Author Topic: What to do with free cash?  (Read 1151 times)

justchecking

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What to do with free cash?
« on: July 03, 2016, 05:32:08 PM »
Here is the situation.  My wife and I are buying rental properties in the hopes of creating enough passive income to live the early retirement life.  We have some retirement accounts that we contribute to get the match from work, but we are not relying on these for our early retirement plans.  We are good savers and it usually takes us about 2-3 years to save enough money to buy a new property, we have budgeted about $80,000 for each new property we are getting ourselves into. This means that we have a lot of cash that is sitting around in an account while we save up for the next big purchase.  What would be the best use of this money during the down times?  It could be invested, but needs to be liquid when the time comes.  Thanks for the help. 

2Birds1Stone

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Re: What to do with free cash?
« Reply #1 on: July 03, 2016, 05:53:44 PM »
High yield bank account or CD.  2-3 years is not enough time to invest in stocks, and realistically with interest rate risk even bonds might not be worth it.

YMMV, I guess it depends on your risk tolerance, you could always invest half in a 50/50 stock bond portfolio and the other half in a 1.05% APR bank account?

Radagast

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Re: What to do with free cash?
« Reply #2 on: July 03, 2016, 07:10:07 PM »
Agree with CD's. Two year CD's look to be yielding about 1.45% right now, which is similar to inflation but with no possibility of loss of principal.
By comparison, Vanguard's short term bond index is yielding 1.35%, with a standard deviation of 1.36%.
Their short term corporate bond fund is yielding about 2.01%, std dev of 1.79%
Their short term treasury fund yields 0.71% with std dev of 0.71%.
Yield is from Yahoo Finance and volatility from Portfolio Visualizer since January 2010. Otherwise high yield savings may be best for greater liquidity. Finally, there is a corporate bond ETF family that holds bonds to maturity in a target year. This is an option I haven't seemed mentioned much, but might be worth a look if you have a known date at least two years in the future.