Buying a house in next 2 years - how should I manage my liquidity?

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I am close to 34 years old, engaged, getting married in 2017.  Kid likely in 2017 or 2018, also likely to buy a house in 2017 or 2018 as well (currently renting in a big city).  I make anywhere between $120k and $200k gross depending on the year (I'm in sales).  Fiance makes between $30k-$100k as she is starting her own business.  No debt at all between the two of us. Fiance has a marginal amount of savings.  Got a late start, but otherwise I have been maxing 401k and Roth IRA for the last 3 years.   

As for savings I currently have:
Pure retirement:
$22k in Roth IRA
$125k in 401k

$125k in cash
$55k in vanguard funds/etf's

Possible house purchase would likely be between $500-$650k.

I hate to see the $125k just sitting in cash, but at the same time I am hesitant to drop it in the market and then see the market trend dowards and then ultimately have to pull money out for a down payment in the next year or two and having lost money.

1.  Given my situation, is buying a house in the next 2 years the right move?
2.  In the meantime, how would you handle managing my cash vs. savings in preparation of needing money for  a down payment? 


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buy it now, the market will only go up

1. Can't answer if buying a house in next two years is right move. Highly personal decision based on numerous factors, only some of which you control. You seem to able to afford to do so. Recommend you evaluate reason for wanting to buy a house, running the numbers on a tool like this rent vs. buy calculator, and going from there. Given you seem to be able to afford it, main question to ask yourself is how long you plan to be in that home and whether you think the local real estate market is a good investment or not (e.g. bubble, no upside, etc.)

2. Managing short-term cash isn't hard, you can put in any number of interest-bearing accounts that pay 1% or more (e.g. Synchrony has a 1.25% 1yr CD, Ally has a 1.05% money market account). If your time horizon is two years and you don't want to risk the principal, then I don't understand why you hate to see in cash...there isn't some magical risk-free/high-yield option between the two...higher returns are a reward for higher risk...if you want no risk your options are limited. There are numerous low (not zero) risk options like tax-free bonds that you might want to look into but again, a 2 year time horizon limits the upside and having to sell at an inopportune time because you found the perfect house doesn't sound like a risk you want to take/can afford.

Best of luck!

That's pretty damn good for a late start.

Don't put any money in the market if you are going to need it in the next 5 years.

Many credit unions have greater than 1% CDs right now. Terms are anywhere from 15 months to 3 years. Penfed is one example.

Thanks all.  To address a few of the above.

1.  Not in a position to buy right this moment.  We are not sure if we want to stay in our current city or now, so unfortunately there are plenty of unknows.
2.  My $125k is not in cash exactly, its in an Ally account earning 1%.
3.  I guess I shouldn't have said late start at contributiing, only just recently have I been maxing out.  Had to pay off over $100k in grad student loans and then shifted my focus to retirement accounts.

gremln007 said:   Many credit unions have greater than 1% CDs right now. Terms are anywhere from 15 months to 3 years. Penfed is one example.
  makes very little sense if OP needs to withdraw during that term. OP is getting 1% now.

Just put it into some Vanguard mutual funds over the next 6/12 months, maybe 5k/10k every 2 weeks.

Luniz97 said:   Just put it into some Vanguard mutual funds over the next 6/12 months, maybe 5k/10k every 2 weeks.
  That is vague.There are various funds with different levels of risk involved. A 5% drop in value of many Vanguard funds (except money market funds) is very conceivable in the 1-2 year time frame.
Frankly, given OP's short-term needs (1-2 years), bank savings account or short-term CDs are about the best option. Short-term bonds or bond funds do not yield enough to take the extra risk of putting it in them for OP's timeframe. 

solarUS said:   
gremln007 said:   Many credit unions have greater than 1% CDs right now. Terms are anywhere from 15 months to 3 years. Penfed is one example.
  makes very little sense if OP needs to withdraw during that term. OP is getting 1% now.

I guess it depends on your point of view.  I would be fine with 15 or 18 month CDs if I were in his shoes.

I hear you though. 

scotto777 said:   ...getting married in 2017.  Kid likely in 2017 or 2018... 

If you've been together for a while and this is what both of you want, great!  But I have to ask - why the hurry?  Enjoy married life and settle into your new home a little before introducing the chaos of an infant perhaps?  Not my business and not my choice to make for you, but once junior comes along there ain't no going back.

