How to invest 250K in cash in this market?

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DreamsOfRetiring
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How to invest 250K in cash in this market?

Post by DreamsOfRetiring »

We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
Broken Man 1999
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Re: How to invest 250K in cash in this market?

Post by Broken Man 1999 »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
If you think you might need some of it for a house purchase in 2-4 years, then you probably shouldn't invest whatever amount you will need. Instead you should park it where it is not subject to the unpredictable market gains/declines.

Consider CDs, MYGAs, perhaps even Series I Savings Bonds, though you would have to hold them for a year, and if held for less than 5 years you would lose the last 3 months of interest.

Broken Man 1999
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Metsfan91
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Re: How to invest 250K in cash in this market?

Post by Metsfan91 »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
How much of the 250K would you need for buying house? If you think you will only need 150/200 for house, you could invest the remaining in a taxable account using bogleheads 3 fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio
"Know what you own, and know why you own it." — Peter Lynch
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Wiggums
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Re: How to invest 250K in cash in this market?

Post by Wiggums »

Broken Man 1999 wrote: Wed Apr 21, 2021 11:23 am
DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
If you think you might need some of it for a house purchase in 2-4 years, then you probably shouldn't invest whatever amount you will need. Instead you should park it where it is not subject to the unpredictable market gains/declines.

Consider CDs, MYGAs, perhaps even Series I Savings Bonds, though you would have to hold them for a year, and if held for less than 5 years you would lose the last 3 months of interest.

Broken Man 1999
+1
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CurlyDave
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Re: How to invest 250K in cash in this market?

Post by CurlyDave »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years...
I have never followed the conventional wisdom of keeping the down payment in a "safe" place in your situation.

The desire for a house in the next 2-4 years tells me it is not really a time critical issue. If you found the perfect house in 1.5 years, would you want it? Or, if it took 5 years would that be unacceptable?

In that kind of situation I would invest the money according to my desired AA and review the relative positions of the housing vs. RE markets every few months. While there is always a chance you will end up with a disappointing result, the odds of the money growing faster than your down payment requirement are good. Especially if you can wait for a market recovery.

I did this with rental properties for many years in our accumulation phase, long before there was a Bogleheads board. With no data to back it up, my sense of this is that RE standard deviations are higher than stocks, and I was able to time real estate purchases with moderate success while I don't believe there is any real chance of timing stocks.

Unless you really need to buy a house on a certain schedule, wait for a buyer's market, not a seller's market like now. Just a few years ago, sellers were having very sparsely attended open houses and would seriously consider offers well below asking prices. Sometimes they would think hard and accept such offers.
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tomsense76
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Re: How to invest 250K in cash in this market?

Post by tomsense76 »

If you have enough space in your 401k and a decent stable fund option, could use this strategy from the wiki.
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hudson
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Re: How to invest 250K in cash in this market?

Post by hudson »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
2 years: FDIC savings or CD
4 years: high quality bond fund or ETF
DarkHelmetII
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Re: How to invest 250K in cash in this market?

Post by DarkHelmetII »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
Consider Harry Browne Permanent Portfolio as something that is reasonably likely to keep up with / modestly outpace inflation while having a good hedge against gut wrenching downturns
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ruralavalon
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Re: How to invest 250K in cash in this market?

Post by ruralavalon »

DreamsOfRetiring wrote: Wed Apr 21, 2021 10:20 am We have 250K or so in cash and have been dragging our feet getting it invested. We may need some of it in order to buy a house in the next 2-4 years.

Our current investment portfolio is roughly as follows:

Retirement Funds : 340 K Traditional 401k + 45K Roth 401K
Non Retirement Funds: 660K - Mix of SPY / TECH stocks

We now max traditional 401k to 19.5K + and after tax + pre tax to ~57K using megabackdoor and we also invest 2x backdoor Roth.

