Author Topic: Is it a good time to invest new money?  (Read 11963 times)

Rein1987

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Is it a good time to invest new money?
« on: September 02, 2014, 10:20:26 PM »
Currently we have more than 200k cash which was planned for a house down payment, but we decided to defer the house purchase for another 3-5 years to save more money. After we made this decision, we have been dollar cost average into the market for the past few months. We put 20k per month into the market, 90% stock (80% US & 20% international) and 10% bonds.

Now I feel the market is really very high. Moreover, I feel the world is not very peaceful recently (e.g., Russian, ISIS). I know it's hard to time the market, but it really makes me scared. Is there any better place to invest this new money, or just keep in cash?

Primm

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Re: Is it a good time to invest new money?
« Reply #1 on: September 02, 2014, 10:24:28 PM »
The stock market is nearly always at an historical high.

Some part of the world is always in turmoil.

This year, this month, is no different.

RapmasterD

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Re: Is it a good time to invest new money?
« Reply #2 on: September 02, 2014, 10:32:54 PM »
I would not hesitate to invest in the stock market. I pay no attention to what is going on in the world, or what I "feel."

If I were planning on purchasing a house in three years and needed that down payment, I would hesitate to invest that money, for the down payment, in the stock market.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #3 on: September 02, 2014, 10:49:29 PM »
If I were planning on purchasing a house in three years and needed that down payment, I would hesitate to invest that money, for the down payment, in the stock market.

Will it be a good idea to invest downpayment in REIT? I'm thinking it's correlated with the housing price.

waltworks

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Re: Is it a good time to invest new money?
« Reply #4 on: September 03, 2014, 07:32:23 AM »
If you need money in 3-5 years, do a high-yield savings account or laddering CD. Something FDIC insured. Stocks are for long-term investing. Likewise REITs or pretty much anything else with higher yield because your tolerance for risk is presumably very, very low here.

-W

trailrated

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Re: Is it a good time to invest new money?
« Reply #5 on: September 03, 2014, 09:13:25 AM »
If you need money in 3-5 years, do a high-yield savings account or laddering CD. Something FDIC insured. Stocks are for long-term investing. Likewise REITs or pretty much anything else with higher yield because your tolerance for risk is presumably very, very low here.

-W

+1 If this was a, "I am not going to touch it should I invest, it would be a no brainer to pull the trigger. But if you plan on pulling it out in 3-5 years you should put it somewhere "safer"

Kaspian

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Re: Is it a good time to invest new money?
« Reply #6 on: September 03, 2014, 11:55:12 AM »
Moreover, I feel the world is not very peaceful recently (e.g., Russian, ISIS).

...Said a guy about Russia and the Middle-East in 1981 and who died broke. 

4alpacas

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Re: Is it a good time to invest new money?
« Reply #7 on: September 03, 2014, 12:36:35 PM »
If you need money in 3-5 years, do a high-yield savings account or laddering CD. Something FDIC insured. Stocks are for long-term investing. Likewise REITs or pretty much anything else with higher yield because your tolerance for risk is presumably very, very low here.

-W

+1 If this was a, "I am not going to touch it should I invest, it would be a no brainer to pull the trigger. But if you plan on pulling it out in 3-5 years you should put it somewhere "safer"
+1
Are you planning to buy something in the near future?  Or FIRE soon?

If you're putting off the home purchase for the next 5 years or more, I would just plow the entire amount into an index fund.  My investment strategies are based on my laziness rather than trying to time the market or pick winning stocks. 

Rein1987

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Re: Is it a good time to invest new money?
« Reply #8 on: September 03, 2014, 12:53:56 PM »
If you need money in 3-5 years, do a high-yield savings account or laddering CD. Something FDIC insured. Stocks are for long-term investing. Likewise REITs or pretty much anything else with higher yield because your tolerance for risk is presumably very, very low here.

