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"Parking" funds for 3-5 years
Old 10-27-2016, 10:01 AM   #1
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"Parking" funds for 3-5 years

Hi --

I've just sold two homes (mine and the home I inherited from my parents), netting about $850K. I do not plan to buy another residence for 3-5 years, so I need to park the funds where they will sit quietly, neither growing aggressively (though that would be nice) nor at risk for significant loss.

The obvious answer is to split the funds into multiple high yield savings accounts (making 0.75-1.0%), in amounts small enough to be FDIC insured.

That's complicated.

Suppose I were to take the funds to Fidelity -- possibly topping up to be a bit over $1M. What would you suggest for investments?

(All of my other assets are at Vanguard. I'm planning to use this money to diversify away from Vanguard a bit.)

Thanks!
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Old 10-27-2016, 10:19 AM   #2
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Quote:
Originally Posted by BarbWire View Post
Hi --

I've just sold two homes (mine and the home I inherited from my parents), netting about $850K. I do not plan to buy another residence for 3-5 years, so I need to park the funds where they will sit quietly, neither growing aggressively (though that would be nice) nor at risk for significant loss.

The obvious answer is to split the funds into multiple high yield savings accounts (making 0.75-1.0%), in amounts small enough to be FDIC insured.

That's complicated.

Suppose I were to take the funds to Fidelity -- possibly topping up to be a bit over $1M. What would you suggest for investments?

(All of my other assets are at Vanguard. I'm planning to use this money to diversify away from Vanguard a bit.)

Thanks!
At that level you should be able to get something "free". When I deposited a chunk of change, I got a $250 Apple gift card.
As far as investments, you can have them build you a bond ladder. The service is free and they charge $1 a bond commission. It should give you some return with minimal risk.
You can also buy multiple CD's but the returns just suck now.
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Old 10-27-2016, 10:31 AM   #3
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Quote:
Originally Posted by BarbWire View Post
Hi --

I've just sold two homes (mine and the home I inherited from my parents), netting about $850K. I do not plan to buy another residence for 3-5 years, so I need to park the funds where they will sit quietly, neither growing aggressively (though that would be nice) nor at risk for significant loss.

The obvious answer is to split the funds into multiple high yield savings accounts (making 0.75-1.0%), in amounts small enough to be FDIC insured.

That's complicated.


Suppose I were to take the funds to Fidelity -- possibly topping up to be a bit over $1M. What would you suggest for investments?

(All of my other assets are at Vanguard. I'm planning to use this money to diversify away from Vanguard a bit.)

Thanks!
Setting up 4 high yield savings accounts is complicated? If this is only for you, you would need 4 banks that you do not have accounts at presently.

If you move it to fidelity (or other brokerage) and still want the fdic insurance, then buy brokered CDs while keeping the amounts in each bank under the fdic limits.

Obviously you could use other investments with different risk/return characteristics.
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Old 10-27-2016, 10:47 AM   #4
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Quote:
Originally Posted by BarbWire View Post
Hi --

I've just sold two homes (mine and the home I inherited from my parents), netting about $850K. I do not plan to buy another residence for 3-5 years, so I need to park the funds where they will sit quietly, neither growing aggressively (though that would be nice) nor at risk for significant loss.

The obvious answer is to split the funds into multiple high yield savings accounts (making 0.75-1.0%), in amounts small enough to be FDIC insured.

That's complicated.

Suppose I were to take the funds to Fidelity -- possibly topping up to be a bit over $1M. What would you suggest for investments?

(All of my other assets are at Vanguard. I'm planning to use this money to diversify away from Vanguard a bit.)

Thanks!
There is no such thing as "parking funds" They are never parked, only invested . Think of it as an investment that needs absolute safety of principle, and that has a relatively near term "need funds" date. Your first idea, insured savings accounts, is the only non-speculative thing to do with this money.

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Old 10-27-2016, 11:11 AM   #5
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One option is to put some of the money in federally insured CDs for 5 years at 2.2%. As one example, Northwest Federal Credit Union (https://www.nwfcu.org/Certificate_Rates/) has 2.2% rates. And put the rest of the money in a 1% savings account like Ally Bank (which is totally liquid). The CD money would have a 1 year interest penalty. There are likely other CDs that offer 6 months penalty with lower rates. Depends what the chances are that you needed the funds sooner than later. The nice thing about these options is that they are federally insured (up to $250,000 per depositor) and guaranteed to not lose principal. Of course, the rumor is that interest rates are about to rise so perhaps if you wait, we will see some more of those 3%, 5 year CDs that were offered last year.
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Old 10-27-2016, 04:34 PM   #6
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I would see what you can do with long (5-10 year) CDs even if you need to break the CD in 3-5 years and accept the early withdrawal penalty (typically 1/2 year interest but varies by bank). You'll probably be able to get close to 2%. If you can get the numbers to work you can also buy then in $50k chunks so if you do need to break them you can manage the early withdrawal penalties (though some banks allow partial withdrawals but some don't).

