Where should I invest the home downpayment money I need in 5 years time?

[kamred]

Dear Mustachian,

I am saving $2K every month towards downpayment for a future home in 5 years time. I am wondering how I should invest the money so that it doesn't just sit idle in my bank [right now in a Ally Bank with 1% interest] but will be accessible in 5 years time.

Any thoughts would be much appreciated.

--KamRed

[Ocinfo]

Investment returns are highly correlated with amount of risk. Money in a savings account is effectively zero risk so return is low. Since you have a 5 year period, some CDs might be worth looking at but again return is low. Next up are various bonds but again return is pretty low. Beyond these, there isn't really a low risk option. Since you have 5 years (low range of when stocks make sense), you might consider putting money into stocks (total market ETF) for the next 2 years, slowly transition into bonds and then to cash as you get within 1-2 years of purchase. This assumes that you are willing to be flexible when it comes time to buy. Your investments might go up and you can buy on 3 years or go down and it'll be 7 years (or you buy less house). If you're not flexible then stick to cash, CDs, and some bonds.


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[brooklynmoney]

I was saving for an apt. for like 10 years, it was all invested in the market (no bonds!). I finally decided I was going to buy, in September 2008. Got cold feet when the SHTF. And continued hitting the fan. IMHO 5 years is NOT enough time to put it in the mkt. Even 10 years is tough, as my own experience shows.