-W

+1 If this was a, "I am not going to touch it should I invest, it would be a no brainer to pull the trigger. But if you plan on pulling it out in 3-5 years you should put it somewhere "safer"
+1
Are you planning to buy something in the near future?  Or FIRE soon?

If you're putting off the home purchase for the next 5 years or more, I would just plow the entire amount into an index fund.  My investment strategies are based on my laziness rather than trying to time the market or pick winning stocks.

I plan to FI soon, but not retire soon, because I have a lot of things I want to try (e.g, start own business).
Also, I plan to buy a house soon as I plan to have babies thus a larger family.

If FI means that my net asset is 25 times of my expense, I will be FI in 5 years if I do not buy a house and stay in my current place.
I can become immediately FI if I sell my current condo and move to a less expensive area ( but my family do not want to move at least now).

If a buy a house, maybe FI in 15 years or more? But I think I always have the option to sell the house and move to a less expensive area to FI immediately.

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hodedofome

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Re: Is it a good time to invest new money?
« Reply #10 on: September 03, 2014, 06:32:50 PM »
It's OK to put it in the market as long as you understand the risk that your account could be worth half as much in 3-5 years. If you aren't ok with that, then don't do it.

Mr Mark

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Re: Is it a good time to invest new money?
« Reply #11 on: September 03, 2014, 10:01:08 PM »
It's OK to put it in the market as long as you understand the risk that your account could be worth half as much in 3-5 years. If you aren't ok with that, then don't do it.

oh what  a load of sky about to fall bs.

look. If your savings rate is so bad that a few k either way messes with your plan, you aren't saving enough. In that case, focus on more important stuff.

otherwide stick your spare cash into a balanced portfolio consistent with your risk tolerance. If you arevthat scared and your savings in the next Few Years won't cover the risk premium, you're screwed anyhow.

put it into wellesley fund if you dont want much risk. But over 2 or 3 years you will probably beat the 'keep it under your mattress' panic attack crowd going into YOUR DIVERSIFIED PORTFOLIO SET TO THE RISK LEVEL.

FFS.

look everyone. For the last god damn time. There is ni free lunch. Risk and return go hand in hand.

A risk free place to stick cash for a few years that matches inflation yet guarantee s 100% capital  plus offers,  like , a "fair" return of say a few % on top....

it doesn't exist! Please stop asking.


Bob W

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Re: Is it a good time to invest new money?
« Reply #12 on: September 04, 2014, 10:19:54 AM »
Currently we have more than 200k cash which was planned for a house down payment, but we decided to defer the house purchase for another 3-5 years to save more money. After we made this decision, we have been dollar cost average into the market for the past few months. We put 20k per month into the market, 90% stock (80% US & 20% international) and 10% bonds.

Now I feel the market is really very high. Moreover, I feel the world is not very peaceful recently (e.g., Russian, ISIS). I know it's hard to time the market, but it really makes me scared. Is there any better place to invest this new money, or just keep in cash?

Curious what your rent is?    Are you pretty darn happy?  How much more happy will you be 1 year after buying a house?   My guess is you will be pretty close to where you are today on a happiness scale.   

 My experience with house purchases is that they are generally a negative for relationships.   As a home builder 80% of my clients who custom built homes divorced shortly thereafter.    Not to say this is the case with you. 

Your 200K should generate $1,000 per month in rolling income.  Would you be happier renting a nicer home that is $1,000 more than your current situation?   If so,  I would suggest trying that on for size.   No risk in that.  (by the way,  if I rented a home for $1,000 more than my current housing allowance, it would be a very nice home in my market, but maybe not in yours, since it appears you are looking at million dollar homes?)

hodedofome

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Re: Is it a good time to invest new money?
« Reply #13 on: September 04, 2014, 10:26:18 AM »


oh what  a load of sky about to fall bs.



It's not fear mongering. It's risk management. Duh.

