reported by Dr. Don of BankRate.com
Dear Dr. Don,
I sold my house and am walking away with $31,000 profit on Tuesday. I am planning on buying a house, but not until May. How do I make the most on my return over these few short months — stocks, money market, short-term CD? I’m confused.
– Jon Jumble
Dear Jon,
Match the life of the investment with the planning horizon. If you expect to need the money in May, don’t invest in stocks. Invest instead in a money market mutual fund, money market account or short-term CD.
You shouldn’t be looking to hit a home run with a three-month investment, so don’t swing for the fences by buying stocks. Depending on your tax bracket and your state of residence, it may make more sense to invest in a tax-exempt municipal money market fund than a taxable money market account or CD. You can compare all of these investments on Bankrate.
This CCH calculator will estimate your tax equivalent yield on a tax-free investment so you can compare your choices, but you have to know your state laws on tax exemption and the structure of the tax-exempt investment.
If you don’t expect that you’ll need to put all of this money into the new house, then you can consider other investment alternatives for the balance. Funding an IRA account, for example, might make sense for part of the money. Still, it makes sense to wait and see how much of the money you’ll need before committing any part of the funds to longer term investments