Where to put profit from sale of home   

I have a very good friend who bought a house as a single man, got married, and is now selling it.  I told him this would happen since no woman will ever start a new life with in a house other women have slept in.  But I digress...  They're going to move back into the city together until they decide to have kids, which could be anywhere from 1-2 years off. 

My advice to him was to put away the profit from the sale of the house and NOT spend it on decorating their new loft.  He agrees, especially since he knows he'll need it as a down payment on the next house.

So what should he do with it?  It can't go into anything long term.  He may need it in 12-24 months.  And he'd like to avoid paying taxes on the income while maybe even making a few points.  Is he dreaming?

Thanks in advance!

It'll be hard for your friend not to pay taxes on that income.  As far as I'm concerned, there's too much volatility and uncertainty in the stock market to feel safe with that money.  Since he knows he needs that money in 12-24 months...maybe diversifiying by buying 3 month or 6 month CD's and then put the rest in a money market would be a good idea.

I really haven't seen the rates as of late, however, CD"s are FDIC insured and Money Market funds ARE NOT FDIC insured.  However, money market fund are in very safe securities such as government bonds, certificates of deposit, etc. Both are pretty much the safest way to store cash in my mind, earn a little income and be able to sleep comfortable at night.  But as always one should consult his or her financial advisor before making any investment decision this imporntant. 

He doesn't have a financial advisor.  If he did, he wouldn't be asking me.  ;)

I'll certainly pass along your advice though.  Thanks.

Hello forthefew,

If he needs access to the funds in 1-2 years and would like to avoid paying taxes on the income, one option would be a very short-term high quality individual municipal bond from his home state that matures during that timeframe or shorter.   A similar term CD would be another good option although he would most likely have to pay taxes on that interest income.   Depending on his tax bracket, one or the other might make the most sense, he would just need to compare the 2 scenarios.  I would agree that he should talk to an advisor, even if it is only to compare bank CD/money market/bond rates and terms that are available.  

And, I agree with you - saving the proceeds would be a smart thing to do.

Please don't give advice if you don't know, just make suggestions, e.g., income from the sale of your personal residence is non-taxable up to a limit, see what your limit is.  Money market accounts are FDIC insured if it is held in a passbook savings account, check with your bank.