Hi everyone, I am accumulating roughly $40k for a down payment on a house, which I figure will happen in four to five years. I make monthly contributions to this account totaling roughly $2k, which is presently kept in Fidelity MM in SPAXX. In order to continue earning 4-5% income, I want to invest this money in a low-risk choice. Am I looking at any options? During this time, I won’t need to access this money because I already have an eight-month emergency reserve. How should I proceed?
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For the time being, it can be invested in TFLO, which pays that yield on highly liquid Treasury bonds.
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Is the rate locked? Apologies if this is a basic question, I am not very familiar with investing.
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No, but there will be a small delay so you can adjust when the rates really do go down.
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Thanks for the info. Why would you not recommend putting it in a CD to lock in a 4-5% rate for 1-2 years?
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CDs are too restrictive and have less yield. Some are callable too.
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So what would you suggest?
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A Treasury ETF with a duration of one to three months is called SGOV. Purchase bonds at any term in the primary or secondary market to lock in rates for a longer period of time. But realize that everything is priced for a purpose, and the market is more knowledgeable about rate reductions than you are.
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Okay, I appreciate the suggestion. I would like to know why, if I won’t need or utilize this money for three to five years, I would want to lock in for less time than three months.
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You are spending a few bps overanalyzing it. Since you are already there, SGOV also known as SPAXX is simple to use and primarily state tax free. It is also quite fluid.
Since everyone believes that cutbacks are imminent, you have already wasted the opportunity to lock in a higher rate for a longer period of time.
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How? SPAXX’s yield is still around 5% and CD rates for 1 year on Fidelity are around 4.5%