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What to do with intermediate funds
Old 01-13-2015, 10:29 AM   #1
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What to do with intermediate funds

I have saved several months of expenses to keep in checking accounts (haven't decided if it will be 3-6 months). Most of the excess money, which I don't plan on touching for years, I have invested in the stock market.

What do I do with intermediate funds? I might buy real estate within the next couple years, possibly this year if there is a housing correction. I don't want to have a substantial amount sitting in cash and savings accounts rates are low, are there other options? I don't know much about bonds but aren't bonds risky due to interest rate fluctuations?

Should I consider getting a state or government bond fund, so that the interest will be taxfree at the state or federal level?

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Old 01-13-2015, 12:01 PM   #2
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I use an online money market/savings account at Ally or Sallie Mae Bank, which pays about 0.90%. A CD or CD ladder would be similar if you didn't mind the hassle.

I have had some FGMNX, a GNMA mortgage-backed securities fund, which has been the highest yielding of the least volatile bond options I looked at. Short-term bonds should be similar.

If you have a stable value fund in a 401k that might be a good option as well. Although that will mess with your taxable/tax deferred balance if things move around a lot. That might defeat the purpose, though it's not too hard to keep your overall AA in balance.

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Old 01-13-2015, 04:08 PM   #3
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I use Vanguard Tax-Free Intermediate (VWITX) for this purpose (federally tax-free). If you live in a large state with high income taxes, some of the big investment firms offer state-specific funds, but I don't know if they have an intermediate duration or just a general fund (no income tax in TX so haven't looked into this in quite a while).
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Old 01-13-2015, 04:13 PM   #4
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You can buy 5 year CDs for 2.25% interest paid per year. Take a look at the deals and often the penalty for early withdrawal is not that high. It might be 6 months of interest. That is a higher rate than the "safe" short-term bond funds are paying at the moment, and not subject to the risks of putting money in a bond fund. If you make slightly less that last year for pulling the money out early - maybe not such a big deal.
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