Ideally we split her entry into broad bond / equity ETFs over the next 2-4 months. Any suggestions?
If intended for a home purchase in 2-4 years use very safe savings vehicles like a federally insured savings account, federally insured short-term CDs, money market funds, or something like Vanguard Ultra-Short-Term Bond Fund Admiral Shares (VUSFX) and iShares Ultra Short-Term Bond ETF (ICSH).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
NoahJay
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Re: How to invest 250K in cash in this market?

Post by NoahJay »

I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
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ruralavalon
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Re: How to invest 250K in cash in this market?

Post by ruralavalon »

NoahJay wrote: Mon Nov 15, 2021 6:53 pm I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
In my opinion I savings bonds are probably a better idea than TIPS. "The composite rate for I bonds issued from November 2021 through April 2022 is 7.12 percent. This rate applies for the first six months you own the bond", Treasury Direct.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
NoahJay
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Re: How to invest 250K in cash in this market?

Post by NoahJay »

ruralavalon wrote: Mon Nov 15, 2021 7:00 pm
NoahJay wrote: Mon Nov 15, 2021 6:53 pm I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
In my opinion I savings bonds are probably a better idea than TIPS. "The composite rate for I bonds issued from November 2021 through April 2022 is 7.12 percent. This rate applies for the first six months you own the bond", Treasury Direct.
I Bonds are definitely interesting. But my wife and I can only put a max of 20k in, and I'm looking to park more like 150k for the home deposit.
hudson
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Re: How to invest 250K in cash in this market?

Post by hudson »

NoahJay wrote: Mon Nov 15, 2021 6:53 pm I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
1-2 Year horizon = high yield savings at .5%
For 1-2 years TIPS are too expensive.
I think TIPS are safe and are not volatile; TIPS just don't fit for 1-2 years.
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ruralavalon
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Re: How to invest 250K in cash in this market?

Post by ruralavalon »

NoahJay wrote: Mon Nov 15, 2021 7:27 pm
ruralavalon wrote: Mon Nov 15, 2021 7:00 pm
NoahJay wrote: Mon Nov 15, 2021 6:53 pm I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
In my opinion I savings bonds are probably a better idea than TIPS. "The composite rate for I bonds issued from November 2021 through April 2022 is 7.12 percent. This rate applies for the first six months you own the bond", Treasury Direct.
I Bonds are definitely interesting. But my wife and I can only put a max of 20k in, and I'm looking to park more like 150k for the home deposit.
So $20k in I-bonds now, and another $20k in January, 2022.

And $110k in Vanguard Balanced Index Fund (VBIAX) ER 0/07%, an asset allocation of 60&% stocks and 40% bonds, or some other more conservative a!location fund such as Vanguard Target Retirement Income Fund (VTINX) ER 0.12%, an asset allocation not 30% stocks and 70% bonds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
exodusNH
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Re: How to invest 250K in cash in this market?

Post by exodusNH »

NoahJay wrote: Mon Nov 15, 2021 6:53 pm I'm in a similar position to the OP: Determining where to park cash for a home deposit that I expect to use in 1-2 years.

I'm concerned about how high inflation is right now. I'm fine with getting a real return of 0. But I don't want the cash to get eroded by high inflation. Curious what people think about investing in a TIPS ETF? The yield is much higher than could get in an FDIC high-interest savings account. I presume though the principal amount of the ETF could be volatile and that is where the potential downside is?

Anywhere I can learn more about how safe it is/expected volatility of investing in TIPS ETFs?
Even if inflation were a sustained 5% over that time period -- which would be unprecedented in recent times -- you're looking at just under 10% erosion of buying power.

If inflation is sustained, then bond funds NAVs are going to go through a period of adjustment as the newer bonds are issued at higher rates. Even a 1% adjustment in BND could cause a temporary NAV drop of 7%.

I'd say protect what you can with I Bonds now and in January. For the rest, you have to decide how much risk you can take. FDIC-insured at 0.5%? Intermediate treasuries at 0.9% with interest rate risk, but maybe some protection in the event of a stock market correction? Some combination of stocks and bonds plus the willingness to put off buying a house until the marker recovers?
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