Jack

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Re: Is it a good time to invest new money?
« Reply #14 on: September 04, 2014, 11:59:20 AM »
My experience with house purchases is that they are generally a negative for relationships.   As a home builder 80% of my clients who custom built homes divorced shortly thereafter.    Not to say this is the case with you. 

Sorry to derail the topic, but that is an interesting statistic.

Do you have any evidence that there's a causative relationship between building a custom house and having marital problems (either that the stress from getting the house built damages the relationship, or that people think they can somehow solve their relationship problems by getting a fancy house)? If so, do you find yourself in an ethical dilemma by agreeing to get involved as their builder? Are you able to tell ahead of time which couples will be in the 80% and which will be in the 20%, and preferentially accept work from the latter?

Cheddar Stacker

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Re: Is it a good time to invest new money?
« Reply #15 on: September 04, 2014, 12:34:55 PM »
Is it a good time to invest new money?

Yes. Always. Everyday. You might lose some of it, but you should come out ahead in the end.

As to your specific plan, that's your call, but the answer to the title question is YES.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #16 on: September 04, 2014, 02:49:34 PM »
Curious what your rent is?    Are you pretty darn happy?  How much more happy will you be 1 year after buying a house?   My guess is you will be pretty close to where you are today on a happiness scale.   

 My experience with house purchases is that they are generally a negative for relationships.   As a home builder 80% of my clients who custom built homes divorced shortly thereafter.    Not to say this is the case with you. 

Your 200K should generate $1,000 per month in rolling income.  Would you be happier renting a nicer home that is $1,000 more than your current situation?   If so,  I would suggest trying that on for size.   No risk in that.  (by the way,  if I rented a home for $1,000 more than my current housing allowance, it would be a very nice home in my market, but maybe not in yours, since it appears you are looking at million dollar homes?)

Currently our mortgage + HOA + TAX = 2300. Our current condo today can easily rent out for 2500 - 3000, so I do not think at 3300 we can find a much larger place. We were planned to buy a million dollar home, but after half a year searching, we realized that out it's impossible to find a house within the 1 million budget that is significant better than our current one. We are not willing to pay significant more mortgage for a so-so house. So we decide to wait to save more money to increase our budget or wait for another market crash.

We do feel very happy living in our current place. The only need to buy a larger one is that we may have a larger family in next few years that current 700sqft condo might not be enough.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #17 on: September 04, 2014, 02:51:43 PM »
My husband and I finally decided to put last month's saving plus some of the cash into stock and bond market. We thought there's strong correlation between the market and the housing price, so if we do lose a lot of the money, maybe the house price will go down too.

matchewed

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Re: Is it a good time to invest new money?
« Reply #18 on: September 04, 2014, 04:58:23 PM »
My husband and I finally decided to put last month's saving plus some of the cash into stock and bond market. We thought there's strong correlation between the market and the housing price, so if we do lose a lot of the money, maybe the house price will go down too.

I am wondering where you came up with that thought.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #19 on: September 04, 2014, 05:46:43 PM »
My husband and I finally decided to put last month's saving plus some of the cash into stock and bond market. We thought there's strong correlation between the market and the housing price, so if we do lose a lot of the money, maybe the house price will go down too.

I am wondering where you came up with that thought.

Do you mean the strong correlation? At least in my area where median house prices are million dollars but household median income is less than 100k, the crazy housing market is more likely to be driven by the crazy stock market. For high income earners, a huge portion of compensation of people in my area is the stock. For example, my company stock vesting is about 30% of my total compensation. For other companies, the stock ratio might be even larger (60%?)

If the stock market crash, it means our income will decrease dramatically, not mention some people may lose their jobs. I don't think the house market can keep strong in that case.

matchewed

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Re: Is it a good time to invest new money?
« Reply #20 on: September 05, 2014, 05:43:48 AM »
My husband and I finally decided to put last month's saving plus some of the cash into stock and bond market. We thought there's strong correlation between the market and the housing price, so if we do lose a lot of the money, maybe the house price will go down too.

