Author Topic: What Would You Do With 300K Short-Term?  (Read 1856 times)

robinmarie

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What Would You Do With 300K Short-Term?
« on: September 09, 2018, 04:37:07 PM »
Question: What do I do with a 300K profit from a recent house sale to maximize profits over the next year or so until I need the money for a real estate purchase? I'm not ready to buy yet but will need the money then. I've already got a longtime IRA in the stock market and I'm seeing how well 300K could be working for me, but at the moment it's sitting in Wells Fargo, which makes me feel ill. What would you do to maximize 300K if you had a year and wanted to manage it yourself? THANKS!

ILikeDividends

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Re: What Would You Do With 300K Short-Term?
« Reply #1 on: September 09, 2018, 05:34:21 PM »
If you are inflexible about the timing and the amount you'll need on that future date, you don't really have a lot of options.  Seems you are limited to money market, one year treasuries, one year CD, or a savings account (anywhere but at crooked Wells Fargo would be my preference).

Obviously you could probably do better in an indexed equity fund, but you'd have to be willing to let Mr Market decide the timing for you.

« Last Edit: September 09, 2018, 06:14:54 PM by ILikeDividends »

robinmarie

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Re: What Would You Do With 300K Short-Term?
« Reply #2 on: September 09, 2018, 06:45:58 PM »
But couldn't I (theoretically) just use e-Trade or an online Fidelity account to invest in mutual funds short-term and take my chances? Or would the buy/sell fees on that kind of amount be too high to make short-term gains worth it? I'm not averse to risk and I don't need exactly 300K. The way the market's been going I feel stupid sitting it out.

ILikeDividends

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Re: What Would You Do With 300K Short-Term?
« Reply #3 on: September 09, 2018, 07:29:34 PM »
But couldn't I (theoretically) just use e-Trade or an online Fidelity account to invest in mutual funds short-term and take my chances? Or would the buy/sell fees on that kind of amount be too high to make short-term gains worth it? I'm not averse to risk and I don't need exactly 300K. The way the market's been going I feel stupid sitting it out.

Of course you could, if you're willing to be extremely flexible on timing your withdrawal.

Depending on your broker, you could pretty easily find S&P 500 style index funds that trade commission free (Vanguard and Schwab are two brokers that I know of that offer such ETFs), so commission drag shouldn't be a worry.

But if you absolutely have a one-year hard line on your need for some portion of that 300K, there's no guarantees that it will be worth even that much on the date you want to pull your money out.

What would you do if the market takes a 50% nosedive in the next twelve months?  It probably won't, but it could.  Lots of people have drowned camping too near a river that probably won't flood.  Would you settle for 150K loss to salvage whatever cash you can?  Or would you be willing to wait the storm out for a year, two, three, or more, for a full recovery?

Only you know how critical the one-year time frame is, and how important capital preservation is to you within that time frame.

If your timing is inflexible, you could put your minimum cash needed into treasuries, or a money market fund, etc., and put the rest in an index fund.

If you want maximum potential returns, you have to give up control of timing.
If you want maximum control over timing, you have to settle for lower returns.

You can construct a portfolio that splits the difference between these two extremes according to whatever ratio you care to impose, but there is no free lunch in any scenario that doesn't rely on luck.
« Last Edit: September 10, 2018, 01:59:01 AM by ILikeDividends »

FrugalSaver

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Re: What Would You Do With 300K Short-Term?
« Reply #4 on: September 09, 2018, 08:09:11 PM »
VMMXX currently yields 2.07% and will be going up at the end of this month.

Putting some in various credit unions could yield 4% or more. Of course once the tax cuts kick in the market could be up Another 30% if just an average returnoccurs based on past precedent the last 60 years

Be careful buying what the media is feeding you as you make your decisions.

Systems101

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Re: What Would You Do With 300K Short-Term?
« Reply #5 on: September 09, 2018, 08:09:53 PM »
...until I need the money for a real estate purchase?

Need $300K? or want $300K? or might use $300K?

In other words, @ILikeDividends was right on in asking: What if in targeting $325K (using stocks) instead of $305K (using treasuries), it turns into $150K due to a market pullback?  Also, you need to consider the probability... The stock market has lots of volatility that come with the higher return.  It's risky over short time periods, because you capture almost entirely volatility and not trend.

It appears you will "need the money then", which would lead me to recommend you don't go anywhere near the stock market.  Go buy some Treasuries 6 or 9 months out, and then either put it in a money market or start rolling it into 6 weeks treasuries (about as short as you can get in retail volumes without losing to fees).

Andy R

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Re: What Would You Do With 300K Short-Term?
« Reply #6 on: September 09, 2018, 11:05:44 PM »
But couldn't I (theoretically) just use e-Trade or an online Fidelity account to invest in mutual funds short-term and take my chances? Or would the buy/sell fees on that kind of amount be too high to make short-term gains worth it? I'm not averse to risk and I don't need exactly 300K. The way the market's been going I feel stupid sitting it out.