Another alternative would be a ladder of corporate investment grade target maturity bond funds maturing in 3-5 years are yielding 1.75% to 2.22% (BSCK, BSCL and BSCM). If you are willing to accept some credit risk for a higher return you could blend in a little of the high-yield versions.

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Old 10-27-2016, 04:49 PM   #7
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Originally Posted by Earl E Retyre View Post
One option is to put some of the money in federally insured CDs for 5 years at 2.2%. As one example, Northwest Federal Credit Union (https://www.nwfcu.org/Certificate_Rates/) has 2.2% rates. And put the rest of the money in a 1% savings account like Ally Bank (which is totally liquid). The CD money would have a 1 year interest penalty. There are likely other CDs that offer 6 months penalty with lower rates. Depends what the chances are that you needed the funds sooner than later. The nice thing about these options is that they are federally insured (up to $250,000 per depositor) and guaranteed to not lose principal. Of course, the rumor is that interest rates are about to rise so perhaps if you wait, we will see some more of those 3%, 5 year CDs that were offered last year.
This^^^^

Uh, I'm a bit lazy but I'd park it in Ally (all of it) at 1.0% and watch closely. Ally isn't going to fail right before your eyes. (if it does, bigger problems and better be worrying about your ammo and liquor savings.....)
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Old 10-27-2016, 09:02 PM   #8
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Setting up 4 high yield savings accounts is complicated?
Setting them up isn't complicated, but it is four more accounts to monitor.


Thanks everyone for the suggestions. I clearly have a lot to learn about bonds and CDs -- the only bonds I hold are in bond mutual funds, so I know nothing about bond ladders.
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Old 10-27-2016, 09:35 PM   #9
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Quote:
Originally Posted by BarbWire View Post
Hi --

I've just sold two homes (mine and the home I inherited from my parents), netting about $850K. I do not plan to buy another residence for 3-5 years, so I need to park the funds where they will sit quietly, neither growing aggressively (though that would be nice) nor at risk for significant loss.

Thanks!
Your "plan" is to buy a $850k residence in 3-5 years. As you're not totally firm on the date, are you also flexible on the $850k? If $500k place would be acceptable, or $1mm+ place desirable , you could take risk within your acceptable parameters even with this money.

Otherwise, open a few bank accounts, get the best rate, perhaps longer term CD's with 6 month "put", and realize that you're not getting any "nice" appreciation.
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Old 10-28-2016, 12:33 AM   #10
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You can easily find 4 online bank accounts to invest it in, all earning 1.0% or more, all fdic insured so absolutely no risk of loss of capital. Since these are all savings accounts, then if rates rise so will your return.
(Ally, Goldman Sachs Bank USA, Synchrony Bank, Barclays)

Be very cautious of money market funds, as they are now allowed to break the $1.00.
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Old 10-28-2016, 03:24 AM   #11
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If you want 100% safety, you need certificates of deposit. But if you're willing to take some risk, you could be extremely conservative with a bond/stock mix.

Because bonds and stocks zig and zag differently, there's slightly less risk in owning 90% bonds/10% stocks than going 100% into bond funds. So consider a 10% allocation to a broad market fund, and 90% total bond market fund.

Surprisingly, in 2008 that allocation made a tiny profit (0.84%). It looks like since 1972, that allocation has only lost money once. In 1993 it made +10%, then -2.4% in 1994, followed by +20% in 1995. So if you are very risk averse with this money, consider 90% bonds/10% stocks.
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Old 10-28-2016, 06:32 AM   #12
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You can be FDIC insured for $250,000 per depositor per account type. So if you have a joint account with a spouse and each spouse has an individual account you would be insured up to $1,000,000. If your money is in a trust with your spouse, and there are three beneficiaries to the trust, the single trust account would be insured for up to $1,250,000. $250,000 for each trustee and beneficiary. So depending on how you're set up you may only need one bank.
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Old 10-28-2016, 08:45 AM   #13
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Setting them up isn't complicated, but it is four more accounts to monitor.


Thanks everyone for the suggestions. I clearly have a lot to learn about bonds and CDs -- the only bonds I hold are in bond mutual funds, so I know nothing about bond ladders.
For 3-5 years, I can't think of a better option than CDs, if you aren't willing to see a depreciation of value.
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