6 Months to Invest... Starting NOW

October 25, 2006 11:27 PM

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.

posted by LGCNo6 to work & money (16 comments total)

Slap it in an index fund and forget about it.
posted by tkolar at 11:35 PM on October 25, 2006

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.
posted by kindall at 11:57 PM on October 25, 2006

they sell 6 month CDs. The rate of return will be fairly low, but it's guaranteed cash.
posted by chrisamiller at 11:57 PM on October 25, 2006

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%.
posted by Cog at 12:06 AM on October 26, 2006

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.
posted by Izzmeister at 1:02 AM on October 26, 2006

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.
posted by rxrfrx at 4:46 AM on October 26, 2006

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).
posted by Lokheed at 5:37 AM on October 26, 2006

Vegas.
posted by Pastabagel at 8:31 AM on October 26, 2006

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.
posted by o2b at 9:18 AM on October 26, 2006

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.
posted by JamesMessick at 9:26 AM on October 26, 2006

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%.
posted by krautland at 10:50 AM on October 26, 2006

"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.
posted by mcstayinskool at 11:27 AM on October 26, 2006

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%.
posted by tkolar at 1:05 PM on October 26, 2006

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.
posted by kindall at 1:57 PM on October 26, 2006

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.
posted by tkolar at 5:41 PM on October 26, 2006

Yes, I'm well aware of the rules about time in the house and the deduction there-- I'm not eligible.
posted by LGCNo6 at 9:19 PM on October 26, 2006