Author Topic: saving for a nebulous goal  (Read 920 times)

4tify

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saving for a nebulous goal
« on: May 30, 2020, 07:42:01 AM »
I've decided to sell my condo and go back to renting, but eventually I'd like to own another home. My problem is I don't know "when" I'm going to do that since it's likely going to involve a move to another city.

I should end up with around $200k after the sale, which I'd like to increase to $300k in order to either have a fully paid off place when I buy again (or make a substantial dent in a mortgage). Adding the extra $100k will probably take a couple years if I divert away from my regular investing plan (which is ok because I'm already FI).

I'm wondering what you'd advise for where to keep the stash? Seems like a high interest savings account is prudent, but what if I end up NOT buying in the next couple years?

Have any of you sorted through this kind of what if?

terran

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Re: saving for a nebulous goal
« Reply #1 on: May 30, 2020, 07:45:05 AM »
You shouldn't invest money you NEED within the next 5 years, however if you MIGHT WANT money in the short term, but would be fine putting that purchase off if the situation dictates then personally I would be fine with investing it.

desk_jockey

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Re: saving for a nebulous goal
« Reply #2 on: May 30, 2020, 10:48:10 AM »
You don't need the full $200K to buy a house.  I would split the money into two investments, putting at least enough for a 20% down payment all closing fees into high interest savings or CDs and then put the rest into stock index funds.   If you decided to buy in 3 or 4 years and the market is down, you can still buy with the portion that you have in cash and keep the investments to recover. 

If I though it fairly unlikely that I'd buy a house in the next 7 years then I'd put 100% in the market.

4tify

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Re: saving for a nebulous goal
« Reply #3 on: May 30, 2020, 11:17:34 AM »
You don't need the full $200K to buy a house.  I would split the money into two investments, putting at least enough for a 20% down payment all closing fees into high interest savings or CDs and then put the rest into stock index funds.   If you decided to buy in 3 or 4 years and the market is down, you can still buy with the portion that you have in cash and keep the investments to recover. 

If I though it fairly unlikely that I'd buy a house in the next 7 years then I'd put 100% in the market.

Thanks @desk_jockey  this is an interesting approach to consider. I was also thinking about one of those funds that has like 60 or 70% bonds, and the rest in stocks like this: https://investor.vanguard.com/mutual-funds/profile/VSCGX
 
Any thoughts on that vs the option you suggested?

4tify

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Re: saving for a nebulous goal
« Reply #4 on: May 30, 2020, 12:50:48 PM »
You shouldn't invest money you NEED within the next 5 years, however if you MIGHT WANT money in the short term, but would be fine putting that purchase off if the situation dictates then personally I would be fine with investing it.

Right that's the rub: "might want!"

desk_jockey

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Re: saving for a nebulous goal
« Reply #5 on: May 30, 2020, 01:52:18 PM »
You don't need the full $200K to buy a house.  I would split the money into two investments, putting at least enough for a 20% down payment all closing fees into high interest savings or CDs and then put the rest into stock index funds.   If you decided to buy in 3 or 4 years and the market is down, you can still buy with the portion that you have in cash and keep the investments to recover. 

If I though it fairly unlikely that I'd buy a house in the next 7 years then I'd put 100% in the market.

Thanks @desk_jockey  this is an interesting approach to consider. I was also thinking about one of those funds that has like 60 or 70% bonds, and the rest in stocks like this: https://investor.vanguard.com/mutual-funds/profile/VSCGX
 
Any thoughts on that vs the option you suggested?

I'm one that struggles with bonds at the low interest rates of recent years, expecting interest rates to climb and thus bond values to drop.  I've been proven wrong many times, but still have trouble seeing how long term bonds would be a good place to store money you might need for a house purchase, especially when the overnight Fed rate is 0.25%.  If bonds, I'd go with shorter-term bonds that don't react to interest rate changes as much. 

Hopefully someone whose worked in the field will jump in with their thoughts.  @chasesfish ???

chasesfish

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Re: saving for a nebulous goal
« Reply #6 on: May 31, 2020, 07:07:14 AM »
Thanks for tagging me.

The challenge I see right now is there's not much out there that provides a return absent of volatility.   Personally I'm buying the small cap value index, at an 11x PE there's only so much room to fall, plus the fed is backstopping the debt issuance right now.  That's changed the downside game and it yields 2.5%.  IJS is my preferred ticker.   I think we'll see a 40% return on that index, but what I can't tell you is will that be in six months or three years and how bad the roller coaster will be in between.

Outside of that, if you want a more conservative approach just split the money between Vanguard Wellesley Income Fund and the Vanguard Wellington Fund.  That'll get you 50/50 stocks and bonds with the benefit of some of the best money managers in the world for about a 0.18% expense ratio if you're in the admiral shares.  I'd expect a 5-8% return a year in that split with low volatility.  I think that's a better choice than just sticking the money in BND right now.

Since you're already FI, you can probably take a little more risk with the money than 1% on a savings account or the 3% you can get in the bond index without much upside.

Regarding going just long term bonds or just mid-long term treasuries, I think the big money in that trade is dead and you get hurt if interest rates change.  I don't think rates go up any time soon, so you're signing up for a strategy that, in the words of a great wall street writer..."pays chicken feed with the chance it takes an elephant s***"

4tify

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Re: saving for a nebulous goal
« Reply #7 on: May 31, 2020, 12:55:16 PM »
in the words of a great wall street writer..."pays chicken feed with the chance it takes an elephant s***"

Haha thanks @chasesfish. I don't typically invest in anything beyond VTSAX/VBTLX/VTIAX so I'll definitely consider your suggestions. I think you're right I can take a bit more risk, since I already hold about 5% in cash. I have that b/c I was planning to pull the trigger and RE this fall and wanted a cushion to hegemonies against sequence of returns risk...but now covid has hit and I'm feeling skittish until I see how things play out! Moved my date to next year. OMY!!

chasesfish

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Re: saving for a nebulous goal
« Reply #8 on: May 31, 2020, 05:20:37 PM »
I'm glad you enjoyed that analogy.  I found out the hard way one or two of my investments met that category.

VSIAX is the Vanguard equivalent if you go the small cap value route.

I really like the VWLEX/VWINX combination for your situation.  I know active management usually goes against all things Bogle...but Jack Bogle though enough of the Wellington management team that these are Vanguard's two flagship actively managed funds.  There are tons of millionaires over on Bogleheads that have sworn by the Wellington fund for years.  I own about $150,000 of it.  Bonds in a low rate environment are a tricky thing to be a passive investor in.  Low return vehicles and a credit downgrade or interest rate move can hit you.