This whole comment shows a fundamental lack of understanding of the stock market. I don't mean that as an insult, everyone originates from this lack of understanding.
For a period of time the market overshoots its long running average, before reverting to the mean, and then it over corrects downwards and under performs compared to its long running average, before reverting back, and this is a permanent ebb and flow.

People who don't understand this (most of the population), only take notice after the market has overshot and buy in when it is too high because that is the time the media gets in on it and says how great the market has done and people with a lack of understanding think that anything that happened in the last 5 years will be the expected return going forward.

In the same vein, when the market has over corrected downwards, the media reports the bad news and people sell, only to see the market rise over the next few years where they miss out on the gains.

Chasing a market that has already over corrected upwards is asking for a loss. Avoiding a market that has already under corrected is asking for a loss of opportunity cost.

If you want to buy a house within the next year, for christs sake just put it in a CD.
How are you going to feel when you put your money into the stock market and lose half of it and can not buy a house any more? This is the question you need to ask yourself before you put your money into stocks.

If you are ok with not buying a house for potentially a decade or more and can hold your stocks after a crash for up to a decade without selling when the same media making you want to buy will have stories making you want to sell, then you should design a portfolio allocation that you will stick to no matter which way the market moves in the short term, and put it in there and leave it alone. Since you are clearly listening to the media and are willing to take dangerous moves with a very large amount of money on the line, I would say that you will be unlikely to ignore the media when the market eventually goes through a normal crash.

Stick your money in a CD or HISA and buy your house in a year. In the mean time read about stocks for half an hour at the start of each day to begin your education so that you can set yourself up with the highest chance of financial success.
« Last Edit: September 09, 2018, 11:09:27 PM by Andy R »

robinmarie

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Re: What Would You Do With 300K Short-Term?
« Reply #7 on: September 10, 2018, 07:12:19 AM »
All this feedback is extremely helpful, thank you all so much.

Just to be clear, a little more background: It's not the media hype of a bull market making me wish the money had spent the past six months in the stock market, it's the returns I'm seeing on my own 600K IRA. I get my Fidelity statements each month and think: "If my IRA made 10K this month, that 300K could have made 5K."

I realize now is potentially a bad time to buy as the market peaks, but I do wonder if I could ride out this upswing a bit longer... perhaps 6-12 more months? :) I know it's a gamble. But I plan to break up the 300K into various real estate investments anyway, so the amount is definitely somewhat flexible. As for the timing... no. I would not be happy if I had 150K left a year from now. So all this feedback about other investment vehicles as well as a "split" approach to the market is extremely valuable for me. And any other ideas are most welcome. Thanks again.


ChpBstrd

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Re: What Would You Do With 300K Short-Term?
« Reply #8 on: September 11, 2018, 09:26:50 AM »
Given that the money is to be spent on various real estate investments a year from now which involve a risk of loss, are you OK with risking a limited amount for the next year to earn higher returns than a money market account?

I'm thinking about a collar strategy which involves using options to put a floor on your maximum loss and a ceiling on your maximum gain. E.g...

SPY is currently $288 and yields 1.7%

Buy 1,000 shares SPY for $288,000.
Buy 10 Sept 20, 2019 puts at $280 strike for $13,700.
Sell 10 Sept 20, 2019 calls at $305 strike for $8,910.
Net: $292,790.

Maximum possible 1y loss (dividends included/assumed): -2.74%
Maximum possible 1y gain (dividends included/assumed): 5.94%

You can adjust your range of returns by picking different strike prices. E.g. with a 280 put and a 295 call your max loss is -0.94% and max gain is 4.27%.

FWIW, it would be historically unlikely NOT to earn the maximum return on such a tight collar setup. But it's probably the highest-yielding arrangement that can guarantee you'll have a certain amount of money a year from now.

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CorpRaider

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Re: What Would You Do With 300K Short-Term?
« Reply #9 on: September 11, 2018, 11:39:25 AM »
I would look at short term T-bills.  You can get some pretty nice APRs right now.

TreeTired

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Re: What Would You Do With 300K Short-Term?
« Reply #10 on: September 11, 2018, 12:07:06 PM »
Quote
I would look at short term T-bills.  You can get some pretty nice APRs right now.

That's what I would do.  Probably buy $100k of 1mo, 2mo, and 3mo tbill and roll them as they mature. Fidelity and Schwab both offer good pricing and no extra commision in buying tbills. Yields right now are 2 - 2.25% and almost certainly going higher. Interest is state tax free. Avoids problem of splitting up money between banks to make sure you are FDIC covered. I don't trust many so-called "cash equivalent" investments because when a financial crisis hits you can still lose your money.