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Q&A: Where to Put Money for Building a House?

Maintain money in a diversified portfolio

Question: Where do you recommend putting money that I plan to use to build a house in five years so that it makes a lot of money and taxes are held to a minimum? Currently, that money is in the bank.

Ric: Five years is a long time. Therefore I’d maintain the money in a diversified portfolio. When you are two to three years from using it, I’d move it to a money market fund.

But please calculate carefully the actual time of usage. Buying a home for, say, $300,000, does not require $300,000. It requires only 20% as a down payment plus another 10% to 30% for moving-related expenses. Thus, you might be able to leave much of your money fully invested since it will not be needed.

Finally, please note that your goals are inconsistent: You can’t earn high returns and also avoid taxes. Instead, focus on a strategy that is designed to produce effective returns net of costs and taxes. If you don’t know how to do this, call us. We can help.

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