Hi @A11! Good to talk to you again.
This is a tough one. Was this an Achievable question, or from another source?
Cash needed for short term obligations (e.g. buying a house in 6 months) needs to be kept in safe investments. A money market is a debt security set to mature in 1 year or less. Money market funds tend to be a good place to park money, especially if it must be used for something important soon (like buying a house). The investor doesn’t want to expose themselves to risky investments, as significant short term losses might lead to them losing out on the house. The market can take a turn for the worse quickly - March 2020 is a good example of that.
Both answers are incredibly close. However, I would side with you, as answer choice #2 is basically 100% money market (T-bills are money market securities). Unless it’s clear the investor has some “wiggle room” with the house proceeds, they should keep close to 100% in very safe investments. With that being said, let’s assume the question states the couple sells their house and clears $400,000. Additionally, they plan on spending $300,000 for the down payment on the new house. The argument could certainly be made for answer choice (1) given the $100,000 “wiggle room.” Even if the market fell and significantly impacted the equity position, it wouldn’t have a huge impact on the overall portfolio (given it’s only 10%). However, I don’t get the sense this was in the question.
Bottom line - I agree with you and am not sure why a recommendation into 10% equity is being made.