Where is a safe place to park your cash for your down payment for your Irvine Home?

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PANDA_IHB

PANDA_IHB

New member
I currently have my down payment for my future Irvine Home in three different places. The one that i am concerned about the most is the cash i have sitting in Country Wide Bank Money Market account. I was getting 5.5% APY and now it is down to 3.75%. With current inflation I think i am losing money with 3.75% APY.



Does anybody have any recommendations of a better place to park your money from now until 2010 during these inflationary times? I know that some of you may suggest putting money in foreign curriencies, precious metals, or foreign stocks, but parking money there does not come without risk. I need this cash in a very safe place and i do not to gamble with it. At the same time I am losing money putting in a money market account in a U.S. bank as inflation is kicking in. Any money markets or CDs out there that is willing to pay more than 3.75%? Any place I can a guaranteed 10% return without any risk??



Panda
 
So your recommendation is to pull all of my cash out of Countrywide Bank Money Market Account and put it under my pillow? What a great idea... I never thought of that before!

Flmgrip, you're a genious.
 
Panda, if you're in a higher federal tax bracket (25% or more), look into Tax-free CA Municipal Bond. With Ca tax at 9.3%, tax-free bond allows you to avoid 34.3% or more in taxes. I am a novice with bonds but that was what my financial planner suggested for me to do. The current yield is 3.65% so it's the equivalent of getting above 5% in taxable fund.



I bought them through Vanguard who has the lowest expense. The name of the fund is VCAIX. If you buy over $100k, the name is VCADX. It has even lower expense. Good luck!
 
Reality is that every asset carries risk, even treasuries. IMO, price inflation is exceeding 5% so a 5% realized return after figuring tax savings on munis is an assured loss; you don't have risk, just a guaranteed loss.


But, more directly to your question, what asset class do you think will do best in the current to next five year economic climate?
 
Breaking even with inflation while the asset I want to buy is depreciating at annual 15% to 20% clip is a sound financial decision for me. There is too much down-side risk right now for Gold, Silver, Oil, Corn and/or the stock market. Panda and I have a short time horizon so it does not make sense for us to risk it IMO.
 
At the same time waiting2buylater,



If you bet on Gold from now to 2010 and the price of gold goes up to $2000/ounce. Your down payment has now doubled while the Irvine Real Estate price will drop another 20 - 40%. If we know that inflation is going to continue to rise, and our dollar $ continues to weaken in the coming years, it seems that Gold is sure bet.



I know this sounds crazy, but imagine if you have $200,000 in cash for your down payment for your Irvine home and you bet on Gold and it doubles from now until 2010. You've now got $400,000 for your down payment.



Currently, I have 50% of my liquid cash in the Money market account with Countrywide bank, the other 50% is in other liquid assets. I am not liking the fact that Countrywide bank gives me only 3.75% taxable APY, while the inflation is up 5%. I am actually losing money in this deal while it is 100% safe. I am tempted to move more of the 50% cash into other assets that i think would appreciate from now until 2010.



Awgee, would you say that there is a probability of 80% or higher that inflation will be higher than it is now, mortgage rates will be higher than it is now, as well as the dollar being much weaker than it is now in 2010?



Panda
 
[quote author="waiting2buylater" date=1213599467]Breaking even with inflation while the asset I want to buy is depreciating at annual 15% to 20% clip is a sound financial decision for me. There is too much down-side risk right now for Gold, Silver, Oil, Corn and/or the stock market. Panda and I have a short time horizon so it does not make sense for us to risk it IMO.</blockquote>


I agree. Whatever losses you lose by not maximizing your short turn returns IMO are far outshadowed by the potential of watching your investment tank.



Investment capital is investment capital. Working capital is working capital. Having too much working capital might be suboptimal use of capital, but it certainly isn't a fatal problem. I treat the 20% downpayment as working capital.
 
[quote author="PANDA DREAMING OF IRVINE" date=1213600658]



Awgee, would you say that there is a probability of 80% or higher that inflation will be higher than it is now, mortgage rates will be higher than it is now, as well as the dollar being much weaker than it is now in 2010?



Panda</blockquote>


Then your risk of ruin is only 20%. That's OK right?



If the fed cranks up interest rates to stop the speculators, gets inflation under control, and busts the gold bubble, that's OK right?



If you lose 5% a year in from inflation (with the intention of being liquid and moving into the market), expecting to buy an asset (at a future date) that is losing 20% you are getting a 15% a year return with minimal risk. It's unrealized, untaxed, but it's real reward.



What you are suggusting is the same as these speculators (banks, wall street, realtors, homeowners, knifecatchers, whoever) who rode the overvaluation train by getting cute and taking on too much risk.



It's my advice you keep your powder dry. Don't get too cute here. And absolutely don't get greedy. In my observation, you have 'itchy feet' and are looking for a home two park 200 dimes. I think prudence is the best line in this situation.



In the end, it's your money. Do what you want.
 
[quote author="no_vaseline" date=1213600833][quote author="waiting2buylater" date=1213599467]Breaking even with inflation while the asset I want to buy is depreciating at annual 15% to 20% clip is a sound financial decision for me. There is too much down-side risk right now for Gold, Silver, Oil, Corn and/or the stock market. Panda and I have a short time horizon so it does not make sense for us to risk it IMO.</blockquote>


I agree. Whatever losses you lose by not maximizing your short turn returns IMO are far outshadowed by the potential of watching your investment tank.



