Zero-coupon Muni / US treasury bonds

LinkedIn unitedbun
Jan 1, 2018 14 Comments

I want to keep my home downpayment grow for 3-4 years after which i will but a home. I put the downpayment money in three-fund index fund portfolio earlier, with 50/50 stock/bond ratio, but i was suggested that this is risky. I’m now looking to buy zero-coupon muni / US bonds instead. Where can I buy zero-coupon muni / US bonds? Would buying Vanguard fund VEDTX be equivalent to buying zero-coupon muni / US bonds? Also, does anyone know a better option for 3-4 year investment of home downpayment money?

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TOP 14 Comments
  • Amazon / Eng WocG38
    Roth IRA. You can pull out downpayment for buying your residence without penalty. Growth is tax deferred and you can manage the investments yourself.
    Jan 1, 2018 2
    • Gen!x / Eng
      XPbr65

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      ROTH IRA is an account type not an investment choice. It doesn’t answer OPs question.

      OP already has post-tax cash and is looking for safe investment choices to grow this.
      Jan 1, 2018
    • LinkedIn unitedbun
      OP
      It is a good suggestion, but it turns out that roth IRA limit is 10K for downpayment. Also, with Roth IRA, one can still keep money in stock market, which is not safe short-term. I’m looking to keep more money in a safe investment.
      Jan 1, 2018
  • Amazon / Eng WocG38
    Okay, let’s try again: Given your time horizon is <5 years, historically stocks have lots of risk.

    I use a blend of short term corporate bond funds for stuff like this, personally.

    Munis are interesting in that you won’t owe federal tax on earnings. If you’re sitting on lots of principle (probably are for a downpayment) they’re a good idea.
    Jan 1, 2018 1
    • LinkedIn unitedbun
      OP
      I guess i might be missing something. Checking treasuryDirect website, the highest rates for 1-year zero-coupon bills is 1.5%. But, i can get 1.75% with Ally 11-month no-penalty CD, 2% with Ally 1-year CD. How is muni-bond better? I understand that it is tax-exempt, but still, it can’t return much over Ally CD accounts. Am I missing something?
      Jan 1, 2018
  • Microsoft / Other
    Excel merc

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    You probably don't have enough cash to buy bonds outright. Would recommend using an ETFs or mutual funds instead. Just search for munis and treasuries. ETFs are liquid enough that you're not going to have to worry about maturity matching your target date.

    If you were set on buying bonds yourself you'd need to get a sophisticated brokerage like interactive brokers that are more professionally geared.
    Jan 2, 2018 2
    • Gen!x / Eng
      XPbr65

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      “You probably don't have enough cash to buy bonds outright.”

      This is not correct at all.
      Jan 2, 2018
    • Microsoft / Other
      Excel merc

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      Sure is if you want a diversified muni or corporate portfolio. Treasuries not a problem tho.

      Jan 2, 2018
  • Gen!x / Eng
    XPbr65

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    Yields for T-Bills and Munis less than 5 years are below inflation.

    Have you considered this?
    Jan 1, 2018 2
    • LinkedIn unitedbun
      OP
      Good to know, and it look like it based on the interest rate charts. If they are for > 5 years, than stock market is a good option for long-term instead. For home downpayment, high-yield savings and CD seem to be the best options then.
      Jan 1, 2018
    • Gen!x / Eng
      XPbr65

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      Savings and CDs actually have lower interest rates than sub-5yr munis.

      You will still see an inflation-caused decay in your money.

      Blame the Federal Reserve for this...
      Jan 1, 2018
  • Google emxl11
    Quick note about a Roth. For a Roth IRA, the principal can be taken out penalty-free given the account has been open for 5 or more years. The $10k limit only applies to the growth.
    Jan 1, 2018 1
    • Amazon / Eng WocG38
      /me nods
      Jan 1, 2018
  • Intel ShiftRight
    It’s all going to be pretty close. I also concur that a 50/50 stock/bond AA is too risky for a down payment within a few years.
    Jan 1, 2018 0

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