Where to put more than $100k for 3 years

[Scott927]

Short introduction: My wife and I went through a foreclosure in Arizona and the bank finally sold the house in June of 2010. So that's our starting date for the "wait" to buy a new home. In June of 2015, we'll be eligible for conventional financing (don't want to do FHA and we can use the time to save more $$ anyways).

We're extremely fortunate in that I've been able to generate a fairly substantial amount of income since then and we currently have all debts paid off (except one $23,000 debt on our horse trailer that we keep paying on just for credit building). We currently have about $90,000 sitting in a high-interest savings account and we are putting about $7,000/month into savings on a regular basis.

We had originally intended to do FHA financing on a house in 9 months (when the three year waiting period for FHA expires) but after some thought, decided to wait the extra 2 years. So, for 9 months, keeping it in savings seems logical. However, by the time June 2015 rolls around, that account balance should be near $300k.

Keeping that much in a high-interest account for that long seems foolish. It isn't even keeping up with inflation at 0.9% interest. However, I don't want to risk any of it. We've worked too hard for it and have gone through too much to suffer any setbacks with our down payment and emergency fund money.

Should I just keep it in savings? Are there any smarter, low-risk places to put it? A CD doesn't generate enough extra return for me to consider locking the money up.

Any advice? Oh also, I won't be purchasing any products from anyone on these boards and the email address I have assigned to this account goes through a strict junk mail filter (so I won't receive PMs), so please don't try to sell me on anything. I'm just looking for objective opinions.

Thanks!

[Petunia 100]

You're not planning to pay cash for the house, correct? Are you living in a HCOL area where you will need 300k for a down payment?

I suggest you decide about how much you intend to pay for your next house, and about how much you intend to put down. Once you have that amount saved, stop adding to your cash and invest your 7k each month. Tax-advantaged accounts first until they are maxed, then taxable.

[Wino]

Scott, there is no such thing as a "no risk" investment. Your 0.9% is losing money to inflation by any measure, so your money is actually atrophying in spending power rather than growing.

I would suggest you speak with a financial professional for advice. A good professional will ask you a lot of questions, including short-term and long-term goals, as well as a detailed financial picture. Dave Ramsey has a list of "endorsed local providers" who would be good choices if there is one near enough to you for the consultation.

If you don't already know the term and its meaning, I suggest you ask about dollar-cost-averaging any switch you do from the one account to wherever it ends up. This minimizes the risk of buying at the top, but it is just as likely to prevent you from getting in on the ground floor. The amount of money you're talking about compared to your income is significant, so you should be certain of what you're doing before you do it.

I'll give you two pieces of actual advice, though: 1. Don't invest in anything that you don't understand 100%; if you don't understand something, ask until you understand both the upside and the downside of the investment. 2. Make sure your wife is fully informed of all of your plans and that she is also comfortable with the investments.

Good luck with the new house.

[Scott927]

You're not planning to pay cash for the house, correct? Are you living in a HCOL area where you will need 300k for a down payment?

I suggest you decide about how much you intend to pay for your next house, and about how much you intend to put down. Once you have that amount saved, stop adding to your cash and invest your 7k each month. Tax-advantaged accounts first until they are maxed, then taxable.

We'll need the entire 300k. We're looking at purchasing 2 acres in Southern California in a subdivision where the homes range from $600k to $1.5m. We'll be buying on the lower end of that but we want the smallest mortgage payment possible so we'll need all of the cash (minus our emergency fund).

[Scott927]

Scott, there is no such thing as a "no risk" investment. Your 0.9% is losing money to inflation by any measure, so your money is actually atrophying in spending power rather than growing.

I would suggest you speak with a financial professional for advice. A good professional will ask you a lot of questions, including short-term and long-term goals, as well as a detailed financial picture. Dave Ramsey has a list of "endorsed local providers" who would be good choices if there is one near enough to you for the consultation.

If you don't already know the term and its meaning, I suggest you ask about dollar-cost-averaging any switch you do from the one account to wherever it ends up. This minimizes the risk of buying at the top, but it is just as likely to prevent you from getting in on the ground floor. The amount of money you're talking about compared to your income is significant, so you should be certain of what you're doing before you do it.

