Author Topic: Am I Being too Conservative  (Read 2879 times)

GoingConcern

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Am I Being too Conservative
« on: January 18, 2017, 10:35:23 AM »
I have over $100k in cash (getting back around 1%), $60k in stocks/index funds and a paid off condo  worth $200k. I contribute around $700 a month towards retirement and have no debt and my household income is over $100k. Spending is low and we save most of our income (around $40k a year.)

I plan to move in about a year and plan to buy a home worth around $500k or possibly rent for the first year. My plan initially was to keep the cash and use it towards my future home along with the funds from selling my house which would be around $300k as a down payment.

But it might be a while away when I sell my condo and buy and I feel like I could be missing on future gains and if real estate keeps going up in price at near inflation levels then the cash on hand is losing money every year. Just in the past year I missed out on 10% returns but I understand that past performance do not predict future performance and who knows what these next few years will bring. Also It's hard to predict what mortgage rates will be in a few years but I suspect they will be higher.

So my question is should I invest most of the cash in an index fund like VTSAX to hedge myself against rising real estate prices and be content with getting a 30 year mortgage like most people or should I play it safe and hold onto the cash. I also think even if the market falls then there are bigger macro issues and real estate could also be effected and I can still write off losses up to $3k a year which helps mitigate the risk.

Sorry for the rambling but I'm torn on this decision and would appreciate any input or comments.
« Last Edit: February 15, 2017, 12:01:34 PM by GoingConcern »

NoStacheOhio

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Re: Am I Being too Conservative
« Reply #1 on: January 18, 2017, 12:32:13 PM »
Let me preface this by first asking where you're planning to move?

Why the @#$% do you want to spend half a million dollars on a house?

GoingConcern

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Re: Am I Being too Conservative
« Reply #2 on: January 18, 2017, 12:42:59 PM »
Let me preface this by first asking where you're planning to move?

Why the @#$% do you want to spend half a million dollars on a house?

West Coast and that is the the going rate for the area. My wife will make considerably more money which will help offset the higher COL.

Even where I currently live a home in a respectable suburb will cost around $500k.

NoStacheOhio

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Re: Am I Being too Conservative
« Reply #3 on: January 18, 2017, 12:51:34 PM »
Let me preface this by first asking where you're planning to move?

Why the @#$% do you want to spend half a million dollars on a house?

West Coast and that is the the going rate for the area. My wife will make considerably more money which will help offset the higher COL.

Even where I currently live a home in a respectable suburb will cost around $500k.

That's pretty crazy. We have a couple houses in our neighborhood in the 500-900k range, and they're insanely nice--or monstrosities, depending on the owner.

If it were me, I probably wouldn't hold that much cash, especially with a paid off house. Are you planning to sell the condo at the same time you move? Given those numbers, I think I'd be OK taking out a 300k mortgage on a 500k house.

Depending on your risk tolerance, even holding a year's spending in cash would still mean doubling your investment account.

Also, why aren't you maxing your retirement contributions?

GoingConcern

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Re: Am I Being too Conservative
« Reply #4 on: January 18, 2017, 04:16:44 PM »
Let me preface this by first asking where you're planning to move?

Why the @#$% do you want to spend half a million dollars on a house?

West Coast and that is the the going rate for the area. My wife will make considerably more money which will help offset the higher COL.

Even where I currently live a home in a respectable suburb will cost around $500k.

That's pretty crazy. We have a couple houses in our neighborhood in the 500-900k range, and they're insanely nice--or monstrosities, depending on the owner.

If it were me, I probably wouldn't hold that much cash, especially with a paid off house. Are you planning to sell the condo at the same time you move? Given those numbers, I think I'd be OK taking out a 300k mortgage on a 500k house.

Depending on your risk tolerance, even holding a year's spending in cash would still mean doubling your investment account.

Also, why aren't you maxing your retirement contributions?

I currently live in the midwest and most of the nicer suburbs here are in that price range and the property tax is insane as well. Probably looking at atleast 10k a year in property tax for a $500k home in a suburb with good schools.

My plan would be to sell the condo and use the proceeds for the new home. As far as retirement, my employer doesn't match contributions and I will be contributing $800 a month next month which I figure is a decent amount. Maybe I should increase my contributions which would help with dollar averages and limit my risk of "buying when the market is too high."

But that wouldn't solve the issue of the idle cash sitting in an account making 1%.

« Last Edit: January 18, 2017, 04:38:33 PM by GoingConcern »

Retire-Canada

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Re: Am I Being too Conservative
« Reply #5 on: January 18, 2017, 04:41:15 PM »
I would invest the money. You will likely have a whole bunch more money there when you buy the new house, but either way I would get a low rate mortgage and leave the money invested. In the long run you will be better off financially.

Retire-Canada

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Re: Am I Being too Conservative
« Reply #6 on: January 18, 2017, 04:42:33 PM »
That's pretty crazy. We have a couple houses in our neighborhood in the 500-900k range, and they're insanely nice--or monstrosities, depending on the owner.

I live on the west coast of Canada in a 100yr old cottage that cost ~$400K and would sell today for closer to $500K. Prices are crazy, but it is a pretty great place to live.

NoStacheOhio

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Re: Am I Being too Conservative
« Reply #7 on: January 18, 2017, 04:56:28 PM »

I currently live in the midwest and most of the nicer suburbs here are in that price range and the property tax is insane as well. Probably looking at atleast 10k a year in property tax for a $500k home in a suburb with good schools.

My plan would be to sell the condo and use the proceeds for the new home. As far as retirement, my employer doesn't match contributions and I will be contributing $800 a month next month which I figure is a decent amount. Maybe I should increase my contributions which would help with dollar averages and limit my risk of "buying when the market is too high."

But that wouldn't solve the issue of the idle cash sitting in an account making 1%.

It also reduces your taxable income, and you can't go back and use the space after the year is over.

You could spend down some cash and pile money into tax-deferred accounts.

ltt

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Re: Am I Being too Conservative
« Reply #8 on: January 18, 2017, 05:02:27 PM »
Why do you want to buy a $500k home?  Is that the starting price in your area?

GoingConcern

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Re: Am I Being too Conservative
« Reply #9 on: January 18, 2017, 05:28:24 PM »
Why do you want to buy a $500k home?  Is that the starting price in your area?

Not starting but it's what a home in the neighborhood we are looking at would cost for a 1,400 sq foot home 3 bed and 1.5 baths.

Mr. Boh

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Re: Am I Being too Conservative
« Reply #10 on: January 18, 2017, 06:07:00 PM »
Why can't people understand that in many parts of the US houses cost a lot?

If it were me I would wait for a downturn in the stock market before investing for such a short term. Even then I would average in because it can always go lower. The stock market is obviously not the safest place for short term investments.

Likewise, you could loose money in a bond fund in that amount of time.

Perhaps a CD would work for this situation.

While you are being conservative I don't think you are being too conservative assuming your time frame is correct.

GoingConcern

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Re: Am I Being too Conservative
« Reply #11 on: February 15, 2017, 11:56:15 AM »
So I finally took the plunge today (well sort of) and put in $12k in vanguard accounts. 

- VTSMX (Total Stock Index Fund) $5,000
- VGTSX (Total Internaltional Index Fund) $3,500
- VBMFX (Total Bond Index Fund)$3,500

Plan is to put in $1k a month into these funds in a 50/30/20 split.  I also increased my retirement contribution to $900 a month.