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

[G-Man]

I need to park $100k in my 401k to an investment option that is very stable, and 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. I'm thinking about moving those dollars to the Balanced/Blended Fund within my 401k. Approximately 45% of the fund's assets are invested in U.S bonds, 45% in U.S. stocks and 10% in international stocks. The fund had a rate of return of 15.11% last year. The fund follows the following benchmark: 45% Bloomberg U.S. Aggregate Bond Index, 35% S&P 500, 10% Russell Small Cap Completeness Index, and 10% MSCI EAFE Index.

My goal is to get more growth than what I'm getting from the Interest Income fund while being conversative as possible. I'm not able to rollover to a T-IRA yet. Would love to hear your recommendations.

 

[OldShooter]

No problem. All you need to do is make sure the market will be up in two years and not down.

Seriously, two years is too short a horizon for equity investment.

 

[G-Man]

No problem. All you need to do is make sure the market will be up in two years and not down.

Seriously, two years is too short a horizon for equity investment.

So, you recommend moving the $100k from the Interest Income fund to the Balanced fund? I'm just trying to get a little more growth while being safe and conversative at the same time. Don't want to take too much risk with the $100k.

 

[OldShooter]

 

[Stormy Kromer]

Balanced funds can go down and may stay down over 2 years. Balanced funds aren't the risk exposure that can hurt you, its your timeframe.

 

[G-Man]

Balanced funds can go down and may stay down over 2 years. Balanced funds aren't the risk exposure that can hurt you, its your timeframe.

Maybe the risk is not worth it.

 

[Brat]

While I agree that the time horizon is short all signals are for a rising equity market, decreasing interest rates. I would choose a low cost balanced fund.

 

[Al18]

I like FBALX, but it would be better to have other sources of income OUTSIDE your retirement accounts to fund your first couple of years of early retirement in my opinion. I started putting money in CD’s when I was 15 and continue to hold about 15% of my assets in CD outside a retirement account. I also hold about 15% of my assets in a taxable brokerage account in stocks. I make yearly withdrawals from both plus an IRA withdrawal and this keeps my actual Federal tax rate to 7%.

 

[Exchme]

Help us understand why you are focused on such a short time frame. Is there were some large, one time expenditure coming up?

 

[MarieIG]

Do you remember what happened in 2022?

Sure it's possible that you could make bank on that allocation - it's also possible that when you need to withdraw, your balance is down. So the bottom line is, can you afford to take the risk.

 

[G-Man]

Help us understand why you are focused on such a short time frame. Is there were some large, one time expenditure coming up?

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.

 

[jollystomper]

If you need the money in the next 2 years,I would bite the bullet and keep it in the Income Interest Fund. That one is guaranteed not to fall. There is risk with the balanced fund. Not as much as with the stock fund. But no one has a magic ball for the future. For example, one of our holdings is the Vanguard Balanced Index Fund (VBIAX). It has has few down years, but I had no way to predict when those down years would occur.

Need the money 10 years out? Go for it. Need it in 2 years? stick with the interest income fund, shake off any present or future coulda-woulda-shoulda (everyone is a market genius in hindsight), and sleep well at night .

Just my example: I retired when banks and money market funds were paying less than 2%. I chose to keep about 5 years in cash (VERY conservative) as I did not want to be forced to sell equities at any point. It was a small "price" to pay to not have to worry about our spending (or dealing with moving in/out of the market) as the market fluctuated.

 

[G-Man]

If you need the money in the next 2 years,I would bite the bullet and keep it in the Income Interest Fund. That one is guaranteed not to fall. There is risk with the balanced fund. Not as much as with the stock fund. But no one has a magic ball for the future. For example, one of our holdings is the Vanguard Balanced Index Fund (VBIAX). It has has few down years, but I had no way to predict when those down years would occur.

Need the money 10 years out? Go for it. Need it in 2 years? stick with the interest income fund, shake off any present or future coulda-woulda-shoulda (everyone is a market genius in hindsight), and sleep well at night .

Just my example: I retired when banks and money market funds were paying less than 2%. I chose to keep about 5 years in cash (VERY conservative) as I did not want to be forced to sell equities at any point. It was a small "price" to pay to not have to worry about our spending (or dealing with moving in/out of the market) as the market fluctuated.

Thanks for the advice.

 

[pb4uski]

I need to park $100k in my 401k to an investment option that is very stable, and 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. I'm thinking about moving those dollars to the Balanced/Blended Fund within my 401k. Approximately 45% of the fund's assets are invested in U.S bonds, 45% in U.S. stocks and 10% in international stocks. The fund had a rate of return of 15.11% last year. The fund follows the following benchmark: 45% Bloomberg U.S. Aggregate Bond Index, 35% S&P 500, 10% Russell Small Cap Completeness Index, and 10% MSCI EAFE Index.

My goal is to get more growth than what I'm getting from the Interest Income fund while being conversative as possible. I'm not able to rollover to a T-IRA yet. Would love to hear your recommendations.

A balanced fund with 45% US stocks isn't conservative for 2 year money.

 

[G-Man]

A balanced fund with 45% US stocks isn't conservative for 2 year money.

Thanks for responding.

 

[Stormy Kromer]

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.

 

[RunningBum]

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.

So you don't need this money in 2 years, potentially you need it in as far out as 10 years? That's a totally different situation that what you laid out in post 1. A balanced fund makes more sense now. Depends what else you have in that conservative bucket for those 10 years.

 

[jollystomper]

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.

Actually, VG Balanced (VBIAX) was down due to dividend and long term capital gain distributions that totaled a little more than 44 cents per share. Factoring that back in, it was actually up about .25%

 

[mrfeh]

No problem. All you need to do is make sure the market will be up in two years and not down.

Seriously, two years is too short a horizon for equity investment.

+1

OP - stop looking at last year's returns. They indicate nothing about the next 2 years.

 

[Kings over Queens]

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.

 

[DrRoy]

If you are unsure, move half.

 

[Bruno]

Tbills and High money market is where mine is going.

 

[Stormy Kromer]

Actually, VG Balanced (VBIAX) was down due to dividend and long term capital gain distributions that totaled a little more than 44 cents per share. Factoring that back in, it was actually up about .25%

Thanks for clearing this up for me. When I checked in the dividend and CG hadn't been reinvested yet

I agree completely with you that a MM fund yielding 5% is where I'd put money for 2 years. There's not enough upside potential to invest it elsewhere, including a balanced fund.

5% actually looks darn good for short term holdings.

 

[kjpliny]

My old company 401k at Fidelity had a stable value fund as the only conservative choice but it was only paying around 2%, so I moved the money to the brokeragelink option and put into a money market fund paying 5%. Without the brokeragelink option, I likely would have left it in stable value.

 

[ERD50]

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