Stocks or stay liquid?

Question

I've been saving up cash for a down payment whenever I can find a good deal but it bothers me to see the money just sitting there and not being put to work making more money. Normally I'm investing as much as I can after each paycheck into stocks and with the market being down it looks like a good time to buy in on some reliable stocks that pay dividends. If I invest the cash I have saved up in stocks and then find a deal I'd be breaking one of my main rules which is once money goes into my stock portfolio the money is untouchable and only the income generated from it via dividends is allowed to be taken out. (Normally even that is reinvested through DRIP programs and such). What would you do? Do I invest it and then break my rule to pull it back out when I find a deal or just keep letting it build up as I continue my search for my first house hack/investment rental property?

Watson Hilaire · Answer

@Randy Bloch nailed it. Any money you place in stocks should be considered to have at least a 5 year time horizon. (hint: I am a value investor/ buy and hold). Look at the correction the stock market had over the last two weeks. You don't want to find your house hack property only to find your down payment you placed in stocks is down 15%. Charlie Munger has said what has made him and Warren so successful is their ability to sit on money when others felt the need to act. So leave your down payment in your saving account. When you find that house hack, it will more than make up for lost dividends you would have received in the stocks market.

Matthew McNeil · Answer

@Elliot Marszalek  I don't think its a matter of breaking any "rule" as you wrote.  Rather, the way you've framed your question shows that you carefully consider how to manage your money as a wise steward.  My suggestion (based on what I do in a similar situation) is to either park it in a low risk stock fund then pull it out when I need it, or deposit it in an online savings bank offering 2%+ such as Ally Bank or Synchrony Bank.

Randy Bloch · Answer

I think you should hold to your rules as they make a lot sense.  You don’t want to find a real estate investment when the stock market is in a middle of a correction and the lose 10-20% of principal because of timing.  I have had the same struggle holding a lot of cash in the past, but I have gotten more comfortable with it over time.  Also, as my RE portfolio had gotten bigger I have decided that holding at least 10% of my net worth in a liquid money market fund makes sense.  Allows me to take advantage of RE deal or stock market correction when they happen or any emergencies that pop up.  Also, with MOney market returns @2.25% I don’t feel as bad when they were zero.

@Mathew McNeil - I’m interested in what u consider to be a low risk stock fund?

Stephen J Davis · Answer

I would focus on getting your real estate and not put the money in the stock market. What is your investment strategy? Flip or buy and hold for cash flow?

Stephen J Davis · Answer

@Elliot Marszalek That is a great idea and I have seen many people do that. I prefer a 4 plex so that the other 3 units pay all the bills and you pay nothing. Then switch to single-family houses. As a rule with exceptions, they are easier to rent and liquidate. Good luck.

Elliot Marszalek · Answer

Thanks for all the responses. I think I'll do a combination of all the suggestions.@Stephen J Davis Currently I'm looking for a multifamily that I can house hack and either live for free or ideally get some cash flow while I'm there. Once I've got everything in check as far as renovations, reducing expenses, and raising rents I'd like to find a single family home to live in flip while renting out the unit in the multifamily I had been living in as well. @Matthew McNeil 2% is much better than 0% so I'll definitely look into those banks. @Randy Bloch That's a great point. Previously I've put away enough cash to last 6 months worth of bills just in case I'd ever lose my job or decide to quit and find a new job so I wouldn't have to worry while I was in between jobs. Having another portion of cash in reserve for when a good opportunity arises sounds great.@Watson Hilaire My plans are to be mostly buy and hold with real estate and stocks but I always look for stocks that pay a dividend so I can get cashflow while they grow long term. I'm currently at at 83% stocks held being dividend producers and the rest were speculative buys when I first got into stocks that I haven't decided to sell off yet. You make a great point about the stock possibly dropping and then taking a loss before I take the money back out for a down payment and I appreciate that input.

Matthew McNeil · Answer

Hi Randy. I was in a hurry when I typed my response above.  By “low risk” stock fund I meant 50/50 stock/bonds split or something even more conservative like a 30/70 split.

Stocks or stay liquid?

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