Investing $85k that I might want to use as down payment in two years

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FriedBaloney
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Investing $85k that I might want to use as down payment in two years

Post by FriedBaloney »

Hello,
I have $85K left from a home sale that I would like to put somewhere where it will hopefully grow. I may use it as a down payment for a home purchase in a couple years. Or not. Where would be a good place to put it so I can access it if necessary in two to three years? Thank you!
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SquawkIdent
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Re: Investing $85k that I might want to use as down payment in two years

Post by SquawkIdent »

FriedBaloney wrote: Mon May 17, 2021 3:20 pm Hello,
I have $85K left from a home sale that I would like to put somewhere where it will hopefully grow. I may use it as a down payment for a home purchase in a couple years. Or not. Where would be a good place to put it so I can access it if necessary in two to three years? Thank you!
Online savings account. The usual suspects...Ally, Marcus (be sure to get the .1% AARP bonus, if applicable), etc.

Two to three years is not a lot of time and I would be very concerned with protecting that principal and less with growing it.
angelescrest
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Re: Investing $85k that I might want to use as down payment in two years

Post by angelescrest »

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Grt2bOutdoors
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Re: Investing $85k that I might want to use as down payment in two years

Post by Grt2bOutdoors »

Monies needed in 5 years or less are invested at your peril. If you need it in 5 years and don’t want to risk a potential 10-50 percent loss during that time period then it doesn’t belong in equities. Put your money in the bank and know that it will be there in 2-3 years. You could buy I bonds but you are limited to $10k and there is a 3 month penalty on bonds held less than 5 years.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
NabSh
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Re: Investing $85k that I might want to use as down payment in two years

Post by NabSh »

Option 1: CD or Money Market fund

Option 2: I bond . But you can only purchase $10K per SS

Option 3:
Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX)
-- currently has lower yield then option 1. But hopefully will improve.

Option 4:
20% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
80 % Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX)
-- Max yearly downrun is about 5-6%. Average yearly return is 5 %. Knowing the short term goal I personally wouldn't choose this.
If you plan to use money and has no risk appetite stay with option 1.
Carguy85
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Re: Investing $85k that I might want to use as down payment in two years

Post by Carguy85 »

Vtsax... if you don’t like what it’s become in 2-3 years don’t buy until you are happy with its growth . Otherwise you are very likely essentially locking in a loss factoring in inflation with “fixed income” avenue. Are you wanting to concede now and lock in a loss or have a decent chance to grow it? You have time and don’t have to spend it at a specific point in time if you don’t want per you.
livesoft
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Re: Investing $85k that I might want to use as down payment in two years

Post by livesoft »

Depends. If you put it into an equity fund, then what would you do if it lost $5K? $10K? $15K? $20K? Would you find $5K, $10K, $15K, $20K from elsehwere to "top" it up? Or something else?

Bascially, how much of it can you lose while trying to have it make more money for you? Give some serous thought about that before answering. Thanks!
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Charon
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Re: Investing $85k that I might want to use as down payment in two years

Post by Charon »

Carguy85 wrote: Mon May 17, 2021 9:44 pm Vtsax... if you don’t like what it’s become in 2-3 years don’t buy until you are happy with its growth . Otherwise you are very likely essentially locking in a loss factoring in inflation with “fixed income” avenue. Are you wanting to concede now and lock in a loss or have a decent chance to grow it? You have time and don’t have to spend it at a specific point in time if you don’t want per you.
Near me, home prices have been going up at >10% a year for years now. If you have to wait 3 years... or 5 years... for your VTSAX funds to recover from a loss, are you going to keep waiting for them to catch up to home prices? You're going to be hurting a lot more than a little inflation (which might cost the OP what, 2% or 3% over the next couple years, if they put the money in a CD?)

OP, put it in a CD. This isn't money for your retirement, and you don't need it to double. You just need it to be there when you want to buy.
phantom0308
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Re: Investing $85k that I might want to use as down payment in two years

Post by phantom0308 »

Counterpoint to those stating two years from now the capital won’t be protected. In The event of a significant stock downturn are you more or less likely to want to purchase a home? If it’s a bad enough downturn, maybe it won’t be the best time to make a big decision like this?

I’d also like to point out that investing the money doesn’t need to be 100% stock. If your asset allocation is 70/30 and you pour more money into that, you’ll be saving at a similar level of risk. The extra money for the down payment should really be treated as part of your asset allocation anyway. A 80/20 portfolio of 500k with 100k of CDs for down payment is really 66/33. You’ve just labeled one pile of liquid fungible assets.
regularguy455
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Re: Investing $85k that I might want to use as down payment in two years

Post by regularguy455 »

Your best bet is moving it around for checking and saving bonuses. You might be able to earn a few thousand dollars for the effort.
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FriedBaloney
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Re: Investing $85k that I might want to use as down payment in two years

Post by FriedBaloney »

NabSh wrote: Mon May 17, 2021 8:19 pm

Option 3:
Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX)
-- currently has lower yield then option 1. But hopefully will improve.
I'm a little bit hesitant to ask this very dumb question.... what fees do I pay when I take the money out? Am I taxed only on the growth?
Topic Author
FriedBaloney
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Re: Investing $85k that I might want to use as down payment in two years

Post by FriedBaloney »

livesoft wrote: Mon May 17, 2021 9:56 pm Depends. If you put it into an equity fund, then what would you do if it lost $5K? $10K? $15K? $20K? Would you find $5K, $10K, $15K, $20K from elsehwere to "top" it up? Or something else?

