I have about $100K to invest but I need most if not all of it to remain fairly liquid as it will be needed for a downpayment on a house. I am in limbo with my job and thus am delaying buying a home for now, but that could change at any time over the next few months and I don’t want my savings locked away in a mutual fund or CD if I need it quickly. Where should I put the $? Put it all in one thing like a MMF or put it in a couple of different investments? Thanks!
Categories
5 Comments
Money market.
Highly liquid (you can draw on it whenever you want).
No penalties for withdrawal (like in CD or Money Market Funds)
Good yield (you get about 4.50% at ING, which is only about a 60 basis point sacrifice for the liquidity you are looking for).
No risk (e.g. FDIC insured, no volatility in price)
Addendum: Since liquidity is a huge part of what you need, laddering CDs is not a good idea since you are guaranteed to forfeit interest income that is greater than the yield pickup from investing in CDs compared to money market. Also, careful about money market funds – there is a penalty for withdrawing money early as Vanguard discourages “trading”. Also, I wouldn’t do munis since you “only” have $100k. Not to belittle this amount (as it is a sizeable amount), but it hints that you are not in a tax bracket high enough to make the lower yield in munis worthwhile.
Look at the various money amrket funds at Vanguard. You have a choice between taxable and tax free funds.
Your decision as to which fund is based on your tax bracket and which type of fund gives you more after tax income. For example, if you are in a 25% federal tax bracket and the taxable fund is paying 4% you would be earning 3% after taxes. If the muni money market is paying more than three percent you would be better off with the muni fund.
The after tax earnings above is computed by multiplying the earnings rate by .75% ( 1.00% minus the tax rate).
what i would do is….
get 4 CD’s for 25k each
1. 90 days
2. 180 days
3. 270 days
4. 1 year
in 90 days you want to roll the first cd into a 1 year
then 90 days later you want to roll the next cd into a 1year
continue this pattern for 1 year every 90 days change to 1 year
Benefits
Money is secure
you always within 90 days of maturity
you get the highest rate on 1 year
(with interest rates on the rise you can change with the market and always get the highest current rate)
I would put your money in a variety of money market funds and savings accounts, you never want to have all your money in one account or one type of investment.
Money Markets or Commercial Paper (ask your broker)