BALANCED FUND vs INTEREST INCOME FUND? Where to park $100k for the next 2 years?

[imbatman]

at these rates and a 2-year timeframe, no way am I putting it in equities, as they are tagging in new multi-year highs every single day. Guaranteed 4-5% in interest or a gamble on a much wider range of unknowable outcomes. All comes down to your risk appetite and tolerance for loss. My favorite word these last few years is "enough" and knowing when you have it. You don't always have to scrap for every last percent (at increasing risk) if you already have enough to live at the standard you want close to "risk free."

 

[DuluthGA]

Doesn’t sound like you can buy ETF’s right? I buy the ETF’s and put a stop in that I move up or a trailing stop. Once it goes up a few % over purchase the stop allows me to sleep at night. If I can get 5% over purchase the stop makes me think I’m ahead. That said, I still keep a lot in MM

 

[audreyh1]

Doesn’t sound like you can buy ETF’s right? I buy the ETF’s and put a stop in that I move up or a trailing stop. Once it goes up a few % over purchase the stop allows me to sleep at night. If I can get 5% over purchase the stop makes me think I’m ahead. That said, I still keep a lot in MM

Those Flash Crashes can really hurt you with a stop loss. Especially since you aren’t guaranteed to get the stop loss price but can get stopped out at a much lower price because the panicking market is moving way too fast.

I know we haven’t had a big Flash Crash in a while, but still…. it might not work out how you expect.

 

[TheWizard]

I take a different view on this (well, depending on some other factors).

Unless the $100K short term need is a very significant portion of your portfolio, just let it ride at your overall Asset Allocation. Why compartmentalize it?

Since we anticipate that on average, over the long term, our portfolio will rise, that also means that on average it will rise over any given short term period as well. We can't predict ahead of time what any given short term period will do, but on average they are UP. So over our lifetime, we may face several of these short term needs. If we go conservative every time, we can expect on average to have lost out on the gains.

Look at it overall, several 'spins of the wheel', not just a single time period with everything "on red'.

Now, if the off-chance of a 50% market downturn right at that exact time period (with a reasonably conservative AA, so 50/50, so ~ 25% portfolio drop) means that $100K withdraw would be very painful to the portfolio, maybe the volatility risk isn't worth it. But I think for most, it should be taken in stride with no change to the AA.

-ERD50

I agree with this way of thinking, but then, my risk tolerance is rather high.

Plus, it appears that the OP will not be withdrawing that $100k+ as a lump sum but more likely taking a few thousand at a time, every month or so...

 

[UpQuark]

...I will need those dollars in the next 2 years. However, there are very limited options within my 401k as it relates to a stable/fixed income fund. Currently I have the $100k in the Interest Income fund and it had a rate of return of 2.42% last year. ....

Is your Interest Income fund like a stable value fund that has insurance that the value won't drop? Or is it some sort of bond fund that has share prices that might drop?

 

[G-Man]

Is your Interest Income fund like a stable value fund that has insurance that the value won't drop? Or is it some sort of bond fund that has share prices that might drop?

Over the life of the fund, it has always been a positive return. It has never dropped.

 

[mathjak107]

Today's closing.

VG SP 500 closed up .38%

VG Balanced closed down .68%.

This is only one day but it goes to show that a balanced fund may not be the safest short term. 2 years is short term.

The bond exposure in a balanced fund can bring losses in value too.

vanguard balanced index went ex div on 3/21 for about .45 cents a share

 

[mathjak107]

Those Flash Crashes can really hurt you with a stop loss. Especially since you aren’t guaranteed to get the stop loss price but can get stopped out at a much lower price because the panicking market is moving way too fast.

I know we haven’t had a big Flash Crash in a while, but still…. it might not work out how you expect.

etfs can have strange things happen that mutual funds don’t because of their structure unlike a mutual fund


it happened in 2010 and 2015 when we had flash crashes.

popular etfs got disjointed from their actual holdings and popular etfs like dvy plunged 36% in minutes while the actual holdings were down a mere 5% .

iShares Select Dividend ETF (DVY) dived 36%, Guggenheim S&P 500 Equal Weight (RSP) tumbled 42% and iShares Conservative Allocation Fund (AOK) dropped 50%


The 2015 flash crash wasn’t unprecedented: In 2010, another flash crash dropped some ETF prices as much as 60% in a span of just 20 minutes, according to the Securities and Exchange Commission. For a few horrific seconds, shares of the iShares Russell 1000 Growth Index ETF (IWF) traded for a penny. Vanguard Total Stock Market ETF (VTI) sold for 13 cents.



it corrected itself but not before trades actually went thru at those levels .

it shows us how imperfect etfs can be compared to mutual fund and stop losses may not help

 

[AboutThere]

Casual readers should note that OP will be using the money 12 years from now. You could do 20% in stable value and put 80% in a balanced fund - it seems you also have a risk of 12 years of inflation so you might want some growth over the next 12 years.

FWIW, I'm doing the same thing as you with regard to a SS bridge, and am about the same age

 

[Stormy Kromer]

vanguard balanced index went ex div on 3/21 for about .45 cents a share

oops explained above.

 

[VanWinkle]

Why not just put it in a high interest money market fund. SWVXX as an example is paying just over 5%. Rates come down you move it somewhere else. High (ish) return with stability and flexibility.

It is in his 401K which may not have a Schwab money market fund.

VW

 

[G-Man]

It is in his 401K which may not have a Schwab money market fund.

VW

Correct. No MM fund in the 401k. We have very limited options in our 401k as it relates to fixed income/stable funds.

 

[Murph]

Perhaps a tax free roll-over to an IRA and deposit it all in a CD at 5%.

That’s what I did.

 

[rayvt]

These dollars are part of my bigger conservative bucket to fill the gap years between age 60-70. I'm delaying SS until age 70 and will have a shortfall between age 60-70 that will be filled with my conversative bucket.

Simple. Don't delay SS until 70. Start at 62 or whenever you retire. No shortfall in the start of retirement.

The SS payouts are designed to be actuarially neutral, so there is not a strong reason to delay until 70.

Everybody thinks they are in Lake Woebegone.

 

[Rich]

Tbills and High money market is where mine is going.

Really makes the most sense for holding funds short-term. Wonder why no one else made this suggestion earlier.

For the record, I'll be doing just this. Selling a home soon, will be heading to an adult community. Can't risk the asset, so T-Bills (or equivalent) it is.
Rich

 

[rayvt]

I know we haven’t had a big Flash Crash in a while, but still…. it might not work out how you expect.

I know how they work out, having participated in one. Had a trailing stop-loss so I figured I was safe.

Don't remember the exact numbers but it worked out like this:

Stock at 50, stoploss at 45 (10% below). Market opened at 44, stoploss limit gets converted to a market sell order.
Sell filled at 30.
Stock closed that day at 40.

Learned my lesson. Learned why only naifs call it a "stoploss".