Sooo much money. Where to put it for unknown timeline?

[Villanelle]

As I've mentioned in other threads, we are considering selling our rental property.  If we do, after fees and taxes, we will likely walk away with a check for somewhere [gulp] north of half a million dollars. 

This would leave us entirely out of the property market, for now.  We will likely buy a home again (for us to live in) in anywhere from 2-8 years, depending on spouse's career decisions.  The money from this sale would be the down payment. 

In our shoes, what would you do with the money?  If I knew we were buying in 2 years, I'd make a different decision than if I knew we were buying in 8, but since it could be either, I'm struggling with a plan. 

[Dicey]

I'm a similar spot, for slightly different reasons. Posting to see what kind of ideas this community has.

[Glenstache]

For the short end of that spectrum, it is probably worth looking at something in the treasury inflation adjusted bond area. This will not maximize returns, but does provide the greatest degree of security against inflation issues. The two risks I see are leaving it the bank and having it significantly devalue against inflation over the intervening years, putting it in the market and having a drop at when you are planning on buying (which would be bad at 2 years but likely largely mitigated by early gains if at 8 years). You could also adopt a split strategy with a floor downpayment amount in a secure bond type investment and the rest in the market. If inflation is an issue, you would also get a double whammy on the purchase since borrowing rates would also likely go up making that higher downpayment percentage even more valuable.

I'm sure others have much smarter and nuanced ideas than me. 

[LightStache]

I'd do a partial 1031 into a DST and only take boot for the amount I'd want for a down payment.

Let's say I want a 20% down payment for a $1M home, plus 3.5% for closing cost. That's about half of the proceeds, $250K, which I'd put into a moderate risk blend of investments. You CAN tolerate some losses here. If equities have a deep rout, real estate is likely to follow suit. And you can always just buy a less expensive house or continue to rent and wait.

The other $250K I'd try to split between a couple DSTs to mitigate risk. The tax hit from a sale where you're netting $500K is no joke. There are good reasons not to 1031, but it's worth seriously weighing the option.

[cool7hand]

We'd invest it as we invest all liquidity.

[Villanelle]

We'd invest it as we invest all liquidity.

Even given the relatively short timeframe?  If this were just a windfall and we didn't intend a large purchase with it in the semi-near future, that's what we'd do as well.  Check my target allocation, invest accordingly.  It's the 2-8 year timeline in which we will spend it that has me stumped. 

(And yes, I know money is fungible, and it doesn't need to be *this* money we spend on a house.  But the point remains that in 2-8 years, we will have a major expense and at a minimum we will want a 20% down payment.  No idea where this will be or what the market will look like so I can't make a good guess on prices, but certainly that is somewhere in 6 figures.)

[cool7hand]

Yes. Even for a short time frame. We trust our portfolio, Ray Dalio's All Season's Portfolio--we specifically picked it because of its low volatility. And I've not looked at the market's history in a long time, but as I recall, there's never been a bear market that has lasted two years.

[The_Pretender]

A few things comes into consideration would be down payment you want to do or monthly mortgage pmt to achieve. Not knowing your market but an example would be if you live where you can expect to have a budget of 1M  then 20% would make a Down payment to be ~200K add in other expenses with the transaction and move ~50K so you're left with $250K <-I'd toss this into your AA/broad market

If you look at a mortgage for 800K is too high of a monthly hit to your budget and you would need a mortgage of say 550K then in this case I'd look for recommendations on ways to be a tad more conservative.

Another thought, have you considered investing based on AA and then using a Margin Loan?  This could be a possibility especially if you consider only needing 200K or less for a down payment.  I recall reading @boarder42 leveraging the home equity and margin loans in their strategy for FIRE.

Our situation,  we had 200K in home sale.  top end of budget was 400K where we could do 20% down.  but we were in a market where we needed to open up the possibility of a 500K home.  If we went up to 500k we'd take the remaining 100K to get the monthly payment still in our budget.  thankfully a house hit the market where we were able to do 20% down, manage the monthly PMT and with plenty of cash left over to shore up E-Fund, fully fund IRAs for 21/22, buy a family hauler and cover the incidentals of moving/buying a new/bigger home in a different state.

[Sailor Sam]

I’m willing to keep it safe for you.

[Villanelle]

I’m willing to keep it safe for you.

Fantastic.  Thanks!  I'll wire it immediately.  Just give me your social security number and bank routing info, and I'll have it sent over in ASAP!

[Villanelle]

A few things comes into consideration would be down payment you want to do or monthly mortgage pmt to achieve. Not knowing your market but an example would be if you live where you can expect to have a budget of 1M  then 20% would make a Down payment to be ~200K add in other expenses with the transaction and move ~50K so you're left with $250K <-I'd toss this into your AA/broad market

If you look at a mortgage for 800K is too high of a monthly hit to your budget and you would need a mortgage of say 550K then in this case I'd look for recommendations on ways to be a tad more conservative.

Another thought, have you considered investing based on AA and then using a Margin Loan?  This could be a possibility especially if you consider only needing 200K or less for a down payment.  I recall reading @boarder42 leveraging the home equity and margin loans in their strategy for FIRE.

