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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35340  
Subject: Re: "safe" place to stash some cash? Date: 1/7/2007 9:59 PM
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I'm also recently married and we're thinking about buying a new house within a 9-18 month window. So, I'm considering selling some of the stock options now as part of an overall diversification strategy and to pre-fund some of the down payment for the house. I have a few questions, and I'm hoping that folks here might be able to help.

-- guidelines: 9-18mo window, need to be able to get to it at any point (if/when we pull the trigger on the house)

-- primary question: if I sell the stock, where do I put the money in the interim? I need something that's fairly low-risk, but 5% on a money-market account doesn't seem like the right idea. I have a good understanding of bonds and credit markets, but I know very little about how they are bought/sold/traded (meaning I can explain how a municipal bond differs from a corporate bond, but I don't know how to buy either)... leading to:

-- what little I've read seems to imply that if I find a decent bond fund, I may be able to significantly beat the fixed-income alternatives with only slightly more risk. This is where I most need the help... if YOU had $200k or so and a 9-18mo horizon to invest it (again, risk tolerance is "low" but not "zero") where would you put it? I can't do straight bonds as I need more flexibility, right? Stocks (even ETFs) seem too high-risk.

-- if the answer is indeed a bond fund, how do I find one that won't get me rooked with loads and fees and all these other things that I don't understand?

-- tax implications of selling stock options? When I sell the stock I take a tax hit, but I'm thinking that the risk reduction is worth that. Opinions?


Let's start with selling your options. You're in the money now. Sure there are taxes, but if you need money for a downpayment, which requires a short time frame, you need to treat the capital for the downpayment as something you have to keep safe, and stocks are not safe.

Sorry to tell you, but for 9-18 months, you are stuck with short term fixed-income options, of which a Money Market is probably the easiest. There are now also on-line Savings Accounts which are competitive with yields similar liquidity to MMs. If you are sure you won't be buying for at least 6 months, look at 6-month T-Bills through Treasury Direct, then move to something more liquid as you get closer to buying.

As to Bond Funds, I don't know who you've been reading on bond funds, but right now Vanguard's Prime Money Market has a higher yield than its Short Term Corporate Fund (which has been returning lower dividends than its listed yield for a long time, though I haven't checked for a couple of months). Anyway, the only way the Corporate Fund would do better is if short term interest rates drop between now and when you need the money. If they go up you lose. You look at bond funds with longer maturities and your risks get higher.
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