Author Topic: Investment ideas from sale of home proceeds  (Read 1294 times)

jwilliams0215

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Investment ideas from sale of home proceeds
« on: June 14, 2016, 10:19:24 AM »
I expect to receive ~$170K in proceeds from selling my previous paid off house in the near-future.

The time-frame for a next home purchase is likely 2-6 years when/if my SO and I decide to have a family. We're currently loving the simplicity of our one-bedroom condo rental, a move that has enabled us to get down to one vehicle and get closer to work. We will also weigh out the cost of renting vs. owning, but generally our area supports home ownership. The issues, 1) we don't know when we might need a larger house and 2) we don't know the ideal location yet.

Without significant detail (we already max out our 401Ks, ROTH IRA, and invest the remaining balance in an after-tax brokerage account). We generally maintain a savings rate of 60%+ and we like the idea of maintaining little to no debt. We are currently debt free. Our current allocation is roughly 77% equity, 17% fixed income, 6% REITS. Additionally conservative, we maintain a large cash balance for unknown expenses, emergency fund, future cars, etc.

I'm curious on how you would approach the cash proceeds and if you can evaluate my initial thoughts:

$170,000 cash proceeds               
$51,000    30% to online savings account for future down payment            
$51,000    30% to PFF - preferred equity index fund (likely to sell and add to down payment)             
$34,000    20% to REIT Index Fund (could either sell at next home purchase or maintain based on price)            
$34,000    20% to brokerage for investments            

The selection was based on my desire to earn some income before the next purchase, but maintain assets that would likely not have significant price fluctuation (as in the case of online savings and PFF). The issues: PFF has interest rate risk and exposure to financial institutions (think that is reasonable risk given the current environment), REITs have greater variability in return (but we could always wait it out with a lower down payment, maintaining that fund), and PFF and REITS are not great for taxable accounts (25% federal tax bracket, no state income tax).

Thoughts?

dandarc

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Re: Investment ideas from sale of home proceeds
« Reply #1 on: June 14, 2016, 10:48:34 AM »
Reasonable approach - get the bulk of it invested.  You might not need to move until kid #1 is a little older anyway - timeframe might look more like 4-10 years, depending on how the family situation develops.

Are you 100% sure you will buy when the family comes?  People have families and live in rentals all the time.  Sitting on a ton of cash is costing you money, and you've got a somewhat nebulous time frame.

So, if it were me, I'd probably dump it all into VTSAX for now (that is to say, invest it however you're comfortable), and prioritize saving up a down payment once kid#1 has a more definite arrival date, assuming you're still looking at buying at that time.

MustacheAndaHalf

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Re: Investment ideas from sale of home proceeds
« Reply #2 on: June 14, 2016, 12:22:53 PM »
I looked at "iShares U.S. Preferred Stock ETF" and it's benchmark, which performed similar.  So I assume most preferred stocks performed close to that benchmark.
https://www.ishares.com/us/products/239826/ishares-us-preferred-stock-etf

During the 2008 crisis, both bottomed out at a -65% loss.  That's actually a spectacularly bad loss, and nowhere near stable.  You would be better off with Vanguard Total Bond Market (BND) for stability, which holds a sampling of each type of bond in proportion to the market - like a bond index fund.
https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT

jwilliams0215

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Re: Investment ideas from sale of home proceeds
« Reply #3 on: June 15, 2016, 06:18:25 AM »
Great, thank you both for your input!

BND would definitely be a much more conservative route and perhaps approximate inflation (better than online savings). Given the timing uncertainty, a mix of VTSAX and BND might be another route to consider...