Bascially, how much of it can you lose while trying to have it make more money for you? Give some serous thought about that before answering. Thanks!
We could top off with $10K from other sources if necessary.
livesoft
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Re: Investing $85k that I might want to use as down payment in two years

Post by livesoft »

FriedBaloney wrote: Tue May 18, 2021 3:46 pm
livesoft wrote: Mon May 17, 2021 9:56 pm Depends. If you put it into an equity fund, then what would you do if it lost $5K? $10K? $15K? $20K? Would you find $5K, $10K, $15K, $20K from elsehwere to "top" it up? Or something else?

Bascially, how much of it can you lose while trying to have it make more money for you? Give some serous thought about that before answering. Thanks!
We could top off with $10K from other sources if necessary.
So forget about safety in bonds. Go with an equity fund of your choice or perhaps a balanced fund for your risk appetite.
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Grt2bOutdoors
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Re: Investing $85k that I might want to use as down payment in two years

Post by Grt2bOutdoors »

FriedBaloney wrote: Tue May 18, 2021 3:46 pm
livesoft wrote: Mon May 17, 2021 9:56 pm Depends. If you put it into an equity fund, then what would you do if it lost $5K? $10K? $15K? $20K? Would you find $5K, $10K, $15K, $20K from elsehwere to "top" it up? Or something else?

Bascially, how much of it can you lose while trying to have it make more money for you? Give some serous thought about that before answering. Thanks!
We could top off with $10K from other sources if necessary.
So you can absorb a decline of 11 percent. Markets can decline by 50 percent though, just look at what happened in March 2020 - had there been no intervention you’d certainly not have a rapid recovery of prices. Max exposure should not exceed 25 percent of the 85k. So just as an example if you put 25 percent in equities and it earns 6 percent per year and the remaining amount goes in a savings account. Your total return per year is about 2 percent. Now think to yourself is placing 25k at risk worth a potential loss of 10k to earn an additional 1.5 percent per year? In other words, my bet is you could get a part time job and generate an extra $1,700 per year after tax with no risk of capital loss (putting on my Dave Ramsey hat). It’s just a matter of weighing risks here - how lucky do you feel? I personally would not do it. I’d stick the money in the bank or an I bond. If inflation stays up you’d earn close to 2 percent in year one after the 3 month penalty.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
FriedBaloney
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Re: Investing $85k that I might want to use as down payment in two years

Post by FriedBaloney »

Does anyone have experience with OnJuno high yield checking account? I would use it as a savings account but the interest rate is appealing for putting in $85K. I saw an article regarding the OnJuno high yield checking accounts, linked below. $30K-$100K has an interest rate of 0.25%. Thoughts?
"They offer two different accounts:
Basic Checking: Up to 2.15% APY on balances up to $5,000
Metal Checking: Up to 2.15% APY on balances up to $30,000, but there is a fee of $9.99 per month after a 6 month free trial. You can still earn the higher APY for those 6 months.
"
https://thecollegeinvestor.com/35872/on ... ng-review/
Grt2bOutdoors
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Re: Investing $85k that I might want to use as down payment in two years

Post by Grt2bOutdoors »

FriedBaloney wrote: Tue May 18, 2021 4:03 pm Does anyone have experience with OnJuno high yield checking account? I would use it as a savings account but the interest rate is appealing for putting in $85K. I saw an article regarding the OnJuno high yield checking accounts, linked below. $30K-$100K has an interest rate of 0.25%. Thoughts?
"They offer two different accounts:
Basic Checking: Up to 2.15% APY on balances up to $5,000
Metal Checking: Up to 2.15% APY on balances up to $30,000, but there is a fee of $9.99 per month after a 6 month free trial. You can still earn the higher APY for those 6 months.
"
https://thecollegeinvestor.com/35872/on ... ng-review/
9.99 per month for 6 months is 59.94 in fees. 2.15 percent times 30k is 161.25. Interest is taxable so you bet even less than that. Annualized that 30k earns .34 per year. You can find a higher APR at other banks without having to jump through hoops.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
FriedBaloney
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Re: Investing $85k that I might want to use as down payment in two years

Post by FriedBaloney »

[/quote]

9.99 per month for 6 months is 59.94 in fees. 2.15 percent times 30k is 161.25. Interest is taxable so you bet even less than that. Annualized that 30k earns .34 per year. You can find a higher APR at other banks without having to jump through hoops.
[/quote]

Thank you
Figuring_it_out
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Re: Investing $85k that I might want to use as down payment in two years

Post by Figuring_it_out »

take twice the amount you are OK losing and invest it aggressively on whatever you want. Put the rest in cash.
dboeger1
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Re: Investing $85k that I might want to use as down payment in two years

Post by dboeger1 »

One thing to consider is how you would weight the different outcomes in the probability distribution of outcomes (as if this is known information; it's not, but we can try to guesstimate it). For example if you absolutely don't need to buy the house by that deadline, but buying one earlier or being able to afford a larger house would be extremely positive outcomes, it might be worth taking more risk. If, on the other hand, you absolutely need to buy by that time to put your kids in school or something like that, then you should take substantially less risk, maybe even all cash/CDs/short-term bonds. I personally kept our down payment funds invested in 100% stocks in our early 20s because we wanted to buy a home and have kids as early as possible, but were willing to buy in a cheaper area or continue renting if our investments didn't pan out by the time we planned to have our first child. Being flexible paid off for us, as we ended up buying our home earlier than expected AND way overshooting our net worth target for having children. Obviously, past performance doesn't guarantee future results, but I have to give myself a little credit for recognizing that our risk profile was such that short-term investment losses wouldn't be devastating to our most important goals.
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