I am wondering where you came up with that thought.

Do you mean the strong correlation? At least in my area where median house prices are million dollars but household median income is less than 100k, the crazy housing market is more likely to be driven by the crazy stock market. For high income earners, a huge portion of compensation of people in my area is the stock. For example, my company stock vesting is about 30% of my total compensation. For other companies, the stock ratio might be even larger (60%?)

If the stock market crash, it means our income will decrease dramatically, not mention some people may lose their jobs. I don't think the house market can keep strong in that case.

I think you may find that the market may not crash and your area's bubble could pop. I think you're drawing a false conclusion based on a very small subset of personal experience rather than data. While an overall trend in the US real estate may have a good correlation with the stock market in general your area may depend more heavily on a small group of stocks that your area has a concentration of employers. If perhaps stock prices suddenly dropped in that particular sector but didn't have a big impact in other sectors there could be a massive home value change in your area. But if employers start leaving or hiring slows down or outsourcing starts happening then you may very well have lower house prices without an impact in the market.

Your area sounds like a bubble to my ears. It is at the very least a high risk situation. A) a very large percentage of your compensation is tied into the company you work for, B) home prices that given the information you present people can't afford (seriously 5k mortgage and tax payment on only <100k salary? Seems like people are begging for it again.), and C) given A and adjusting your correlation to be less dependent on the market as a whole and more dependent on your specific local employers people are at risk for losing jobs and the value of their compensation through stocks. And the reaction is let's buy into this? I'd keep myself flexible (rent) and diversified (divest yourself of the company stock as soon as you can and into another unrelated investment) in this scenario. Just my take and I may be reading it wrong given the scant amount of information.

Also reading through the thread if this is money for a home then the stock market isn't the place for it. Mind you if you're not sure you want to buy a home then it may be fine to put the money in the market for a future unknown action given you accept the risk. But if you have to have that money in 3-5 years the market is a terrible place for it. Savings accounts and CD's are the way to go. If everything goes to shit you'll still have your money.

solon

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Re: Is it a good time to invest new money?
« Reply #21 on: September 05, 2014, 08:25:49 AM »
Is it a good time to invest new money?

Yes. Always. Everyday. You might lose some of it, but you should come out ahead in the end.

As to your specific plan, that's your call, but the answer to the title question is YES.

+1 I was coming here to say exactly this.

Yes, OP, invest new money.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #22 on: September 05, 2014, 10:00:12 AM »

I think you may find that the market may not crash and your area's bubble could pop. I think you're drawing a false conclusion based on a very small subset of personal experience rather than data. While an overall trend in the US real estate may have a good correlation with the stock market in general your area may depend more heavily on a small group of stocks that your area has a concentration of employers. If perhaps stock prices suddenly dropped in that particular sector but didn't have a big impact in other sectors there could be a massive home value change in your area. But if employers start leaving or hiring slows down or outsourcing starts happening then you may very well have lower house prices without an impact in the market.

Your area sounds like a bubble to my ears. It is at the very least a high risk situation. A) a very large percentage of your compensation is tied into the company you work for, B) home prices that given the information you present people can't afford (seriously 5k mortgage and tax payment on only <100k salary? Seems like people are begging for it again.), and C) given A and adjusting your correlation to be less dependent on the market as a whole and more dependent on your specific local employers people are at risk for losing jobs and the value of their compensation through stocks. And the reaction is let's buy into this? I'd keep myself flexible (rent) and diversified (divest yourself of the company stock as soon as you can and into another unrelated investment) in this scenario. Just my take and I may be reading it wrong given the scant amount of information.

Also reading through the thread if this is money for a home then the stock market isn't the place for it. Mind you if you're not sure you want to buy a home then it may be fine to put the money in the market for a future unknown action given you accept the risk. But if you have to have that money in 3-5 years the market is a terrible place for it. Savings accounts and CD's are the way to go. If everything goes to shit you'll still have your money.

