WWMMD Re: Upcoming House Purchase

[flopsy]

Not-so-hypothetical situation.

Say you and your H are buying a house in no sooner than 5 months and no later than 2 years. FWIW, you are leaning toward 2 years but your H is leaning toward 5 months. It will probably fall somewhere in the middle, but closer to H's thinking.

Say you currently have the maximum down payment you'd make; the rest of your savings from here on out are for closing costs, inspection costs, furniture, any changes to the house, etc., etc., etc. Of the money saved so far, 1/3 is currently in the bank. Remaining 2/3 is split about 50/50 between stocks and bonds (all as part of low-cost mutual funds - allocation is according to Morningstar X-Ray).

Would you move money out of stocks now? Or keep it there but focus new investment and savings contributions on bonds and cash? Keep the current allocation as is and put new contributions in at this current allocation? Or something totally different?

Say you don't want to have excessive risk given that you could buy in 5-6 months, but also don't want to be excessively conservative given that you could buy in 2 years. Say also that you are trying not to let the fiscal cliff scare you but you can't really help but let it scare you a teeny bit.

[EmilieMadison]

Keep money where it is until you are are actually putting in offers on houses. Well, I guess technically you also need to figure out how long it would take to access the funds, but generally speaking, it would make very little sense to move money around unless you know for sure you'll be using it soon. (except if you're talking about stocks that could plummet- be conservative if you will need that money in the next few years)

ETA: As for allocations? No idea

[lys]

I would definitely move any money you cannot afford to lose out of the stock market. It depends on how risk averser you are. WIth the fiscal cliff looming and congress butting heads, and the outcome unknown, there is a large risk for a huge stock market downturn. Keep an eye on the market and if you see trends that cause you discomfort - get out.
I would keep the money safe, but I am very conservative with my finances.

[pamela]

We are keeping our downpayment fund in cash. It's probably 3 years out, but I am not willing to risk any of it right now. For my retirement I'm not risk adverse at all, but for this, yeah, not willing to take any chances.

[noodleoo]

Yeah, I would never keep a down payment in the stock market. The market just fell significantly after the election. I'm not sure I'd take it out right now, but if you really think you'll use it in the next year, I'd definitely start moving it into something less volatile.

[aurora]

Keep in mind that when you are being evaluated for loans the money you have in the stock market will only count at some discounted rate (I can't remember, but it might have been 80% or so when we did it) until you have actually sold it and had the cash in hand.

We are considering selling some stocks soon for a large purchase that we'll probably make in the next year or so. If it were going to be 3-5 years, we wouldn't, but if we purchase in the spring then we might as well be guaranteed the lower capital gains rate and also have the money in hand in case of short term stock market swings.

[Deleted]

Oh I'm bad at these types of questions. I would do whatever sarajoy says to do.

[SJ]

Nov 12, 2012 22:56:03 GMT -5 @flopsy said:

Not-so-hypothetical situation.

Say you and your H are buying a house in no sooner than 5 months and no later than 2 years. FWIW, you are leaning toward 2 years but your H is leaning toward 5 months. It will probably fall somewhere in the middle, but closer to H's thinking.

Say you currently have the maximum down payment you'd make; the rest of your savings from here on out are for closing costs, inspection costs, furniture, any changes to the house, etc., etc., etc. Of the money saved so far, 1/3 is currently in the bank. Remaining 2/3 is split about 50/50 between stocks and bonds (all as part of low-cost mutual funds - allocation is according to Morningstar X-Ray).

Would you move money out of stocks now? Or keep it there but focus new investment and savings contributions on bonds and cash? Keep the current allocation as is and put new contributions in at this current allocation? Or something totally different?

Say you don't want to have excessive risk given that you could buy in 5-6 months, but also don't want to be excessively conservative given that you could buy in 2 years. Say also that you are trying not to let the fiscal cliff scare you but you can't really help but let it scare you a teeny bit.

OK this is not to be construed as individual advice, but what I would personally do.

I am not very comfortable buying bonds right now. Interest rates are so low that prices are very high, and you have a high risk of losing principal. I know everyone thinks bonds are super-safe, but when you are paying $120 for $100 face value that is simply not the case. Especially here when you probably won't be able to hold until maturity.

I do think there is a place for bond funds in a long-term portfolio (ie a retirement account), but right now I just wouldn't buy them in the type of account you are talking about.

Since you might need the money in 6 months, I would SLOWLY begin to liquidate the funds over a period of time. Don't rush out of the market all at once. Future contributions should be held in cash until you buy or at least until you know the exact purchase price.

Once you buy & are settled, I would begin to reinvest in the market.