Your cash basically covers your 20% down payment (slightly short if you go $650k but negligible) so keeping that in Ally seems to be a good idea to me seeing as how you'll need it in a year or two. Just throw all of your savings/interest earned into the market to start diversifying for longer term goals. I assume you have your rainy day fund set up, you want enough liquidity to cover your new expenses as your portfolio is going to shift heavily towards illiquid hard assets and retirement funds.

Wherever you buy, I would recommend renting there for a year or so to learn the area. It sounds like you might move? Don't buy right away, your perception will change once you know the area.

Just an FYI as a father of two young boys, you don't need to buy a home because you are thinking of having children. Don't need to buy if wife is pregnant. Don't need to buy if you have an infant. Basically, don't rush it unnecessarily. As others have said, there is a lot to like about renting and being newlyweds.

Maybe you could stop retirement contribution now until the house purchase, rent the first year after marriage in order to build as much cash as possible and see how wife's start-up business goes.

Only after the marriage, combined income, and the business are on track for at least a year, I would think about getting a baby, then put the money into the house purchase with cash for 6mo living expenses for your family to spare.

Right now all cash/income goes into Vanguard money market fund. Net result: goal achieved with low risk and lowest amount of money you have to borrow for the home purchase within the scheduled time frame.

If I were in your shoes, I would continue to contribute to retirement, get married asap, rent, get extra job(s), then save like a crazy family and only pay cash for the new house within five years while having spare cash for 6mo living expenses for the family before having kids. I know it's not popular advice but it makes the most financial sense to me. This way you learn how to communicate with your wife while living frugally with a common goal to achieve (important in new marriage), and maximize the retirement contribution, no mortgage payment, more time to wait for the better house purchase timing, and can continue to build your wealth and fund your kid's education savings with very little risks. 5 years of sacrifice that put your life in hell (possibly the longest 5 years in your life) in exchange for good finance situation for the rest of your life before you are even 40, which sounds much better than juggling new wife, new business, new born, new house, and the unpredictable job/economy instability all within one or two years with long-term mortgage hanging over your head.

Wife and I are in a similar position, but a little bit younger. 30 yo, looking to buy a house and a baby (you can buy those, right?) in the next 1-2 years. 400k net worth, ~125k liquid in cash, ~200k in 401ks, and 75k in Roth IRAs/HSAs, and struggling with what to do with the cash while we wait. Currently live in a very high COLA city, and planning on moving somewhere cheaper for more space/bigger area. Income is a pretty stable combined 210k/year and the jobs will transfer to the area we plan on moving to.

However, I don't think I'll take the cash it out of the 1% Ally account, since I don't want to stomach a 5-10% drop in purchasing power (current savings is ~20% down payment). However - we haven't been maxing out 401ks, so I think once we get to ~120k in net cash for a downpayment, we will focus on putting additional funds into the 401ks and look at non-tax deferred investments.

Thanks everyone for the continued suggestions.

1.  Baby urgency - future wife will be 34 soon as well and know it is riskier the longer we wait.  We already live together, and are having a small wedding so I don't think going from fiance to wife will change things much.
2.  I'm a strong proponent of renting and always have been.  Our current lease ends this coming summer and at that point we will likely move to some other city or somewhere a bit further from the heart of our current city.  If we move somewhere else, would definitely rent for a year.  If we stay local, it may be more likely we buy.  Hence the 1-2 year time frame.  I'll only buy once I feel confident we plan on staying there for at least 5 years.  

I think the main take away seems to be keep the cash in something safe.  I may compromise/hedge a bit and put 50k or so of it in the market in case my 1-2 year time frame stretches I won't feel like I've totally missed out on upside.  It's also possible in the next 1-2 years I save an equal amount of that in cash to replace that.

Scott, I use 7 years as a rule of thumb myself. If you really are not confident you will make 5 years in a house I would rent instead

I'll chime in on the kid front. Married at 34. Had kid number one at 36 and kid number two at 39. Seriously, there's no reason to rush if your wife is in good health. If we'd wanted more kids, we could easily have had a third when I was 42.

You could consider the 3-month 3.01% APY CD special
They also have an 18-month 1.81% APY CD.

New bank/brokerage account bonus is another way to keep the liquidity and make some money.

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