Author Topic: Where to invest 30K down payment to be used in 6 years?  (Read 2941 times)

capoevename

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Where to invest 30K down payment to be used in 6 years?
« on: February 03, 2017, 03:47:15 PM »
I plan to buy a property in 6 years (planning to have kids then). Up until now, I have kept the down payment money (~30K) invested with the rest of "the stash". I'm very grateful for my current luck with that since the market has done great, but I'm rethinking of where I should put this down payment money.

Ideally, I would also be able to access this money in a reasonable amount of time if the housing market in my area turns down (it's currently very high, I may want to buy sooner if there's an opportunity of lower prices).

I was thinking of a 3 year CD at 2%, or just leaving it in a savings account at 1%. Is there a better option? I was thinking of perhaps putting it into high-quality corporate bonds like VFINX but those halved in value during the crash, defeating the whole point. Perhaps something like VBINX that, for example, went down about 30% in the last crash? Any other thoughts?
« Last Edit: February 03, 2017, 03:51:12 PM by capoevename »

Hargrove

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #1 on: February 04, 2017, 11:00:58 AM »
If you KNOW you're looking at 6 years, just put it in a CD for 5 years and a high-yield savings for the last year. It will give you flexibility if you find the house slightly early. That's if you need the money to be "safe" psychologically. I would just leave it in, but that's a risk you have to decide if you're willing to take. I'd rather have the (probably) more money. And hey, if it dropped substantially, probably so did the housing market.

You could alternatively use the stuff you mentioned, or something like Discover Online CDs at shorter terms around 1.35%, if you wanted it more liquid, for a rate better than the high-yield but lower than a 2% CD (where's that?). Or, municipal bonds, tax-free. That's all I can think of.

Edit: nevermind, Capital One 360 2.00% for 5 years seems like the "not the market" winner.
« Last Edit: February 04, 2017, 11:02:41 AM by Hargrove »

capoevename

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #2 on: February 04, 2017, 02:02:14 PM »
Thanks for your thoughts Hargrove.

Radagast

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #3 on: February 04, 2017, 03:14:48 PM »
Treasury STRIPS bonds maturing February 15, 2023 yield 2.24%, or a little less for us tiny investors. Beyond that, perhaps tax exempt bond funds or intermediate corporate bond funds. Beyond that, a 2020 retirement fund or high bond low stock allocation.

Retire-Canada

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #4 on: February 05, 2017, 06:53:56 AM »
Personally for a 6yr timeframe I'd leave the $30K in the market.

Read this thread: http://forum.mrmoneymustache.com/investor-alley/cash-vs-stocks-risk-tolerance-and-timeframes/

While there is a small potential for coming out worse off the majority of the time you'll end up with more money. I'm not rich enough to leave $30K sitting idle for that long.

Yes there is a small chance that you'll get unlucky and have a huge crash right when you want that money. But that's a small likelihood and if your money gained 50% in returns then lost 50% in returns in the crash...however shitty that would feel you aren't really any worse off.

In a low interest investment your cash will either lose to inflation or just keep up a 0% return.

Interest Compound

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #5 on: February 05, 2017, 07:14:45 AM »
I'd keep it invested. But that's all dependent on your risk tolerance. No one else can really answer this for you. Who knows, you might not even want a house in 6 years.

capoevename

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #6 on: February 06, 2017, 03:57:39 PM »
You guys have really made me think about this, what I want, and how flexible I want to be. Gonna just keep 12K of emergency fund and keep the rest invested.

I can be flexible with it if something happens in the market. Specially because me and my gf are in engineering and pretty resourceful, so hopefully at least one of us, if not both, would keep a full-time job even in a recession.

RangerOne

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #7 on: February 06, 2017, 07:27:01 PM »
Hm, I having been thinking a lot about this too. I have around $10k in a savings, plus another $30k in a union bank account all marked for a home down payment at some point in the future. Trying to get closer to $80k-$100k. So I am likely at least 5 years away factoring in some small debts. But I am 100% flexible and could wait 10 years if the markets were bad.

I am starting to look at all the different bond indexes, and it seems that even in 2008 they only dropped like 2%-3% in value... Looking at something like FTABX tax free bond index through fidelity. I mean if I have $80k sitting in an investment that would only be around a $2 to $3k loss.

