Author Topic: When to move down payment $ out of Vanguard to cash?  (Read 2274 times)

AshStash

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When to move down payment $ out of Vanguard to cash?
« on: April 15, 2018, 02:38:00 PM »
I've been saving for a house down payment for nearly 10 years, which has become rolled up into my general taxable investments at Vanguard. Needless to say, I have a LOT of capital gains now :) Hooray!

I am expecting to need about $80,000 to cover 20% down payment + various closing costs. Thanks to the bull market (and MMM), I could almost pay cash for a house based on the market value of my taxable investments, but I think I'd rather leave the money in VTSAX. I already have $30k in an online savings account for emergencies.

I am now at a point career-wise where I am hopefully done moving around and I expect to buy a house in the next year or so. Is it time to start moving money to my online savings account earning a paltry 1.5%? Is it better to just take the whole $80k out now or leave some in the market? Take out $50k and add it to my $30k emergency fund and call it good?

Because my down payment savings have been mingled in with my FI stash, I am struggling with the thought of moving any money out of Vanguard and seeing my stash go down, which I know is a bit silly :) I have been planning to buy a house at some point, so it is included in my FIRE plans.

sokoloff

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #1 on: April 15, 2018, 02:44:15 PM »
Would delaying buying a house in the event of a market crash cause you hardship (practical or emotional)?

Would you be willing to delay such a purchase if you found a good housing opportunity in the middle of a downturn?

If “no” and “yes”, you could leave the money invested until/unless you get serious about a specific property or shopping for one. That’s basically what we did and it worked well, as we bought in spring of 2007. Spring 2009 would not have worked quite as well...

Bill_

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #2 on: April 15, 2018, 02:57:42 PM »
One month treasuries are paying over 1.6% and are state tax free.  Better yet, if you know you need the money in X months, buy an X months (less a few days) treasury bill.

I'd buy treasuries and earn paltry interest versus losing it in a market correction at the wrong time.

Make sure you account for any capital gains taxes you will owe on the realized gains.

simonsez

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #3 on: April 16, 2018, 08:12:42 AM »
I see two different questions in there.

1) Should you do 50k from taxable + 30k from EF to get to 80k or fund the down payment with all taxable?

I lean toward the all taxable side or a less risky combination.  If you do use money from the EF that's fine but I wouldn't drain it all the way.  The EF is there for a reason and that doesn't magically disappear when you own a house.

2) When should you move money from your taxable?

If it were me, I would want fairly liquid access to the 80k (and ONLY 80k) earmarked for the down payment before I looked at the first house.  Have the tax situation thought out well in advance and know what you have going in so you can focus 100% on the house, plus it would make me less tempted to go over budget.  Whenever my finance side was ready (i.e. having the 80k), then my house-shopping side would commence. 

Even if I looked at 50 houses over 3 months before deciding on one, I wouldn't care about the time in market I was missing.  Money to me is a tool (means to ends).  I can't let perfect be the enemy of good when it comes to the amount of money I have.  The game of life is not to maximize your dollars*, it's to live the way you wish (by having enough money rather than some higher value if you had invested more/longer).  Buying a house is a big life decision, which is why I wouldn't want to be distracted by the investing side when I am trying to focus on purchasing a domicile.  YMMV

*-easier said than done, I feel ya on watching the balance of an investment account drop.  We're programmed to see it go up and up and up for the most part in the long run. Then all of a sudden we retire or need a chunk for a house and drawing it down can be harder than it should be on an emotional level because we've treated the accumulation as a game to put our green soldiers to the most work they can endure.  Seeing those green soldier evaporate necessitates a mindset change about the bigger picture.

Good luck!

MustacheAndaHalf

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #4 on: April 17, 2018, 09:05:15 AM »
Depending on which state you live in, you might have an escrow process.  Vanguard won't transfer cash directly to an escrow company.  So when you're about to look for a house, that might be the time to transfer the down payment out of Vanguard and into a local bank.

If you are 1-2 years from buying a house, 100% VTSAX risks delaying your home purchase.  Whatever percent you can stomach shifting into bonds, you should do so.  Even 80% bonds could make sense, but I suspect you don't want to hear that, so any amount is better than 100% stocks.  You've already saved the money for the down payment - and now you want to protect it rather than grow it significantly.

AshStash

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #5 on: April 18, 2018, 07:44:33 PM »
Thanks for all the advice! I hadn't really considered how I'd feel about house hunting if I still had the money sitting in the market and how that might affect my decision making process. And it's a great point that Vanguard won't transfer directly to an escrow company--I hadn't even though about that. That's a good practical reason beyond just protecting current savings to sell some VTSAX and move it to a savings account.

