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How to Invest Money Needed in 4-7 years
Old 10-08-2013, 07:06 PM   #1
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How to Invest Money Needed in 4-7 years

I am seeking advice on how to invest money that I will probably be using in the next 4-7 years for a major home remodel. This is money separate from my retirement savings, college savings and emergency savings. Right now it is mostly at Vanguard and some in cash savings. The unrealized (long-term) gains are $30k. I feel like I am being too risky with this money and am looking for a more conservative balance. Here is the breakdown:

VG Total Bond Mkt: $15,688 (7%)
Cash Savings & MM $100,000 (42%)
VG Total Int Stock: $27,456 (12%)
VG Total Stock Mkt: $94,254 (40%)

Thanks for your help
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Old 10-08-2013, 07:42 PM   #2
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At over 40% cash and equivalent, you are already have a conservative allocation. If you definitely will need more than $100k for the remodel, I can see no other "sure thing" but to sell some stock and/or bond holdings and put that in cash, MM, or CD.
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Old 10-08-2013, 07:57 PM   #3
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Other than the fact that this AA adds up to 101% I don't know that I would do anything dramatically different if you want the money in the next 4-7 years. Pretty reasonable allocations if you ask me.

How much is the remodel going to be? You've got $233k socked away. That's a heck of a remodel.
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Old 10-08-2013, 08:50 PM   #4
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Quote:
Originally Posted by fidler4 View Post
... This is money separate from my retirement savings, college savings and emergency savings. ...
No it's not.

Did the US government issue special bills labeled "THIS NOTE IS LEGAL TENDER ONLY FOR REMODELING PROJECTS"?

It's ALL your money, as others are saying, look at your overall AA.

-ERD50
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Old 10-08-2013, 08:54 PM   #5
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For a 4-7 year horizon, I recommend CDs. In the next 4-7 years expect both stocks and bonds to go down. That happened to me in a similar situation.
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Old 10-08-2013, 09:29 PM   #6
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You can check FIRECalc with a 4-7 year period.

I'd be comfortable with your current allocations, although I'd probably shift to more bonds closer to the end. And I'd be tempted to fiddle with it. I kept the kid's college money as part of my normal retirement AA since it was going to come out over 8-9 years. I don't think that would work well in your case, with a large amount coming out as pretty much one lump.
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Old 10-08-2013, 10:43 PM   #7
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Thanks for all of your responses. The remodel will be a good chunk of what the money is for in addition to restoring our old barn, buying a tractor and some post retirement traveling. As far as the percentages I copied them from Excel so the 101% is probably a rounding issue. I like the suggestion about using FireCalc to see what it shows. I didn't think about using it for non retirement money, I will give it a try and see based on that how my comfort level is with my current allocation.
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Old 10-09-2013, 07:34 AM   #8
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I would go with CDs or Guggenheim Bulletshares that mature just before the year you plan to spend the money.
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Old 10-09-2013, 10:03 AM   #9
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If you invest so conservative that you are not keeping up with inflation then you would be better off doing the remodel now.

Also if things get better you may have a hard time getting a good quote for the project as contractors get busy and the prices go up.

I can remember when times where good I called 7 fence companies and none of them came to see my project.

Bob
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Old 10-09-2013, 10:35 AM   #10
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I am curious why you want to delay the renovation for 4-7 years if you have already saved the money for it. As ducky implied, the availability of contractors and the price of the renovation may change, and not in your favour, in the meantime. You cannot find a safe harbour for these funds that will provide an ROI that exceeds inflation. So why not do the renovation now and enjoy the results for 4-7 more years?
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Old 10-09-2013, 06:55 PM   #11
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I also have a substantial home redecoration project that will need doing at some point in the future but I have taken a different approach - since I have considerable flexibility on timing (measured in years), I have put the money into equities on the theory that at some point within my time frame equity values will pop up and give me a return which is meaningfully higher than I will get from CDs or bonds. When that happens, I will take the money off the table and do the redecoration project then.

Yes, this involves a degree of risk - equities could go against me for a very long period, but with yields on the local index fund currently higher than CD rates, I am willing to take that risk.
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