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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%..
Unfortunately 5-year CDs are probably your best choice. Fixed rate yields are low right now, but 6 years is too short a time to have the money in equities.
Make sure you spread the money out over several banks so you don't exceed the FDIC insurance limits at any one bank.
FDIC insurance is $250,000 per depositor and if you put a bunch of people on as POD, then it can be covered for $250,000 per POD person.
Quote:
https://www.fdic.gov/deposit/deposits/faq.html
Q: Can I have more than $250,000 of deposit insurance coverage at one FDIC-insured bank?
A: Yes. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank. For example, a revocable trust account (including living trusts and informal revocable trusts commonly referred to as payable on death (POD) accounts) with one owner naming three unique beneficiaries can be insured up to $750,000. See the Your Insured Deposit brochure for details.
As for where to put the money, IMO a CD is the only almost totally safe place.
You could ladder some of the money
Right now in my DFW area there is credit union with 1.71 for 12mo cd
Rate hike before end of the year should make a small uptick in SOME offerings
Some places just don't have much to offer for CD rates
Maybe even consider some TIPS if there is wage growth and some inflation
We went today to buy some CDs and the rate was 1.81 for a 12 mo and 1.71 for a 6mo
Rate hike in Dec so might so up some more--we are waiting to see
We are thinking it will break 2% for 12 mo next year...
I would just put it in an index fund. You can very easily get 15-30% on your money. For 2% I'd rather have access to my money. I personally think CDs don't pay enough to tie up my money. You could happen to find a steal on a house and your money would not be accessible. In a mutual fund, you could still access the money if that were to happen I also just feel the gain is so much more worth your money being less liquid.
I would just put it in an index fund. You can very easily get 15-30% on your money.
And you can just as easily lose 15-30% of your money. Equities (even in the form of index funds) are just too volatile for such a short-term investment horizon.
I would just put it in an index fund. You can very easily get 15-30% on your money. For 2% I'd rather have access to my money. I personally think CDs don't pay enough to tie up my money. You could happen to find a steal on a house and your money would not be accessible. In a mutual fund, you could still access the money if that were to happen I also just feel the gain is so much more worth your money being less liquid.
You can cash in CDs early but usually there is penalty
But you can access the cash
Set up a staggered time ladder
Roll them over as time/rates allow
6 years sound about right for an investment-grade corporate bond fund with moderate duration (< 7 years). Look for a yield to maturity of around 3 to 4%. Above 4% is junk territory with credit risk, below 3% is Treasury territory with interest rate risk.
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