I do not hold any of my company stock. I immediately sell my company stock upon vest and buy index fund instead.

I do not quite get the point why the bubble may not crash as you mentioned it's like a bubble. If it is a bubble, it is likely to crash if stock market crash, especially stock compensation is a very large portion.

matchewed

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Re: Is it a good time to invest new money?
« Reply #23 on: September 05, 2014, 10:51:09 AM »
Two different bubbles. You're worried about a stock market bubble which may or may not be happening. I'm talking about your real estate situation which distinctly sounds like a bubble but may collapse with little to nothing happening to the stock market.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #24 on: September 05, 2014, 11:26:25 AM »
Two different bubbles. You're worried about a stock market bubble which may or may not be happening. I'm talking about your real estate situation which distinctly sounds like a bubble but may collapse with little to nothing happening to the stock market.

I think the reason why I should not invest house downpayment in stock market is because of possible stock crash. Is my understanding correct?

I think there are a few possibilities:

a) stock crashes and house market crashes. In this case, since both go down, I can still use the money left in stock market to buy a house. What's more, consider my 200k becomes 100K, and the 1M house become 700k. I can borrow less from the bank (800k vs 600k). So, I think this case is acceptable.

b) stock does not crash but house crashes. In this case, I can definitely use my down payment to purchase a house.

c) stock crashes and house does not crashes. From my understanding, the possibility is little. Also as you mentioned, the housing market is more likely to be a bubble. However, it is true that I will face the risk that I do not have money to buy a house at that time.

d) both stock and housing market go up. If I do not invest in stock, there is no possibility I can catch up with the crazy housing price. In other words, there is still risk here if I keep the money in CD. (my husband bought our current condo in 2011 for about $300k. Now it's more than $550k. Even stock market could hardly catch the housing price).

To summarize, the risk investing house down payment in stock market is from case (c). From my personal analysis, the possibility of (c) is small and I can accept that risk. Rather, there is risk of not investing the down payment in stock market in case of (d).

I will not put my money in the stock market at once. I think my dollar cost average strategy will take at least 1.5 years to put most cash in stock/bonds.

kyleaaa

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Re: Is it a good time to invest new money?
« Reply #25 on: September 05, 2014, 12:21:02 PM »
You definitely should not be investing money you'll need in 3-5 years in the stock market.

Cheddar Stacker

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Re: Is it a good time to invest new money?
« Reply #26 on: September 05, 2014, 12:37:56 PM »
You definitely should not be investing money you'll need in 3-5 years in the stock market.

This is true and I agree kyleaaa, but the need part is the sticky point. OP does not need to buy a house in the next 3-5 years. Change need with want and it's very different.

Need=Have no other options. 75 year old needs an extra $500/month to supplement SocSec and has no other income source. They need that money to buy groceries and should have it in a bond/CD/Annuity (that one hurt to type, I hate annuities but they have their place I guess).

Want=Have plans to do something. An able bodied, young, gainfully employed couple will not truly need this money. If the market declines, simply alter your plans accordingly.

fmzip

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Re: Is it a good time to invest new money?
« Reply #27 on: September 07, 2014, 06:35:18 PM »
My mantra is to invest on any day that ends with a "Y".

If the day doesn't end with a "Y", don't invest! :)

FiveSigmas

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Re: Is it a good time to invest new money?
« Reply #28 on: September 07, 2014, 07:29:25 PM »
Is it a good time to invest new money?

Yes. Always. Everyday. You might lose some of it, but you should come out ahead in the end.

As to your specific plan, that's your call, but the answer to the title question is YES.

I think someone needs to set up http://isnowagoodtimetoinvestlongterminthemarket.com/.

(See, e.g., http://hasthelargehadroncolliderdestroyedtheworldyet.com/. I'd almost suggest simply redirecting to that site, but that would require an awkward double-negative.)

