A: This is a dilemma, to be sure. With interest rates still so low, money held in a basic savings account likely would not keep pace with rising home prices. Ann Reilley Gugle, a certified financial planner and certified public accountant with Alpha Financial Advisors in Charlotte, N. Then again, your time horizon isn’t quite long enough to justify investing all of this money in the stock market.
So consider a compromise, says Gugle. For your equity portfolio, plan on putting about half of your stock allocation into a stock index fund that tracks the broad U. This fund gives you exposure to the 500 largest companies companies in the U. The other half of your stock money can be divided between a diversified international stock fund and a fund that focuses on smaller domestic companies. Use our Money 50 list of recommended mutual and exchange-traded funds to find these different types of portfolios.
For your bond allocation, Gugle recommends pairing an intermediate-term high-quality bond fund with global exposure, along with income oriented funds. In other words, as your time horizon shortens, you should be shifting more of your money into bond funds, which offer ballast to your overall portfolio. A strategy that gradually grows more conservative over time requires that you regularly rebalance the portfolio and ease up on your stock weighting as you get closer to your goal. If you don’t think you’re up to the task — or don’t have the time to do this — there is a way to put your investments on auto-pilot through the use of a target-date retirement funds.
Obviously, your goal with this money isn’t to fund retirement, but to save for a house. But target-date retirement fund are designed to gradually grow more conservative over time. So in this case, you could simply choose a target date fund designed for someone who wants to retire five to 10 years from now, says Gugle. Just as important as how to invest is where to invest.
The downside of investing in a taxable account is that anything you earn in the account is subject to income and capital gains taxes that can eat into your returns. One alternative: If you are saving for your first home, consider saving a portion of your housing fund in a Roth IRA, says Gugle, as long as you are sure your time horizon is at least five years away. Anyone can withdraw contributions from a Roth IRA, sans tax, since taxes on that money has already been paid. And as long as you’ve had the account for at least five years there is no penalty for withdrawals.
10,000 of their earnings tax and penalty free, provided that the account has been open for five years and the money is used to buy or build a home. If you contribute the maximum and earn a modest return of 5. 10,000 in tax-free earnings at your disposal. Money may receive compensation for some links to products and services on this website. Offers may be subject to change without notice. Quotes delayed at least 15 minutes.
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100,000 sitting in cash that I’d like to invest. What’s the best way to do that in today’s market? Given today’s gaseous stock valuations and concerns that this eight-and-a-half-year bull market might be getting a little long in the tooth, it’s understandable why many investors are skittish about investing money in stocks. So what should you do if you have new money to invest — whether it’s a hundred grand, ten grand or for that matter any amount — and you don’t want to give up stocks’ potential upside but you also don’t want to get hit with losses you can’t handle? The first is to try to time your entry into the market. So, for example, if you think this bull market still has room to run, you put your money into stocks, but stand ready to exit quickly when you’re convinced the market is about to tumble.