Comments on: 6 Months to Invest... Starting NOW

Question: 6 Months to Invest... Starting NOW

LGCNo6 — Wed, 25 Oct 2006 23:27:15 -0800

The clock starts today. I just sold a house yesterday and ended up with a decent chunk of change. On next year's tax form, I'm going to have to pay taxes on the gains, but I have 6 months to make the tax money work for me...

So if you had ~$28K (the amount of tax I'll owe) to invest for 6 months, what would you do with it? Ideally, I'd like to max out the return on it, so I'm willing to be pretty aggressive with it.

I know what I'll do with some of the other funds from the sale, but I'd like to hear what other people would do in the same situation.

By: tkolar

tkolar — Wed, 25 Oct 2006 23:35:49 -0800

Slap it in an index fund and forget about it.

By: kindall

kindall — Wed, 25 Oct 2006 23:57:30 -0800

Unless you're willing to lose a substantial portion of the money, I'd not bother investing in stocks for such a short period of time. Sticking it in an HSBC or Citibank savings account is zero risk and will earn you a guaranteed 2.5% over the next six months. As a bonus, it's perfectly liquid, so you won't pay any transaction fees.

If you do put it into stocks, then yeah, an S&P index fund is the way to go, or better yet, split it between S&P and an international fund.

If you plan to invest long-term the portion you don't have to pay in taxes, perhaps put the money you'll need for taxes into a savings account so you know you can't lose it, then put the rest into the index funds.

By: chrisamiller

chrisamiller — Wed, 25 Oct 2006 23:57:42 -0800

they sell 6 month CDs. The rate of return will be fairly low, but it's guaranteed cash.

By: Cog

Cog — Thu, 26 Oct 2006 00:06:50 -0800

I second the 6 month CD. As of 2 weeks ago, Citibank was doing a promo and giving out 5.5% APY for 6 month CD.

Also, if you want the cash a bit more accessible, you could try looking into HSBC Direct account or something similar. It's an internet & phone only account, meaning there is no physical branch/teller that you deal with. You either mail a check or do transfer from another account. HSBC Direct is currently giving 5.05%.

By: Izzmeister

Izzmeister — Thu, 26 Oct 2006 01:02:36 -0800

if you do want stocks, try to buy a stock and sell an at the money call (stock option- you sell the right to purchase your stock to a buyer) in a stock where the premiums are high for the time period.

By: rxrfrx

rxrfrx — Thu, 26 Oct 2006 04:46:01 -0800

This is a good FatWallet thread about the current best yields on CDs and money market accounts. 5.5% is good. If your local Citibank is offering that, you could take it. You could also take the e-Loan Savings Account and get 5.5% APY right up until you withdraw the money.

By: Lokheed

Lokheed — Thu, 26 Oct 2006 05:37:06 -0800

Did you really make more than a quarter million dollars in gains from the sale of your house? Or was it just an investment property? The first $250,000 of gains from the sale of a house are tax-exempt (provided you occupied the house house for at least two out of the past five years).

By: Pastabagel

Pastabagel — Thu, 26 Oct 2006 08:31:04 -0800

Vegas.

By: o2b

o2b — Thu, 26 Oct 2006 09:18:48 -0800

If yo're looking for a little risk, and wouldn't mind trying something new, check out Prosper.

The site enables P2P lending, and it's looking to be quite an interesting thing.

By: JamesMessick

JamesMessick — Thu, 26 Oct 2006 09:26:44 -0800

Thank you Lokheed, for pointing that out. I believe you can double the tax-free gain if you are married, also. It used to be a one-time exclusion, but now I think you can do it over and over if you meet the "two out of the last five years" rule. Ask an accountant to be sure.

By: krautland

krautland — Thu, 26 Oct 2006 10:50:37 -0800

Sticking it in an HSBC or Citibank savings account is zero risk and will earn you a guaranteed 2.5% over the next six months.

more like a guaranteed 5.05%.

By: mcstayinskool

mcstayinskool — Thu, 26 Oct 2006 11:27:02 -0800

"6-month investment" and "agressive investment" don't play well together. 6-month CD is your option. Index Funds are great for longer term investments (5 year, IMO), but at 6 month you're dealing with noise, not signal, in the health of the fund. Therefore, 6-month CD.

By: tkolar

tkolar — Thu, 26 Oct 2006 13:05:23 -0800

krautland wrote....
Sticking it in an HSBC or Citibank savings account is zero risk and will earn you a guaranteed 2.5% over the next six months.
more like a guaranteed 5.05%.

The 5.05% on that page is a yearly return. Depending on how and when the interest is compounded, a six month period will get you anything from 1.5% to 2.5025%.

By: kindall

kindall — Thu, 26 Oct 2006 13:57:09 -0800

It's in fact compounded monthly at HSBC based on your average daily balance. But yeah, over six months you get half the annual return, obviously, which is why I said 2.5%.

A six-month CD is just a wee bit too short for money you will need to pay taxes with. November, December, January, February, March, and half of April is 5.5 months.

By: tkolar

tkolar — Thu, 26 Oct 2006 17:41:47 -0800

But yeah, over six months you get half the annual return, obviously, which is why I said 2.5%.

That's not really how compound interest works, although in this case the numbers are probably too small to worry about.

In six months you would get roughly 2.48 percent.

By: LGCNo6

LGCNo6 — Thu, 26 Oct 2006 21:19:43 -0800

Yes, I'm well aware of the rules about time in the house and the deduction there-- I'm not eligible.