Good short-term investment options

[Poopycat]

My house will be sold next Friday (yay!). Proceeds should be about $425,000. I’m in an apartment now while I work for the next 23 months in a city where I don’t plan to live forever. After 23 months, I hope to find my final retirement destination. It is possible I will choose to rent somewhere else before I buy, but I do expect that in the next 24-36 months, I will purchase a home somewhere. Will I need the entire $425,000? I hope not, but if I move to the west coast, it’s a possibility (and probably more). I also have additional cash reserves in some savings and checking accounts; I have been reluctant to invest this money because of the volatility in the market and because I hope to use these reserves to support myself post-retirement between the ages of 52 (my anticipated retirement age) and 60 so that I don’t need to touch any of my primary portfolio of $2.6M until I’m past the age of 60. But I know it would be stupid to just leave several hundreds of thousands of dollars sitting around in cash and low-return CD’s and savings accounts

My question is, what would be a good, relatively safe short term investment for $425K - $600K?

 

[Montecfo]

Savings account at a bank or possibly a CD. Could do a short term bond fund if you are a bit more adventurous but little payoff for the additional risk.

 

[Out-to-Lunch]

Or just use US Treasuries from Treasury Direct.

 

[audreyh1]

For money needed within the next 5 years, high yield savings is your best option, unless you find some shorter-term CDs offering better rates. Money market funds, short-term bonds and treasuries are not yielding as much right now. Remember the FDIC limits and use at least two banks.

 

[pb4uski]

Or just use US Treasuries from Treasury Direct.

Huh?

Why accept 0.12% or less when you can get 0.8% or more in an online savings account and both are full faith and credit as long as you stay within the FDIC limits.

Date	1 Mo	2 Mo	3 Mo	6 Mo	1 Yr	2 Yr
08/03/20	0.09	0.09	0.10	0.11	0.12	0.11

For examples, Discover Bank is currently 0.95% and Capital One is currently 0.80%.

 

[mrfeh]

For a 2-3 year horizon, I'd stick w/ CDs and money markets/savings accounts.

 

[pb4uski]

For a 2-3 year horizon, I'd stick w/ CDs and money markets/savings accounts.

Why would you do that when CDs only pay about 0.15% and online savings accounts pay 0.80% or more?

10 weeks of online savings account interest at 0.8% would be the same as 52 weeks of interest on a 0.15% CD.... plus you have penalty free access to your money if you need it.

 

[mrfeh]

Why would you do that when CDs only pay about 0.15% and online savings accounts pay 0.80% or more?

10 weeks of online savings account interest at 0.8% would be the same as 52 weeks of interest on a 0.15% CD.... plus you have penalty free access to your money if you need it.

Didn't I list savings account as an option?

Oh, yes - I did.

bankrate.com shows 1-3 yr CDs have rates between 1.0% and 1.25%

 

[pb4uski]

I think of online savings accounts as a different category than savings accounts.

When I see "savings account" I think of more conventional savings accounts which comprise most bank savings accounts and currently pay the same pathetic interest rates as the CDs and money market funds that you mentioned.

I was looking at brokered CDs on Vanguard and Fidelity. Good to know that there are some better yielding bank CDs out there.

 

[OldShooter]

Or just use US Treasuries from Treasury Direct.

Not recommending govvies pro or con, but if you have a brokerage account there is probably not much reason to screw around with Treasury Direct. AFIK the only advantage is if you want to buy very small things like I-bonds.

At Schwab I can buy for no fee. https://www.schwab.com/public/schwa...roducts/investment/bonds/fixed_income_pricing Probably similar at Fido and VG, maybe others.

 

[sengsational]

Expanding on this, but the current asset allocation would shift tremendously when the $450K goes from real estate to cash. If you believe you have the right allocation now, why change it? I realize you won't find a REIT that tracks the value of your current house exactly, but maybe that's close enough. In theory, the size of the house proceeds will grow if real estate heats up and shrink if it cools off. Either way, you get the same utility out of the money. So I guess what I'm saying is going to cash because you don't want to loose money over the next few years has a bit of a DMT smell to it.

 

[OldShooter]

Expanding on this, but the current asset allocation would shift tremendously when the $450K goes from real estate to cash. If you believe you have the right allocation now, why change it? I realize you won't find a REIT that tracks the value of your current house exactly, but maybe that's close enough. In theory, the size of the house proceeds will grow if real estate heats up and shrink if it cools off. Either way, you get the same utility out of the money. So I guess what I'm saying is going to cash because you don't want to loose money over the next few years has a bit of a DMT smell to it.

I disagree. An AA is a strategy, which by definition is long-term. An AA also expects significant market gyrations. This is short-term money, which is best invested in short-term aka stable assets just as the OP contemplates.

Also, tracking error between a REIT and residential housing in a specific market area is IMO likely to be large. Without doubt it is unknown. "Real estate" is not a commodity.

 

[target2019]

Expanding on this, but the current asset allocation would shift tremendously when the $450K goes from real estate to cash. If you believe you have the right allocation now, why change it? I realize you won't find a REIT that tracks the value of your current house exactly, but maybe that's close enough. In theory, the size of the house proceeds will grow if real estate heats up and shrink if it cools off. Either way, you get the same utility out of the money. So I guess what I'm saying is going to cash because you don't want to loose money over the next few years has a bit of a DMT smell to it.