SwordGuy

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #6 on: April 18, 2018, 07:59:58 PM »
This is in the class of problems where you need to know what will happen in the future in order to make the best possible choice.

Since we don't know what the future will be, we simply cannot choose the best possible choice.

However, we can turn the question around 180 degrees and ask, "How can we avoid the worst possible choice?"

That's possible to do without knowing what the future will hold (assuming one can make a reasonable guess about it).

Make a list of options to choose from.  But instead of focusing on the best possible result, focus on the worst possible result.

Then, quite simply, don't do anything that will result in that choice.

If there are multiple results you don't want to live with, don't do anything that will result in those results either.

In a simple example, my choices are between:

1) Carry an umbrella with me when I take a walk.  The worst will be I have an awkward item to carry or I lose or break it.

2) Take a walk without an umbrella.   I will get wet if it rains, and possibly sick from that.

So, which result is the worst?   Pick the other option.  :)



Finances_With_Purpose

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #7 on: April 18, 2018, 10:23:30 PM »
Vanguard is pretty quick on funds transfers; you should have your cash within a week if you've already linked a bank account.  Maybe two weeks to be safe? 

The bigger question: when do you plan to buy?  Rule of thumb: I'd pull any money you are pretty sure you're spending within a year.  That includes money for houses or anything else.  Markets are long-term.  Short-term, they can fluctuate 10, 20, 30, 40% or more.  You're able to buy treasuries right now or low-risk CDs (3-month, say?) at low rates.  I'd do that until you're ready to buy.  There are even decent savings accounts out there (ours pays 2.5% up to 50k). 

You've saved for so long that it sounds like you're firm on your house plan (and good for you) so I'd go ahead and pull it and hold.  But that's just me.  I want loads of risk long-term, but over the short term I want certainty. 

For what it's worth, you could lose money in the market, but house prices shouldn't go crazy due to rising interest rates.  So I highly doubt there's an impending huge uptick in home prices over the short term, which is when you're looking to buy.  In other words, it's not a bad time to pull the cash. 

ynotme

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #8 on: April 23, 2018, 01:44:29 AM »
You can also do it gradually - take $25k out now, take another $25k after 6 months if your plans are still on track and remainder when you have found a place and know how much you need.

If you are still saving, you could divert savings to your online account rather than Vanguard, and build it up over time as well.

2Birds1Stone

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #9 on: April 23, 2018, 04:07:51 AM »

I am now at a point career-wise where I am hopefully done moving around and I expect to buy a house in the next year or so

I would make sure of that bolded part before committing to a house.

AshStash

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #10 on: April 23, 2018, 05:09:54 PM »

I am now at a point career-wise where I am hopefully done moving around and I expect to buy a house in the next year or so

I would make sure of that bolded part before committing to a house.

That's the plan! And why my time horizon is about a year away and not now, even though I already have been sitting on the downpayment money for a long time :)

Thanks for all the advice! I set up my first sale of some shares today to get the ball rolling. I'm diverting all taxable savings to my online savings account so as to avoid selling more shares than strictly necessary this year and sparing myself the capital gains tax.

Surf

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #11 on: April 24, 2018, 12:56:49 AM »
This is in the class of problems where you need to know what will happen in the future in order to make the best possible choice.

Since we don't know what the future will be, we simply cannot choose the best possible choice.

However, we can turn the question around 180 degrees and ask, "How can we avoid the worst possible choice?"

That's possible to do without knowing what the future will hold (assuming one can make a reasonable guess about it).

Make a list of options to choose from.  But instead of focusing on the best possible result, focus on the worst possible result.

Then, quite simply, don't do anything that will result in that choice.

If there are multiple results you don't want to live with, don't do anything that will result in those results either.

In a simple example, my choices are between:

1) Carry an umbrella with me when I take a walk.  The worst will be I have an awkward item to carry or I lose or break it.

2) Take a walk without an umbrella.   I will get wet if it rains, and possibly sick from that.

So, which result is the worst?   Pick the other option.  :)

+1 to using this decision making process to account for worst-case scenarios and proceeding from there.

SwordGuy

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Re: When to move down payment $ out of Vanguard to cash?
« Reply #12 on: April 24, 2018, 05:55:07 AM »
This is in the class of problems where you need to know what will happen in the future in order to make the best possible choice.

Since we don't know what the future will be, we simply cannot choose the best possible choice.

However, we can turn the question around 180 degrees and ask, "How can we avoid the worst possible choice?"

...

+1 to using this decision making process to account for worst-case scenarios and proceeding from there.

Thanks!   I'm glad to know someone appreciated that.   I've found it really useful for cutting thru analysis paralysis on this class of problems.