LuckyMe

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Re: Is it a good time to invest new money?
« Reply #29 on: September 08, 2014, 02:55:43 PM »
Currently we have more than 200k cash which was planned for a house down payment, but we decided to defer the house purchase for another 3-5 years to save more money. After we made this decision, we have been dollar cost average into the market for the past few months. We put 20k per month into the market, 90% stock (80% US & 20% international) and 10% bonds.

Now I feel the market is really very high. Moreover, I feel the world is not very peaceful recently (e.g., Russian, ISIS). I know it's hard to time the market, but it really makes me scared. Is there any better place to invest this new money, or just keep in cash?

You can never tell when the market is too high.  People were saying the same thing a year ago and the market has only grown since then. 

DCAing into the market is a good idea, but for a short term goal I would say your AA is way too aggressive.  If your goal is to preserve principle, a 90% stock allocation could easily wipe out a big chunk of your portfolio.  I would consider something like a Vanguard Lifestrategy Conservative Growth fund (VSCGX) which has a 40-60 stock to bond ratio or a short term tax-exempt muni fund like VMLTX. 

Rein1987

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Re: Is it a good time to invest new money?
« Reply #30 on: September 08, 2014, 04:51:35 PM »
You can never tell when the market is too high.  People were saying the same thing a year ago and the market has only grown since then. 

DCAing into the market is a good idea, but for a short term goal I would say your AA is way too aggressive.  If your goal is to preserve principle, a 90% stock allocation could easily wipe out a big chunk of your portfolio.  I would consider something like a Vanguard Lifestrategy Conservative Growth fund (VSCGX) which has a 40-60 stock to bond ratio or a short term tax-exempt muni fund like VMLTX.

My understanding is that the bond fund price will go down for sure if the interest rate rises, and the interest rate is very likely to go up very soon. Isn't bond fund more risky now?

NorCal

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Re: Is it a good time to invest new money?
« Reply #31 on: September 08, 2014, 09:32:25 PM »
Is the market going up or going down?  No one knows.  Anyone who thinks they can tell you is either a fool or is trying to sell you something.

However, it sounds like you're planning on using this money in 3-5 years.  If that's the case, you have WAY too much in stocks.  Stocks are great to invest in for the longer horizon.  Find something safer.

You can buy bonds directly (not a bond fund) and eliminate the risk of market fluctuations.  Or you can put it in a CD.  Or safer bond funds.  Even Preferred Shares (PFF) would be a better choice than 80-90% stocks for such a short term.

LuckyMe

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Re: Is it a good time to invest new money?
« Reply #32 on: September 08, 2014, 10:15:23 PM »
My understanding is that the bond fund price will go down for sure if the interest rate rises, and the interest rate is very likely to go up very soon. Isn't bond fund more risky now?

No one knows when the feds will raise interest rates but assuming that does happen in the near future, your stock holdings should counterbalance your bonds (and vice-versa when stocks take a hit).  When investing in bonds, it's important to pick a bond fund whose duration matches your investing time horizon so you have time to recover from any potential drops during your holding period.  For example, don't buy a long term bond whose underlying bonds have an average duration of 14 years when you need the money in 6 years. 

You said you'll need the money in 3-5 years.  Depending on how flexible your time horizon is, you could invest in short term munis which have an average duration of 2 to 2.5 years.  Or if you want a take on more risk, you could put it into an intermediate term bond with an average maturity date of 4.5 years.  The money would be there initially and  you could then shift to a short-term fund towards the end or  depending on your deadline, you can wait another year or two if there is a drop at the end.

Rein1987

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Re: Is it a good time to invest new money?
« Reply #33 on: September 09, 2014, 10:22:59 AM »
Thanks for the bond suggestion. I'll invest more in bond next month.

p.s. although I put the new money 90% into stock for the past months, the total portfolio including cash and my previous investment does not have a very high stock yet, not close to 50%.