How to invest proceeds from home sale short-term.

June 10, 2008 1:26 AM

Where is the best (safe, short-term) place to invest money (over 200K) from the sale of our home until we purchase another one. Please don't make me learn a LOT about markets, etc. I'm packing and moving to a new area and already stressed. ; )

We are moving from Washington state to Oregon, and will be renting while we look for a home. Since the market is still going down in the area we're moving to, we won't be in a big hurry to buy but expect the market to hit bottom in late fall or winter, '08/09, so will probably only need a place for our money for 3-9 months. We'd like it to earn a little something to help w/ moving costs. Is there a safe mutual fund where the money could earn, but be easily accessed without a penalty? How and where would I go to find this out...or ???

posted by mumstheword to work & money (15 comments total)

How about a simple money market account? Find a high-yielding account in bankrate.com and deposit there. If you want to maintain FDIC insurance, use several banks and deposit at most 100k into each one.

This guarantees that you will not lose any money, though the return will be low as well.
posted by bsdfish at 1:59 AM on June 10, 2008

The general rule of thumb is that the shorter time frame you need the money the less risk you can bear, and the less risk you can bear the lower your expected return. The other general rule of thumb is that you only play with money you're able to lose. I would make a stab and say that the money you need to purchase another house with is probably money you can't lose. If that's the case, then find decent-yielding online savings accounts, 3.5% or 4% is what to expect here, or go searching for short-term CDs that fill your time frame, or find money market accounts. Do NOT put your money in the stock market unless you're able to cover those losses or let it ride for a long period of time. The stock market is generally predictable over a long time frame and generally unpredictable over a short time frame. Unless you're a seasoned investor (and it seems pretty clear by your question that, well, you're not), that's the same as going to Vegas.

Also, you're basically making an investment already -- by choosing to stay out of the housing market, you're making a 'negative' investment, predicting that over the short term, the housing market will decrease in value in your desired area. That's probably enough risk already. If you're right, that delta, between prices now and prices when you buy in six or nine months, would help with your moving costs.

bsdfish is correct about dividing the money between different banks in order to ensure that you're FDIC-insured.
posted by incessant at 2:12 AM on June 10, 2008

online savings account and/or term deposits. If you expect to not buy for at least 6mo, a term deposit of that duration would get you more return than a bank account and with no risk. Make sure you read the fine print - should be no early withdrawal penalty though you'll likely lose the interest. Or maybe three-month term deposits, moving to one-month or a savings account as you get near to buying.
posted by polyglot at 2:19 AM on June 10, 2008

3-9 months? I would say savings account is your best option.

If you have between $200k and $300k, I would suggest getting 3 savings accounts of equal value to remain under the FDIC $100k insurance. The reason you want all of your money to be FDIC insured is that if your bank fails you are guaranteed by the government to get your money back.

As for what kind of savings account to get, I would suggest finding the best interest rate, which usually means going with an online high interest savings account. Last year you could get one as high as 6% APY, but the Fed has lowered rates so it's very difficult to get anything over 4% now. A good place for finding the best rates is the bank deals blog weekly summary.
posted by burnmp3s at 4:35 AM on June 10, 2008

short-term rules out the usual "buy low, sell high" stock market wisdom. you could choose bonds but I don't see that working out either in your timeframe. bankrate currently has high-yield money market accounts that get you 3.78% per year, down from close to 6.25% around this time last year, so that's not all that great either.

I would suggest talking to a dedicated financial advisor. I used myfinancialadvice.com to find the right one for myself about two years ago (both to do my taxes and reorganize my 401k). mine cost me around $500 and took care of everything according to my wishes.
posted by krautland at 5:40 AM on June 10, 2008

under the FDIC $100k insurance.
erm... which bank do you expect to fail in the short term? I somewhat don't see that happening in the consumer market right now, the risk seems to have been assumed by the investment bank sector.

another addendum: consider looking into the fatwallet forums.
posted by krautland at 5:42 AM on June 10, 2008

I'd probably do an online ING / HSBC account -- keep the FDIC $100k limit in mind for each. I know that HSBC is offering 3.5% from now till October, which is more than decent return no-risk investment right now. (Way more than decent return than bonds or something. My poor 401k!)
posted by SpecialK at 5:43 AM on June 10, 2008

erm... which bank do you expect to fail in the short term?

I don't expect any of them to fail, but free insurance is hard to pass up. 7 banks have failed since February of last year, including two last month. A lot of those were fairly easy to avoid if you did any kind of research at all (NetBank was in big trouble before it failed), but it's nice to know that you don't need to worry about your bank losing large amounts of your money.

If you think there's a 1 in 10,000 chance that a bank will fail during the 6-9 months when your $200k is in an account, the FDIC insurance would only be worth $100,000/10,000 = $10, but since you aren't paying any extra money to open multiple accounts, the only reason not to do it is if you don't want to deal with the hassle.
posted by burnmp3s at 6:10 AM on June 10, 2008

You say "we," so you may not need to have multiple accounts for FDIC insurance; the coverage is per depositor, not per account. If you and your spouse are both listed on the account, then you have $200,000 in coverage.
posted by tomwheeler at 6:48 AM on June 10, 2008

I would also consider a municipal bond ETF, which will give you a higher, (federal) tax free return, though at some risk. An Exchange Traded Fund is a special purpose investment corporation which trades like a stock, though it is more of a mutual fund. A municipal bond ETF invests only in municipal bonds, unfortunately there are not any state specific ones for Washington or Oregon, but I would go with something like Nuveen Insured Municipal Opportunity Fund (ticker: NIO) or Van Kampen Trust for Investment Grade Municipals (VGM) both of which are large, and therefore likely to be more liquid, and are already at modest discounts, which may go your way between now and liquidation. You can purchase these securities in any securities account which you can trade stocks. These funds both yield around 5% now. You can find out more at the ETF Connect site.
posted by shothotbot at 11:27 AM on June 10, 2008

Take 100.000 and buy some oil. Change the other 100.00 into euros. If you had done this 4 months ago, you'd have an extra 50k by now.
posted by ChabonJabon at 12:39 PM on June 10, 2008

2nd on Euros.
posted by herbaliser at 1:21 PM on June 10, 2008

Take 100.000 and buy some oil. Change the other 100.00 into euros. If you had done this 4 months ago, you'd have an extra 50k by now.

This is very risky. Please don't do this.
posted by shothotbot at 2:12 PM on June 10, 2008

Thanks for the thoughtful responses...AND the links. Very helpful, all.
posted by mumstheword at 7:32 AM on June 11, 2008

erm... which bank do you expect to fail in the short term? I somewhat don't see that happening in the consumer market right now, the risk seems to have been assumed by the investment bank sector.

FAIL.
posted by delmoi at 10:07 PM on July 11, 2008