I'll give you two pieces of actual advice, though: 1. Don't invest in anything that you don't understand 100%; if you don't understand something, ask until you understand both the upside and the downside of the investment. 2. Make sure your wife is fully informed of all of your plans and that she is also comfortable with the investments.

Good luck with the new house.

Sound advice (especially the part about keeping my wife informed). I'll take a look at some of the endorsed financial advisers and see if I can't find one close to me. Thanks.

[bjl584]

If you need the money in 3 years, then I'd leave it in cash. Figure out how much you need (your house shouldn't cost more than 3 times your annual income) and go from there. Once you have what you need saved, start investing your money elsewhere (Stocks, mutual funds, etc.)

[Petunia 100]

Dave Ramsey's investing advice is sub-par to say the least. I wouldn't consider a financial planner merely because DR recommended them. Anyone can call themselves a "financial planner", and plenty of salespeople do just that.

If you decide to see a financial planner, you want a fee-only CFP (Certified Financial Planner). Such a person is educated and will objectively look at your entire financial picture. Such a person makes no commission based on what they can sell you, but instead is paid a flat fee for their time and expertise. Therefore, they have no vested interest in steering you into high-cost products which may not even be appropriate for you, or in your best interests.

One great place to start searching for one in your area is the Garrett Planning Network.

Garrett Planning Network | Making competent, objective financial advice accessible

A second great place is NAPFA (National Association of Personal Financial Advisors).

Fee-Only Financial Advisors Home - NAPFA - The National Association of Personal Financial Advisors

[BMEPhDinCO]

If you aren't planning on using the money for 3 years, why not get a CD? Even if you needed it earlier, you only pay a few months interest as penalty. Ally has good rates and I enjoy banking with them. You can look around for other choices. Otherwise, you could also consider E bonds, I bonds, or even smartypig, which has some interest right now.

I also agree that you need to figure out what you will need for the house and then invest the rest - what are you doing for retirement right now? If you aren't putting at least 20% into accounts, you are taking a risk that you will be in trouble later.

Finally, you mentioned continuing to pay on the horse trailer "for credit building". You NEVER have to pay interest to build credit. If that was a loan, pay it off and it will STILL help you for 10 more years. I would, instead, get a credit card with rewards and pay it in full every month to help your score. Don't carry debt if you can avoid it (and you can, pay it off tomorrow with some of the cash).

[isaac]

If you aren't planning on using the money for 3 years, why not get a CD? Even if you needed it earlier, you only pay a few months interest as penalty. Ally has good rates and I enjoy banking with them. You can look around for other choices. Otherwise, you could also consider E bonds, I bonds, or even smartypig, which has some interest right now.

I also agree that you need to figure out what you will need for the house and then invest the rest - what are you doing for retirement right now? If you aren't putting at least 20% into accounts, you are taking a risk that you will be in trouble later.

Finally, you mentioned continuing to pay on the horse trailer "for credit building". You NEVER have to pay interest to build credit. If that was a loan, pay it off and it will STILL help you for 10 more years. I would, instead, get a credit card with rewards and pay it in full every month to help your score. Don't carry debt if you can avoid it (and you can, pay it off tomorrow with some of the cash).

I agree with this. Just a quick look at my own bank's webpage at their CD rates I can see they pay 1.31% interest on a $175,000+ account for 3 years. I didn't shop around at all there's bound to be better deals out there than this. If you don't need it for 3 years anyway why not lock it up? SmartyPig only pays 1%, probably not worth signing up if you're already getting 0.9%.

I also agree pay off the horse trailer, get a rewards credit card and charge everything you normally buy and pay it off in full every month. My personal credit card pays me 1.25% for every dollar I spend anywhere/everywhere.

[victor06]

For me that money is enough to build a new business with your team,however it is really risky,in Finland most of the new business do first some knowledge about osaamisen johtaminen or knowledge management and some research market to know everything and to have an idea about it and i think that is really a good thing for your money.

[humandraydel]

Am I the only one that's bothered by the fact that 2 years ago the OP let a house go to foreclosure then 2 years later has $100k saved and is saving $7k per month? Then, in a few more years, is going to buy a $600k+ house with $300k down? I realize that stuff happens sometimes, but the facts make it look like the OP didn't NEED to go to foreclosure? Otherwise, that "financial recovery" is the stuff of legends.