Investment capital is investment capital. Working capital is working capital. Having too much working capital might be suboptimal use of capital, but it certainly isn't a fatal problem. I treat the 20% downpayment as working capital.</blockquote>




This is what I think too.



I am also invested in VCAIX. 5.5% equivalent yield is nothing to sneeze at.
 
[quote author="no_vaseline" date=1213601562][quote author="PANDA DREAMING OF IRVINE" date=1213600658]



Awgee, would you say that there is a probability of 80% or higher that inflation will be higher than it is now, mortgage rates will be higher than it is now, as well as the dollar being much weaker than it is now in 2010?



Panda</blockquote>


Then your risk of ruin is only 20%. That's OK right?



If the fed cranks up interest rates to stop the speculators, gets inflation under control, and busts the gold bubble, that's OK right?



If you lose 5% a year in from inflation (with the intention of being liquid and moving into the market), expecting to buy an asset (at a future date) that is losing 20% you are getting a 15% a year return with minimal risk. It's unrealized, untaxed, but it's real reward.



What you are suggusting is the same as these speculators (banks, wall street, realtors, homeowners, knifecatchers, whoever) who rode the overvaluation train by getting cute and taking on too much risk.



It's my advice you keep your powder dry. Don't get too cute here. And absolutely don't get greedy. In my observation, you have 'itchy feet' and are looking for a home two park 200 dimes. I think prudence is the best line in this situation.



In the end, it's your money. Do what you want.</blockquote>


I wholeheartidly agree here. I'm getting "itchy trigger finger" waiting out here. And definitely realize my 5.5% CD and 3.5% money market are only keeping me from hemoraging lots of cash... a slow blood letting as it were. While my bottom line is increasing, my effective purchasing power is less and less each year. My only hope is that prices fall faster than my purchasing power....



Its up to you.

good luck

-bix
 
My down payment fund is sacred and will not be frittered away trying to hit a home run on some asset class. It's liquid and the Countrywide Savingslink account is about the best return you can get right now on a money market... Most places are paying in the 2% range.



Invest your investment capital, not your down payment.
 
panda, what do you predict your ability to pick an investment that is guaranteed to outperform in the next few yrs? on a scale from 0 to 100%.
 
[quote author="PANDA DREAMING OF IRVINE" date=1213600658]

Awgee, would you say that there is a probability of 80% or higher that inflation will be higher than it is now, mortgage rates will be higher than it is now, as well as the dollar being much weaker than it is now in 2010?



Panda</blockquote>


IMO, it is a 99.9% probablility.
 
[quote author="PANDA DREAMING OF IRVINE" date=1213600658]At the same time waiting2buylater,

I know this sounds crazy, but imagine if you have $200,000 in cash for your down payment for your Irvine home and you bet on Gold and it doubles from now until 2010. You've now got $400,000 for your down payment. </blockquote>


You forget who comes first, Uncle Sam is gonna want his capital gains tax on your $200K. So that $200K gain is more like $130K net.
 
Awgee,



Wouldn't the U.S. government do everything in its power to not let the mortgage rates go up to 10% - 12% by 2010. I mean real estate was this decade's economic driver, but could drive us into a serious recession. This would also really really hurt the home owners especially in Southern California. What is the extent that the government can intervene to lessen the bleeding? or is the real estate market in southern california completely hopeless.
 
I think the gmnt tried like hell to pump rates up from 2004 - remember those 17 rate hikes from the Fed?



Never stopped anybody. Mortgage interest rates actually fell!
 
[quote author="PANDA" date=1213670238]Wouldn't the U.S. government do everything in its power to not let the mortgage rates go up to 10% - 12% by 2010. I mean real estate was this decade's economic driver, but could drive us into a serious recession. </blockquote>


Bernake is looking down the barrel of what to do after Greenspan and Co. juiced the economy for years. Other's can disagree, but I think Bernake and gang are really trying to avoid catastrophe and not pain. There's a lot of pain coming, helicopter Ben is gunning for no Great Depression II.



In the end, it's simple, the US <strong>had</strong> a negative savings rate. That will end. People like today's blog entry will have to live within their means. The US government also spent $500,000,000,000.00 a year more than they took. One way or another, that will end. Either through massive inflation, massive taxes or masses spending cuts. (Granted bringing the troops home will help, a lot.)



The banks, investment houses and major investors (i.e. Government unions) are going to eat hundreds of billions in losses.



Oil will be $150+ a barrel. Gas will be $6 a gallon. Beef will be $6/pound, for hamburger. Get over it.



Frankly, life as a suburban American, IMHO, is about to have a very fundamental shift. But maybe I'm wrong, my algae oil will save us and next generation hybrid Hummers will get 100 MPG. But I kind of doubt it. I think the pain will be too great to endure long enough for those technological advances to allow us to continue the pathology of conspicious consumption.



As others are saying, a bird in hand ...
 
[quote author="PANDA" date=1213670238]Awgee,



Wouldn't the U.S. government do everything in its power to not let the mortgage rates go up to 10% - 12% by 2010. I mean real estate was this decade's economic driver, but could drive us into a serious recession. This would also really really hurt the home owners especially in Southern California. What is the extent that the government can intervene to lessen the bleeding? or is the real estate market in southern california completely hopeless.</blockquote>


What power does the US government have to keep mortgage rates from going above 10%?
 
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