I agree up until you mention staying in cash. The options I see (Schwab) right now are:
Brokerage Cash 0.01%
Checking 0.01%
Money Market 0.05%
1-Yr CD 0.15%

Even better would be Discover Bank (0.95%) or Ally (1.00%) account. These are closer to 1% interest, but the rate will probably fall. I hope it doesn't, but that is too optimistic, IMO.

 

[Out-to-Lunch]

Huh?

Why accept 0.12% or less when you can get 0.8% or more in an online savings account and both are full faith and credit as long as you stay within the FDIC limits.

Date	1 Mo	2 Mo	3 Mo	6 Mo	1 Yr	2 Yr
08/03/20	0.09	0.09	0.10	0.11	0.12	0.11

For examples, Discover Bank is currently 0.95% and Capital One is currently 0.80%.

You are probably right. I suggested Treasuries mostly to avoid having to split up the pot into slices less than the FDIC limit. But I agree that the difference in yields (which I did not look up before posting) would make it more than worthwhile.

 

[audreyh1]

I agree up until you mention staying in cash. The options I see (Schwab) right now are:
Cash 0.00%
Checking 0.01%
Money Market 0.05%
1-Yr CD 0.15%

Even better would be Discover Bank (0.95%) or Ally (1.00%) account. These are closer to 1% interest, but the rate will probably fall. I hope it doesn't, but that is too optimistic, IMO.

Those Discover Bank and Ally high yield saving accounts are cash. I guess you just meant cash options at Schwab?

 

[target2019]

Those Discover Bank and Ally high yield saving accounts are cash. I guess you just meant cash options at Schwab?

Cash paying different rates (Schwab is in parentheses) depending on how you invest it at Schwab. Ally and Discover not possible through Schwab, so that is what I was advising OP for their house sale proceeds.

After a while all of these short-term how-do-I-invest cash blend together.

And I changed that post...

 

[pb4uski]

I disagree. An AA is a strategy, which by definition is long-term. An AA also expects significant market gyrations. This is short-term money, which is best invested in short-term aka stable assets just as the OP contemplates.

Also, tracking error between a REIT and residential housing in a specific market area is IMO likely to be large. Without doubt it is unknown. "Real estate" is not a commodity.

+1 and on top of that, most here don't consider their home to be part of their investment portfolio, so to sell a home and then "replace' it with a REIT is a bit odd IMO.

OP is looking for stability. Beyond the CD and online savings that have been mentioned, VSGDX might be a possibility... 1.04% SEC yield, 1.29% distribution yield, 1.9 year duration, negligible credit risk.

 

[teejayevans]

+1 and on top of that, most here don't consider their home to be part of their investment portfolio, so to sell a home and then "replace' it with a REIT is a bit odd IMO.

OP is looking for stability. Beyond the CD and online savings that have been mentioned, VSGDX might be a possibility... 1.04% SEC yield, 1.29% distribution yield, 1.9 year duration, negligible credit risk.

Or VUBFX which has less volatility in its price.

 

[Poopycat]

Thanks for the advice. I do have a Schwab account. I had been thinking of treasuries or perhaps a CD. I’ll also check out the Ally account. I hate the low yields but that’s just how it is these days, and since I do need to keep that money reasonably safe for the next couple of years because I’ll need it for a home and possibly living expenses, I will just accept that this money won’t be doing much growing for me.

 

[pb4uski]

Or VUBFX which has less volatility in its price.

That's a good choice too... a tad more credit risk... but less interest rate risk.

 

[teejayevans]

That's a good choice too... a tad more credit risk... but less interest rate risk.

Still pretty conservative and the nice thing about a bond fund, if one of the many creditors defaults, you will hardly notice it.

 

[Brat]

I suggest you take a small portion and invest it in Fidelity's Blue Chip Growth mutual fund. I don't think the downside risk is greater than a bond fund.

 

[OldShooter]

I suggest you take a small portion and invest it in Fidelity's Blue Chip Growth mutual fund. I don't think the downside risk is greater than a bond fund.

Really? Why would you say that? Facts, please.

 

[Brat]

https://www.marketwatch.com/investing/fund/fbgrx/historical

https://www.marketwatch.com/investing/fund/fbgrx/holdings

https://www.marketwatch.com/investing/fund/fbgrx

compare it to Pimco Active Bond ETF

https://www.marketwatch.com/investing/fund/bond/charts

Bond funds scare the bJesus out of me but then I remember the 2008 market and Michael Burry.

 

[OldShooter]

Not sure what your point is with the links. Equity wins in the long term. We know that. But that's not the game that the OP is proposing to play.

Over the past 4 years, SD of FBGRX is 17.8%, SD of VUBFX is 0.8%, SD of VSGDX is 1.3%. You may "think" that the downside risk of FBGRX is less but the SDs tell a very different story. VTSAX/VG Total US market is 15.35%, so less risk even there.

Even for the long term FBGRX is a high fee (0.8%) fund with quite a bit of turnover (45%). That is not a recipe for a long term winner.