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I have some US-based stocks in a company I recently liquidated. I would like to reinvest 50% of the proceeds into ETFs for eventual retirement, set aside 25% set aside for medium-term cash needs (house down payment), and 25% for capital gains tax.

Historically I have set aside some amount of money for Vanguard ETFs that are purchased automatically monthly so I'm very comfortable with those purchases.

Now, however, I have a larger amount than I typically invest monthly. What is a good relatively conservative way to:

  1. Handle the cash I want to retain for the down payment (say I will buy a house in 6 months) about this? 5% CD?
  2. Handle the cash I need to use for capital gains tax (say I need to pay this by April 15 next year, so 9 months) 5% CD?
  3. Handle the remaining sum for ETF investment? I thought about just splitting the sum over 12months and dollar-cost average the investment into Vanguard again.

Thanks!

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  • Since you already use Vanguard, check their "Cash Plus" account, currently paying 4.5%. Or let the money sit in the brokerage account sweep balance (make sure your sweep is VMFXX) which is yielding around 5%. (For the Cash Plus, you'll know of rate changes in advance, for the sweep money market, you don't find out the actual rate until just before the dividend is paid)
    – Ben Voigt
    Jul 21, 2023 at 18:47
  • Make sure you don't need to pay estimated taxes on your capital gains prior to April 15th. There are a number of rules, but if you might owe close to (or over) $1K in taxes due to it, definitely pay attention. Jul 22, 2023 at 0:18

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Handle the cash I want to retain for the down payment (say I will buy a house in 6 months) about this? 5% CD?

It makes sense to not risk the value of the money for the down payment. A CD is one possibility.

Handle the cash I need to use for capital gains tax (say I need to pay this by April 15 next year, so 9 months) 5% CD?

Having the money in an account that pays more than an nominal interest rate, yet you can get the money when you want to pay your taxes also makes sense.

Handle the remaining sum for ETF investment? I thought about just splitting the sum over 12months and dollar-cost average the investment into Vanguard again.

There is a big debate about dollar cost averaging when you have a large pile of money you need to get invested. Most of the models say there is no advantage to dollar cost averaging for the semi-experienced investor.

You appear to have experience investing, which means that the one thing that dollar cost averaging does is remove one fear from a new investor isn't a concern for you. DCA addresses the fear that they will invest at the worst possible time so they try and find the perfect moment, and keep the funds they were supposed to invest within a savings account.

One thing that I would consider is how confident I was in the capital gains tax I owe. Having funds remaining after paying your taxes, would be preferable to finding out the night the taxes were due that you need another $10,000.

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