay.

It might be worth considering what you are getting for that. If your timeline is three years perhaps, you might measure the benefit of riskier holdings at a return of 5% and the safer investment as a return of 1%. 4% of $160k for three years is around $20,000 but only with a 50% chance of getting that or more. Is that possible benefit worth it against the chance that you might postpone buying that house for several more years? It could be if you are indifferent to owning a home in the next several years, and it would be a bad choice if you really do want to be in a house you own. A chancy $20,000 isn't paying you enough to lose the chance at a house -- or is it?
Topic Author
portquery
Posts: 18
Joined: Thu Mar 14, 2019 2:53 pm

Re: Short-term investment for luxury spending (not a must)

Post by portquery »

Do you think change it to 70% bond and 30% stock a better strategy? I do live in a good house for now. I just hope a little bigger for kids to grow.
dbr wrote: Sat Feb 20, 2021 1:22 pm
portquery wrote: Sat Feb 20, 2021 12:02 pm Thanks for your reply. If market crashes, we will just treat the money as our normal long term retirement investment and don't buy the house To answer your question, I am willing to lose $50k short term. I am assuming it will eventually rebound long term though.
adestefan wrote: Sat Feb 20, 2021 11:51 am How much of your $160k are you willing to lose? Answer that question and then you’ll know if you’re okay.

It might be worth considering what you are getting for that. If your timeline is three years perhaps, you might measure the benefit of riskier holdings at a return of 5% and the safer investment as a return of 1%. 4% of $160k for three years is around $20,000 but only with a 50% chance of getting that or more. Is that possible benefit worth it against the chance that you might postpone buying that house for several more years? It could be if you are indifferent to owning a home in the next several years, and it would be a bad choice if you really do want to be in a house you own. A chancy $20,000 isn't paying you enough to lose the chance at a house -- or is it?
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Short-term investment for luxury spending (not a must)

Post by dbr »

portquery wrote: Sat Feb 20, 2021 1:59 pm Do you think change it to 70% bond and 30% stock a better strategy? I do live in a good house for now. I just hope a little bigger for kids to grow.
This is one of those questions that is not about investing but about what you want to do.

I guess if it were me I would make up my mind to plan on a larger house or not and then proceed.

Admittedly the exchange is between very unlike costs and benefits, so there is no obvious strategy.

I suppose that a person between two choices can split the difference between whatever your retirement savings are and putting all the house money in a low volatility investment. The usual choice for that for a couple of years out might be CDs or a money market fund.
jatwell
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Re: Short-term investment for luxury spending (not a must)

Post by jatwell »

It's an interesting balance.

Do you think a stock market crash might also cause a crash in housing prices?

Would the best time to buy a house be while you're waiting for your 160k to recover?

Could you gain 15% this year on your 160k of markets surge 30% overall. If you had that in CD's you'd only gain ~.5-1%?

Which of those options is more important to you?
Topic Author
portquery
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Joined: Thu Mar 14, 2019 2:53 pm

Re: Short-term investment for luxury spending (not a must)

Post by portquery »

I am thinking when everybody is not stay-at-home after pandemic, the housing market at my desired range wouldn't be so crazy because people don't need as much space as everybody stay-at-home. And yes, I think housing prices would lag ~6month behind stock market regardless crashing or booming.

Both options are important for me. that is why I want to find the balance point: modest gain with modest risk.
jatwell wrote: Sun Feb 21, 2021 8:16 am It's an interesting balance.

Do you think a stock market crash might also cause a crash in housing prices?

Would the best time to buy a house be while you're waiting for your 160k to recover?

Could you gain 15% this year on your 160k of markets surge 30% overall. If you had that in CD's you'd only gain ~.5-1%?

Which of those options is more important to you?
pizzy
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Joined: Tue Jun 02, 2020 6:59 pm

Re: Short-term investment for luxury spending (not a must)

Post by pizzy »

jatwell wrote: Sun Feb 21, 2021 8:16 am It's an interesting balance.

Do you think a stock market crash might also cause a crash in housing prices?

Would the best time to buy a house be while you're waiting for your 160k to recover?

Could you gain 15% this year on your 160k of markets surge 30% overall. If you had that in CD's you'd only gain ~.5-1%?

Which of those options is more important to you?
This.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
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