Resident windfall

[hankbb02]

Hi all,

I am new to the forum and excited to be here! Here is my situation. I am finishing residency this year at 34 years old. There is a 1 year fellowship on the horizon before I make a real salary. I'm selling the house I bought three years ago and stand to clear around 200k. My wife and I have no debt thanks to some military service which I have already completed. We have 125K in retirement investments (100ish in tax protected, 25k in taxable). There are no 401k options currently available to us although my wife can open an individual 401K as she owns her own business. She is not making much now but her income is picking up. We are maxing out our roth contributions each year.

What should I do with the money? My thought is to dedicate 100k for a down payment on a house in a 2-5 year time frame and invest the other 100k in the taxable account. With market valuations where they are I am hesitant to invest it as a lump sum and will probably want to DCA a good chunk of it. Any ideas with what to do with the 100k needed in 2-5 years other than sticking it in a savings account? Thanks!

-Hank

[Hatton]

The down payment money you need to keep in an online savings account, mmf, or short CDs. The other at 31 100% index fund at vanguard or schawb. (You could do 80/20 or 90/10 if you can't sleep at night.). You are young and can outlast even a bear.

[ENT Doc]

First, congrats on not having any debt and thank you for your service.  You are in a better position than most exiting residency.  The down payment issue really depends on where you plan to be and what the expected purchase price will be for a home there.  Also, there is a big difference between 2 and 5 years.  If I absolutely knew that the 100k would cover 20% down and I were buying in 2 years I would put it in an account as hatton has suggested.  However, there are options available to you that might not require so much of a down payment or PMI - doc loans, VA loan come to mind - that might allow you to invest that money now and just use the first few years of attending money that you squirrel away to use as a down payment.  Things change a bit if we're talking 5 years.  I don't know that I'd be willing to give up on 5 years of investing for a down payment, especially when you are about to start making more money soon and have other options for payment available.  DCA is a reasonable option if you're more skiddish about the market, but just realize that statistically it's a better payoff to invest it lump sum.  Best of luck to you!

[jfoxcpacfp]

From the bottom of my heart, thank you for your service. I am grateful for anyone who is willing to give up a part of his/her life to serve this country on my behalf.

If you don't need the money for at least 5 years, it needs to be invested in a well-diversified equity ETF index portfolio. You should not DCA. The market is up 7 out of 10 days. The only time to DCA is when you are forced to (i.e. your work retirement plan, monthly savings, etc.)

You need to get serious and put together a better plan for when you are going to buy the next house. 2 years? Keep the $ liquid and safe. 5 years? Leaning toward investing, particularly since it appears you are flexible and could wait if the market was in a recovery period. Also, as ENT Doc mentioned, you have other options.

[hankbb02]

Thanks for the thoughtful response. I really don't know when the house buying may happen as I hear that most people don't stay with their first job wherever it may be. I can see why now it doesn't make a lot of sense to keep a big chunk not invested just in case we decide to buy again

[hankbb02]

Thanks for the help in perspective! There is definitely a big difference between 2 and 5 years and I can expect a decent salary when I finish fellowship. So I should be able to come up with a down payment pretty quickly once I know I'm settled in. It would a shame to leave that money sitting in a low paying CD or savings account for several years unnecessarily.

[pulmdoc]

First of all, congratulations on being debt free, it makes a huge difference in your financial options. Second, depending on the details of your military service (90 days active duty in war, 181 days in peace, or 6 years National Guard/reserves, honorable discharge or still active) you may qualify for a VA home loan. Most VA loans do not require a down payment and still has competitive interest rates, so if you qualify you can be much more aggressive with your nest egg if you are comfortable with taking the risk.

As has been discussed elsewhere in the forum, I highly recommend waiting 1-2 years into your first attending job before buying a house. Even if you are taking a job where you did residency/fellowship, you don't know for sure that the attending job will be a good fit or a fair situation.