Where to put a large amount of money for 6 years? (brokers, mutual funds)
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I would put your 500k in a dividend ETF or two, SCHD is a good one. This will have your aristocrat divididend stocks and blue chips like Microsoft and others that should get you principal growth and minimal fees. Dividends will be about $15,000 a year, you can cash them out or reinvest them for 6 years. This is considered lower risk if you decide to put in the stock market but obviously riskier than bonds or CDs.
Last edited by ColoradoOnMyMind; 11-21-2017 at 03:46 PM..
Why is 6 years too short a time frame to be in equities? The longest period to recover from a market crash ever was 39 months (per google).
100% equities would never be my suggestion, but a portion in something like Vanguard Wellesley would be safer and give exposure to equities, but at a much less volatile level. And notice I said "portion." As in not all of your monies in just one fund. I believe having diversification is important in investing a lump sum amount.
On the dividend stock front, I'm not understanding the lure of buying dividend stocks over a mutual fund or ETF that can spread the risks out among many different stocks or a balanced fund. I'm sure I'm missing something but so far I've come up empty.
Why is 6 years too short a time frame to be in equities? The longest period to recover from a market crash ever was 39 months (per google).
Because the timing of a market crash can't be predicted. If one occurs near the end of that 6-year period, it could result in a loss of principle (due to insufficient time for growth prior to the crash occurring), and the OP can't afford a loss of principle on this money. If he didn't have a fixed timeline for his investment and was willing to keep the funds in the market longer in the event of an ill-timed crash, that would be different.
Why is 6 years too short a time frame to be in equities? The longest period to recover from a market crash ever was 39 months (per google).
100% equities would never be my suggestion, but a portion in something like Vanguard Wellesley would be safer and give exposure to equities, but at a much less volatile level. And notice I said "portion." As in not all of your monies in just one fund. I believe having diversification is important in investing a lump sum amount.
On the dividend stock front, I'm not understanding the lure of buying dividend stocks over a mutual fund or ETF that can spread the risks out among many different stocks or a balanced fund. I'm sure I'm missing something but so far I've come up empty.
the great depression recovered in dollar terms in 4-1/2 years . but all this talk of number of months to recover assumes your buy in and costs coincide .
there were 20 years in the 1960's markets cycled up and down and went no where in real returns . depending when you needed the dough you could have been down .
If you look at historical returns for 5 year periods stocks have outperformed bonds 72% of the time and the average cumulative stock return is 71%
Source: Global Financial Data
IMO, there's no truly "safe" alternative. You could put the money in CDs only to see the cost of houses go up faster than you expect.
If you're willing to have a little flexibility in the timing of the home purchase, I'd go with a moderate stock/bond allocation. Maybe something like 40% in stocks. If we happen to be in a bear market at year six you may have to hold off a couple of years on buying.
If there's zero flexibility on the timing, I guess I'd go with CDs or something similarly safe and hope that home prices don't go up too much. You're not going to do better than 2-3 percent in that case.
I am 6 years away from retirement and am planning to relocate at that time. Considering that short time frame, and the volatility of our overpriced (my opinion) housing market, I think it makes sense to continue renting. I am a government FERS employee and will be collecting a pension and social security supplement immediately upon retirement; I also have a 401K which has several withdrawal options.
I also have ~ 500K saved that I intended to use for housing, but my interest in buying a home here has diminished severely. I am ready for a change, but need to finish my career here first. Obviously, I would like to put that money to work for me.
I am asking for suggestions on where to put this money for the next 6 years. After retiring and relocating, I would like to pay cash for a home. As such, I am looking for safer, short term investment options. I looked at 5 year CDs the other day, and was dismayed to see they're paying about 2.5%..
Any insight would be much appreciated!
First off I think you have got very bad advice so far from everyone here. If you are thinking on taking your TSP money out to invest in your new house that is a bad idea. First off you will get hit with a huge tax bill. No penalty but the taxes you pay on the withdrawal will break you.
Second there is no reason not to have a mortgage in retirement if you need it. Your pension and other income can make the mortgage payments provided you are planning on staying in your house long term. It is nice to not have a mortgage I totally agree but as many here will tell you it isn't the end of the world if you do have a mortgage.
Deciding on taking your TSP money out is also something you should reconsider. TSP fees are the lowest of all the brokerage houses. They are also just about to loosen the rules on withdrawals so any complaints that you have heard are null and void once the rules have been changed. This is now law and they are just working out the implementation of those rules. It will be about a year.
Also remaining in TSP you can supplement your income with payments and all the while still watch it grow. For example I am in the L-income fund and I have just a little more than you have at $565k. I am drawing currently $1800 a month and my fund has gone up. Yes I know the market is doing well but it isn't just in equities. The L-income fund is 40% equities. I have been averaging about $2500 a month in earnings so far since I moved it in there.
You don't have to believe me. You can make the choice on your own but remember if you make that move you will not, I repeat not be able to go back. Once you make what I think you are thinking of doing you will have lost all your options. Think long and hard on that.
If you are thinking on taking your TSP money out to invest in your new house that is a bad idea.
No where did the OP indicate using TSP funds for a home purchase. Was it not clear that the question was where to best invest for the short term the OP's separate 500k cash savings?
No where did the OP indicate using TSP funds for a home purchase. Was it not clear that the question was where to best invest for the short term the OP's separate 500k cash savings?
You are right but let me tell you this. I have serious doubts that the FERS employee is talking about a 401k from another source if he is talking about getting the FERS supplement as part of his retirement and pension. This is only given to FERS employees that are taking an immediate retirement under the following two rules. MRA and 30 years and 60 with 25 years. The first will be from his retirement age to age 62 and the second will last until he reaches 62.
He didn't say it was cash savings. However if it is not his TSP or another 401k then everyone else's advice is okay. But if I am correct and he is talking about his TSP savings then I know I am right. Too many people in FERS hear the horror stories of withdrawal options and take it all out. Another reason I think I am right is FERS employees by in large are relatively underpaid. Sure there are some higher level that get good pay but for the vast majority of us that isn't the case.
Last edited by oldsoldier1976; 11-23-2017 at 10:50 AM..
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