OK, I'm pretty good with financial matters, but I made a small mistake. Before going to law school last year, I sold my house and put the money into stock index funds at Vanguard. When I did that, I thought it'd be at least 3 years before I needed the money. Now, however, we're thinking of buying a house and may need it much sooner. So I need to transfer the money into less volatile investments.
What's the best way to do that? Do you pick a day and hope the market doesn't decide to nose-dive between the time you place the order and the time the funds transfer? Or do you use a kind of dollar cost averaging to protect against aberrant one-day swings?
Second, what kind of account is best to use for this? Short term bonds or straight money market? The yield on money markets is horrible now, but if rates rise even short term bonds will take a hit.
Thanks in advance.
Dagonee
Posted by pooka (Member # 5003) on :
How did you go about shielding from Capital Gains? Or was that not an issue this year? If you buy a house within two years (at least this is how it was in the early 90's) Capital Gains aren't due on the proceeds from the sale (assuming this is your primary residence).
Posted by Jacare Sorridente (Member # 1906) on :
Don't most mutual funds function exactly like any other stock sale? The ones I am familiar with do and if yours does as well then keep an eye on the stock for a few days and when you feel like you want to sell put in a limit sale. What that does is basically your sell occurs once the stock reaches the value you enter and you sell for that value. This protects you from fluctuations between the time you submit the order and when it executes.
Posted by jeniwren (Member # 2002) on :
Dag, my advice: call Vanguard and ask them the same question. We have several accounts with them, and every time I've had a question, they have been absolutely fabulous.
Posted by Dagonee (Member # 5818) on :
pooka: That's the old rule. The new rule is that a person who sells a house which has been the primary residence for 2 of the last 5 years is exempt from tax on the first $250,000 of the capital gains. Each spouse can use the exemption, so couples can exempt $500,000. (Actually, it doesn't depend on being married, you just have to be on the deed and live there for 2 of the 5 years.
Jacare: No, you have to have your order in by 2:00, and the sales price is based on the state of the market at 4:00. No limit orders allowed.
jeniwren: That's what I guess I'll end up doing.
I've found lots of advice on what the asset allocation in a portfolio should be based on when you need the money, but not how to move funds around to achieve that allocation initially.