Our situation,  we had 200K in home sale.  top end of budget was 400K where we could do 20% down.  but we were in a market where we needed to open up the possibility of a 500K home.  If we went up to 500k we'd take the remaining 100K to get the monthly payment still in our budget.  thankfully a house hit the market where we were able to do 20% down, manage the monthly PMT and with plenty of cash left over to shore up E-Fund, fully fund IRAs for 21/22, buy a family hauler and cover the incidentals of moving/buying a new/bigger home in a different state.

We have no idea.  Who knows where the market will be in 2-8 years.  And we have no idea what city, or even what region we will be in.  So it could be a $400k home and it could be $1m+.  We also have no idea what property taxes would look like, so that makes a huge difference in monthly payment.  But in the end, the monthly payment isn't going to be a big concern.  I mean, it matters, but not as much as other factors since we should in a very good position as far as cash flow.  Unless interest rates go way up, we'd likely just put down the 20% and leverage the rest, even if we have more easily liquid assets or cash available.

[use2betrix]

So even at the end of the spectrum ($1MM home) and a plan to put 20% down, you really only $200k. Not to mention, you’ll hopefully be saving money between now and then as well?

I’m in a similar situation, I have no idea when/where I’ll settle down, likely around the same timeframe as you. I keep around $100k for an emergency fund right now for a possible any-minute sabbatical, but that could also be used towards the down payment on a house.

If the market tanks much more, probably half of that will get dumped in.. You know, it’s not the end of the world to have to sell some tax advantaged investments to put towards a down payment (pending the market isn’t in the dumps)..

[Villanelle]

So even at the end of the spectrum ($1MM home) and a plan to put 20% down, you really only $200k. Not to mention, you’ll hopefully be saving money between now and then as well?

I’m in a similar situation, I have no idea when/where I’ll settle down, likely around the same timeframe as you. I keep around $100k for an emergency fund right now for a possible any-minute sabbatical, but that could also be used towards the down payment on a house.

If the market tanks much more, probably half of that will get dumped in.. You know, it’s not the end of the world to have to sell some tax advantaged investments to put towards a down payment (pending the market isn’t in the dumps)..

We will definitely continue to save, although that will go into mutual funds, as usual.  And it is possible that we could spend more than $1m.  if we end up in a VHCOL area, that's not difficult to do.  We left a crappy 2 bed 2 bath place before moving to the burbs (due to a job move) that would easily cost more than $1m.  (And that's old, crappy, no garage, street parking, townhouse!)  But I get your point, and maybe I need to think of it that way.  If I carve out the downpayment money, then I am at least comfortable (or should be!) investing that into our normal AA.  That just leaves the other half (more or less) that I need to settle on.  So I'm not looking at where to put ~~$500k, but ~~$250k.

And your mention of an e-fund makes me realize I may need to rethink that, too, as part of our e-fund layered strategy was to tap our HELOC, which obviously goes away if we sell. 

Maybe it is easier to keep the rental.  lol

[401Killer]

Waiting for the usual post by one of us saying what most of us would do anytime someone asks "We came into X amount, what would you / should we do? lol

[Villanelle]

Waiting for the usual post by one of us saying what most of us would do anytime someone asks "We came into X amount, what would you / should we do? lol

And what is that answer?

I've responded to those posts in the past, something like, "I'd invest it according to my IPS and my target allocation."  For me, the tough part about this is the 2-8 year timeline, and the fact that I feel a need to be more conservative with this than I do with regular investment money, which is what my AA and IPS address.  I can handle a 30% drop in my investments.  If that happened a month or two before we move and look to buy, that would be tougher.  We'd technically still be able to afford a downpayment, but it would be quite painful to sell off a couple hundred thousand in equities that are 30% down. 

[ryan_themoneyguy]

If you have any debt, tackle that first!

Assuming that's out of the way, and you already have a sufficient savings account, it makes sense to invest.

Not just in stocks and commodities, though. Perhaps you or your wife's career could benefit from further education or networking groups. Consider what your priorities are in the next few years.

[401Killer]

Waiting for the usual post by one of us saying what most of us would do anytime someone asks "We came into X amount, what would you / should we do? lol

And what is that answer?

I've responded to those posts in the past, something like, "I'd invest it according to my IPS and my target allocation."  For me, the tough part about this is the 2-8 year timeline, and the fact that I feel a need to be more conservative with this than I do with regular investment money, which is what my AA and IPS address.  I can handle a 30% drop in my investments.  If that happened a month or two before we move and look to buy, that would be tougher.  We'd technically still be able to afford a downpayment, but it would be quite painful to sell off a couple hundred thousand in equities that are 30% down.

Vanguard, VTSAX. 100%. Drop it and forget it. =D

[Fishindude]

First rule of thumb, is don't get in a hurry or panic. 
It won't catch on fire and disappear if you just stick it in your savings account while giving yourself times to process things and make a plan.

[Abe]

Is there a specific reason you’d need to buy in a major market downturn? Could you just rent until home prices drop in response to the downturn, then buy?

Your timeline is so wide that there’s no good answer other than put the down payment in a low-volatility investment that’s inflation protected (maybe VTIP) and maybe adjust your sites lower if you have to buy after a market drop. Again, I don’t see why that would be the case.