Now for savings of this sort, losing 40% overnight in equities would scare me, but if we are talking about single digit losses with maybe the rarest of chances of posting a double digit lose I really wouldn't lose any sleep.


Do you guys think I have a compelling argument to go this route? I definitely need to review all these bonds more closely, it does seem like these municipal bonds are a little more volatile than some other taxed bond indexes I have seen. The thought of letting $50k plus dollars sit for the next 5-10 inflating away is rather depressing.

MustacheAndaHalf

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #8 on: February 06, 2017, 08:10:55 PM »
Just to clarify, VFINX is not corporate bonds - it's the S&P 500 index.  For 2008 it dropped -38%.  To get the -51% you have to time it exactly wrong a few months before and after 2008.  From 2008-2010 the loss was -5% because of gains in 2009-2010.  Similarly, the housing market didn't drop suddenly and then immediately recover - it dropped a number of times over a number of years, recovering gradually in most areas.

If you can get away from the worst moment in time approach, you might have more flexibility to invest.  You could have the down payment money in a mix of mostly bonds, but also stocks for some growth.  If the market hits another 2008 you need to be ready to wait it out.  But that's also why you mix bonds and stocks when your time frame isn't as far away. 

If you can't get away from this idea of the worst moment in he stock market, then you're stuck with CDs.  But there, too, look at the difference between 3 year and 5 year CDs.  Sometimes taking the early withdrawal penalty on a 5 year CD after 3 years can still beat the 3 year CD rates.  Make sure you know the withdrawal penalty before you setup a CD, especially since you want the ability to act on housing prices before 5 years elapse.

capoevename

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #9 on: February 06, 2017, 09:43:59 PM »
Now for savings of this sort, losing 40% overnight in equities would scare me, but if we are talking about single digit losses with maybe the rarest of chances of posting a double digit lose I really wouldn't lose any sleep.

I wonder how much the housing market dropped in 2008 compared to the stock market. If it dropped as much, or nearly as much, then it would have been safe to keep the money there, since taking out X amounts of shares would have bought you the same house before and after the crash.

Not that history has to repeat itself.

talltexan

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #10 on: February 07, 2017, 09:04:21 AM »
$30,000 is large enough that the transaction fees for a "golden butterfly" or "permanent portfolio" wouldn't be large.

25% each of: SP500 index or VTSAX, long-term bond fund (VBLTX), gold (or--if you feel lucky--bitcoin), and that last fourth in that CapOne 360 CD everyone's talking about.


RangerOne

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #11 on: February 07, 2017, 11:58:35 AM »
Now for savings of this sort, losing 40% overnight in equities would scare me, but if we are talking about single digit losses with maybe the rarest of chances of posting a double digit lose I really wouldn't lose any sleep.

I wonder how much the housing market dropped in 2008 compared to the stock market. If it dropped as much, or nearly as much, then it would have been safe to keep the money there, since taking out X amounts of shares would have bought you the same house before and after the crash.

Not that history has to repeat itself.

I am not sure how much it matters but it seems like a bad idea to me to tie an investment to a market you are hopping to buy into at a low point. ie the best time to buy a house would be coming back up from a good drop or possibly on a downward slop. Probably don't want an investment losing money in tandem.

Though I suppose a bond might follow them down as well.

And just for reference this one looks like it cratered almost 40% just like equities. That would be a terrible morning. It did recover in a about 3 years though. But by then a cash investor might have had 2 years to pick over foreclosures. Though I think homes in most markets still had pretty low prices around 2011.
https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/921908703

RangerOne

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #12 on: February 07, 2017, 12:01:03 PM »
I feel like bonds are an interesting option, but I don't fully understand what influences there value. I thought to some degree most government bonds are adversely effected by increase in federal interest rates which means many bonds may have a rough time ahead if the Fed keeps bumping interest rates.

RangerOne

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Re: Where to invest 30K down payment to be used in 6 years?
« Reply #13 on: February 07, 2017, 12:39:34 PM »
$30,000 is large enough that the transaction fees for a "golden butterfly" or "permanent portfolio" wouldn't be large.

25% each of: SP500 index or VTSAX, long-term bond fund (VBLTX), gold (or--if you feel lucky--bitcoin), and that last fourth in that CapOne 360 CD everyone's talking about.

That website is great, interesting look at how different portfolios historically perform at different rolling average time spans.