I just sold my house and will be receiving approximately $150K which will in turn eventually be the down payment on my next house. I will most likely need this money in March 06. What investment vehicles should I be looking at? I want a low risk, which I assume means low return- but hey, I can dream- investment. I guess I could put the money in 3 or 6 month cds. Anything else?
thanks
A money market account might be a good idea. This would have the small advantage of being more liquid than a 3 or 6 month CD. When buying real estate, having quick access to your cash is a nice thing, unless you know for sure that you won’t need it until March 06.
A 6 month Jumbo (>$100,000) CD has zero risk and you can get them for about 4%. So, for your $150k you would get about $3,000 return at 6 months. Not bad.
Now, allow me to digress a moment - do you need to put all of the money into your downpayment? There is a theory that says make a small (-er -ish?) down payment on your home (20% to get you past PMI costs), and invest the rest of the money.
Looking at it in terms of an investment:
$150K downpayment (investment), home increases in value $50k, return on investment = 33%.
$100k downpayment (investment), home increases in value $50k, return on investment = 50%. (Also, remaining 50k of original 150K invested somewhere else.)
This, of course works in an up housing market.
Just my $0.02.
My first blush on that would be to not forget to factor in the extra interest one would be paying with a larger mortgage.
But I’m always gunshy about debt. Being out of debt is a great help when trouble strikes.
Thanks for the replies. I will most likely go with cds or money market. I just wanted to make sure I wasn’t forgetting anything. I find the stock market too risky for this money. Are there any short term bonds with low risk or is 6 months just too short a time?
Icarus, you’ve given me something to think about. Unfortunately, 150K is not an overly large downpayment for this area. However, I have another chunk of change that I was planning on adding to this. I’ll have to look into this more.
A six month CD right now will get you about 3%. Money markets are about 2.5% or so. Obviously if you shop around you can do a bit better.
One other option if you are looking for some extra yield might be investment notes from the car companies. Ford Motor Credit and GM both offer demand notes that are floating rate obligations of the companies. You can get right around 4% because of the companies credit ratings. But the notes are variable and will yield a little more as Dr. Greenspan jacks up the short term rates.
For a short term investment, they aren;t too bad. Longer term, you can do better on a risk/reward basis. But the likelihood of either company going filing for bankruptcy in the next six months is extremely low.
Just an option. But not a bad way to grab a little extra yield for the short term.
Full disclosure I do keep my mortgage and escrow funds in GM Notes.
You could consider buying a six-month U.S. Treasury Bill through TreasuryDirect. They’re sold weekly and yielded around 3.75% at yesterday’s auction.