Long term parking

[Target59]

I have taken a job that requires relocation to an area where we will not live in retirement. We will be there 3 - 5 years and intend to rent a home. When we sell our current home, we will need to park that cash somewhere fairly safe for DWs peace of mind. We will need the money to buy a home when we FIRE in 3 - 5 years. It’s about 15% of our net worth. I am leaning towards VG Wellesley. Would appreciate thoughts and options.

 

[Another Reader]

Way too risky for me for the time period and the purpose. CD's and treasuries are where I would put that money. By the time you sell, you should be looking at over 3 percent yield, maybe over 4 percent if you ladder a bit.

 

[bingybear]

VG Wellesley is down for the last year.
You need to decide your risk tolerance. If you have a broker that will keep a ladder of treasuries going, that might be a good and safe idea. Treasuries have a good secondary market if you need to sell. But they will likely loose a little to inflation.

I don't believe Wellesley is a good diversified fund (I'm not saying it is a bad fund, but is not like a portfolio composed of VTI, VXUS and BND)

 

[Aerides]

We will need the money...in 3 - 5 years.

Need in 3 = find a CD or MM.

 

[Koogie]

I am in the same sort of situation as we have sold our home and are renting a house owned by a friend for 3 years until I fully FIRE.

DW insists on complete safety for the house funds. I cannot argue since as I get older I realize that 3 years is an incredibly short period of time and also that I like being married....

We'll be going with term deposits (CDs as you all call them). I hadn't thought about laddering the money.... hmmm. Interest rates here in Canada are on the rise. One year money is getting about 3.1% or so, three year money is getting about 3.4% After tax, it isn't a huge difference but I like to capture all the points I can... thanks for the idea. Food for thought.

 

[OldShooter]

As others have implied, 3-5 years is not "long term." Modern Portfolio Theory equates risk with volatility. I have a lot of trouble with that for truly long-term investments, but for 3-5 years IMO it is a good way to look at things. So, the implication is that equity investments are off the table.

I would not consider MMF or other short-term liquid investments because paying the yield penalty for liquidity is has no value for me. If it were me I would consider:

A diversified portfolio of investment grade US corporate bonds with maturities to suit. "Diversified" means at least ten issues with no sector concentration.

TIPS. Depending on your expectations for inflation, TIPS may be a good way to (partially) protect the buying power of your funds while earning a small real return. "Partially" because the inflation increase is taxable, but so is every other alternative. No state taxes, though, in any state AFIK. You can probably just buy one issue with a maturity date to suit; no screwing around.

Govvies. No need for diversification here, just buy notes or bonds, maybe just one issue, that mature to suit your needs. Again, no state tax.

Brokered CDs. I am not a fan of CDs because, at least lately, you don't get enough extra yield to justify the redemption inflexibility. But many people like them and with FDIC insurance they are a safe as any government bond.

Floating Rate Funds like SAMBX. We have been holding low- to mid- six-digits of SAMBX for several years now, getting around 4% and feeling safe, but these funds are arguably riskier than investment grade corporates. Since these are often ETFs you get liquidity for free. Some of the floating rate funds are leveraged; I would stay away from those.
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The bond desks at Schwab or Fido can help you make and implement a decision. It may feel a little daunting if you have not done this kind of thing before but it is really easy.

 

[bingybear]

Floating Rate Funds like SAMBX. We have been holding low- to mid- six-digits of SAMBX for several years now, getting around 4% and feeling safe, but these funds are arguably riskier than investment grade corporates. Since these are often ETFs you get liquidity for free. Some of the floating rate funds are leveraged; I would stay away from those.
[/INDENT]The bond desks at Schwab or Fido can help you make and implement a decision. It may feel a little daunting if you have not done this kind of thing before but it is really easy.

Floating rate funds are usually good in rising rates environments. They can pull the floor out from under you when the underlying bonds go bad. If the goal is safety, don't use floating rate funds. If you want more yield (with more risk) then floating rate can be useful.

 

[OldShooter]

Floating rate funds are usually good in rising rates environments. They can pull the floor out from under you when the underlying bonds go bad. If the goal is safety, don't use floating rate funds. If you want more yield (with more risk) then floating rate can be useful.

Actually, from my research there are no "underlying bonds." The bank loans are typically made to lower-rated companies but they are senior to the companies' bonds. And since the loan rates float, the yield is less affected by interest rate trends. So the risk is reduced over, say, junk bonds but certainly more than investment grade corporates. As in most investing, diversification is key. I would never buy individual issues like I would with well rated corporates. I also value the expertise of the fund manager, who does not seem to be one who is trying to hit home runs.

But that is why I listed these last in the options for the OP. They are definitely not for everyone. But since he is parking only 15% of his net worth, I don't think the overall risk picture is too bad.