Author Topic: Short Term Savings Parking Spot  (Read 3580 times)

Rekon

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Short Term Savings Parking Spot
« on: November 16, 2014, 02:27:39 PM »
Hello,

So my goal is to save 20% for a mortgage.  $100k to be exact (500k houses is the norm here in LA County).  Now that I sold my car and live a mustachian lifestyle I can save this in ~3 years. 

My question is... every month when I save where should I put this money?  I have a brokerage account with Charles Schwab.  I was thinking of dumping the monthly savings in an ETF like SCHB or SCHX.  Since there are free trades and a low expense ratio. 

Thoughts?  Is there a better option? 
« Last Edit: November 16, 2014, 03:53:26 PM by Rekon »

RyeWhiskey

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Re: Short Term Savings Parking Spot
« Reply #1 on: November 16, 2014, 02:36:35 PM »
Stocks are too risky for a three year time horizon. You want intermediate municipal bonds or intermediate treasuries depending upon your specific tax situation (see the Morningstar tool for comparing post-tax yields).

Rekon

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Re: Short Term Savings Parking Spot
« Reply #2 on: November 16, 2014, 03:54:40 PM »
Stocks are too risky for a three year time horizon. You want intermediate municipal bonds or intermediate treasuries depending upon your specific tax situation (see the Morningstar tool for comparing post-tax yields).

The Schwab bond stocks have a very low Morningstar rating.  The large cap funds have been doing so well year-after-year.  Are they really that risky? 

Another Reader

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Re: Short Term Savings Parking Spot
« Reply #3 on: November 16, 2014, 04:05:27 PM »
You want to distinguish between saving and investing.  Since you are saving for three years and cannot afford a 30 to 50 percent haircut if the stock or bond markets go into a downturn, you need to put the money someplace where your principal is not at risk.  Choices like CD's and on-line savings or money market accounts that are FDIC insured are appropriate for this objective. 

RyeWhiskey

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Re: Short Term Savings Parking Spot
« Reply #4 on: November 16, 2014, 04:29:49 PM »

Stocks are too risky for a three year time horizon. You want intermediate municipal bonds or intermediate treasuries depending upon your specific tax situation (see the Morningstar tool for comparing post-tax yields).

The Schwab bond stocks have a very low Morningstar rating.  The large cap funds have been doing so well year-after-year.  Are they really that risky?

I won't explain equity risk other than to say that you should do your due diligence and research the risk of the investments you're engaged in. Suffice to say that stocks can lose 50%+ of their value in a small time frame like three years.

I suggest you spend a good amount of time understanding the mechanics of stocks and bonds and the roles that they can play in a portfolio. Check out the Bogleheads wiki to start.

rmendpara

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Re: Short Term Savings Parking Spot
« Reply #5 on: November 16, 2014, 08:47:23 PM »
Stocks are too risky for a three year time horizon. You want intermediate municipal bonds or intermediate treasuries depending upon your specific tax situation (see the Morningstar tool for comparing post-tax yields).

The Schwab bond stocks have a very low Morningstar rating.  The large cap funds have been doing so well year-after-year.  Are they really that risky?

Not to offend, but this statement really shows how inexperienced of an investor you are.

Please seek to understand the difference between saving and investing. Investing is putting money toward building long-term wealth. Saving is putting money in a savings account/CD for something you'll need in <5 years.

Another way to think of it would be to think about how much $ you would be willing to "lose" if the market were to turn south right around when you needed your money to buy a home. Let's say you think $10k is an amount you'd be willing to lose and wait to make up if that happened by saving for a few more months. Since a 30% market drop isn't out of the ordinary in a recession, then you'd probably not want to invest more than ~$13k by the end of your third year.

If you have 13k invested and 87k cash, then if the amount invested went down by our 30% example, you'd need to make up another ~4k in savings to meet your 100k goal.

You can adjust for what you feel is reasonable risk. However, honestly, and I'm trying to be constructive by saying this, you really do need to do a lot more homework on investments and the whole investing world before just blindly buying things through your Schwab account because they "...have been doing well year after year".

Mighty-Dollar

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Re: Short Term Savings Parking Spot
« Reply #6 on: November 20, 2014, 02:17:17 AM »
You don't have to go all in.  Maybe invest 25 or 50% of that money. All depends on your appetite for risk.
And no bonds? As they say "When stocks fall, money runs to the safety of bonds".

FLBiker

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Re: Short Term Savings Parking Spot
« Reply #7 on: November 20, 2014, 08:07:59 AM »
You're getting a lot of good advice here.  A stock fund would absolutely be the wrong place for money that you're planning to use in 3 years.  Personally, I would look for a CD or an online FDIC insured money market account.  A municipal bond fund might make sense, too, but I don't have experience with those.

surfhb

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Re: Short Term Savings Parking Spot
« Reply #8 on: November 20, 2014, 09:37:37 AM »
Stocks are too risky for a three year time horizon. You want intermediate municipal bonds or intermediate treasuries depending upon your specific tax situation (see the Morningstar tool for comparing post-tax yields).

The Schwab bond stocks have a very low Morningstar rating.  The large cap funds have been doing so well year-after-year.  Are they really that risky?

Remember 2008? 2001? 1987?, ect ect  ;)
« Last Edit: November 20, 2014, 09:42:58 AM by surfhb »

waltworks

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Re: Short Term Savings Parking Spot
« Reply #9 on: November 20, 2014, 09:43:17 AM »
You might want to reconsider the house if it will take you three years just to save a DP.

-W