The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: DocCyane on September 25, 2012, 02:13:53 PM
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I was discussing this with my partner and she recommended I, "ask the mustache people." I guess I talk about you guys a lot.
In five years we are planning to leave Los Angeles and move to Olympia, WA where we will buy a house. We don't own one now and don't intend to buy before we leave.
I anticipate buying something in the $225-$250k range and will have $50k for a down payment. I have that now and more, but it's all in Vanguard equity mutual funds (mostly index). I would prefer not to sell at a (possible) low point in five years to get the $50k, so I was wondering where you all thought I should put this mid-range investment.
Should I rebalance to a bond fund? Buy CDs and deal with the low interest? Stick it in a jelly jar? Input appreciated, as always.
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Honestly, I'd be putting it in Vanguard index funds and then start selling out 4-5 years from now. You don't have to sell all at once (and likely would split it between two years at least for tax reasons).
The main reason I'd be okay with this is that a house purchase is a flexible event. If you get enough money and find a deal, you may purchase it at year 4. If the market is bad, you may ride that out and purchase a house year 6. Saying you absolutely for sure will buy one exactly 5 years from now seems unlikely. Since it's more flexible, I'd be okay putting it in a little more volatile investments.
I am less risk adverse than some though, so it'll really be up to you and what lets you sleep at night.
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I'd mix it up into a fairly conservative mix of equal parts cash (savings, CDs, etc), bonds (long-term, mid-term, short-term, TIPS, etc), and some stocks. That way you get some benefit of an up market while insulating from a falling market.
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I'm with the Arebelspy on the idea to keep it in equities for awhile unless there's a reason you HAVE to buy the house in year x. If it's a particularly crappy time for the market you can defer the purchase for a year right? So much can happen in 5 years why have all that money hanging out doing little. If you want to hedge a little, maybe take out a small percentage in year -5, a little more in -4 and so on?
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I'm with the Arebelspy on the idea to keep it in equities for awhile unless there's a reason you HAVE to buy the house in year x. If it's a particularly crappy time for the market you can defer the purchase for a year right? So much can happen in 5 years why have all that money hanging out doing little. If you want to hedge a little, maybe take out a small percentage in year -5, a little more in -4 and so on?
You're right. We don't HAVE to buy at any specific time. We can move to Olympia and hang out in an apartment until the stars align. I'm good with that. And I do hate missing out on good stock market returns.
I really appreciate the feedback.
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My question is how much more can you save over the next five years, over and above retirement savings? If I could save the estimated down payment over the next 5 years, I would leave the existing funds where they are. As I got closer to my goal and was more sure of the move and the house price, I would put new money into less volatile savings instruments and adjust the location of the down payment saved over the previous couple of years as market conditions warranted. If I needed more or less money for the down payment, I would shift more or less money into liquid investments, tapping the money I have today only if I had to.