Author Topic: Where to invest extra $150K?  (Read 591 times)

Frugal Vegan Mom

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Where to invest extra $150K?
« on: August 26, 2018, 08:32:16 AM »
Hi,

We currently have no debt besides $250K mortgage at 4%, and are considering buying a different house in about a year.  Where is the best place to put $150K?  Pay down the mortgage right now, or is there a better place to keep it for the next year? 

COEE

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Re: Where to invest extra $150K?
« Reply #1 on: August 26, 2018, 08:42:19 AM »
I'd put it in a boring savings account if you plan to use it in a year.  Look for something returning ~1.8%.  If you you know you don't want to buy for 1 year and there's no chance of changing your mind, perhaps a CD returning ~2.5%.

ETA: Putting this money into your house doesn't change you payment and decreases your liquidity.  It's a lose-lose for you in your situation.
« Last Edit: August 26, 2018, 08:45:05 AM by COEE »

MDM

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Re: Where to invest extra $150K?
« Reply #2 on: August 26, 2018, 09:07:08 AM »
If you put the $150K toward the mortgage, it will reduce your interest cost for the next year by ~4%, or ~$6K.  If you are sure you will move in a year and will get the money back from the sale of the current home, "earning" 4% on the $150K is not bad at all.

There is the liquidity issue COEE noted, but if that is not a concern then 4% beats a savings account or CD. 

The common "pay mortgage vs. invest" question is usually about a long term mortgage vs. stock investment, in which a lower but guaranteed return is compared against an expected higher but not guaranteed return.  And, you could put the $150K into the stock market.  If your after-tax return for the year is >4% it will have been a good choice.  If not, it won't.  But if you don't sell in a year, and in fact remain in the current house much longer, the odds of the stock market returning >4% probably increase.

COEE

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Re: Where to invest extra $150K?
« Reply #3 on: August 26, 2018, 10:10:52 AM »
If you put the $150K toward the mortgage, it will reduce your interest cost for the next year by ~4%, or ~$6K.  If you are sure you will move in a year and will get the money back from the sale of the current home, "earning" 4% on the $150K is not bad at all.

There is the liquidity issue COEE noted, but if that is not a concern then 4% beats a savings account or CD. 

I agree that this is a good point, but only if liquidity isn't a concern.

I would not put the money in the market for any reason if you want to see the money again in 1 years' time.