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?
TOP 14 Comments
- Amazon / Eng WocG38Roth IRA. You can pull out downpayment for buying your residence without penalty. Growth is tax deferred and you can manage the investments yourself.
- 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.
- 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?
- 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.
- Yields for T-Bills and Munis less than 5 years are below inflation.
Have you considered this?
- Google emxl11Quick 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.