Author Topic: Saving for home Loan, where to invest?  (Read 302 times)

Dyna$ty

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Saving for home Loan, where to invest?
« on: January 09, 2019, 02:50:02 AM »
Hi,

Working on saving for my First home.
Goal: $100,000
Saved so far: $12000
I would like some ideas as to where can I invest those $12000 (Plus $2000 every month) to reach my goal quicker?

Thank you

P.S: I am a total noob at investing. Currently reading the Barefoot investor to learn about financial planning.

COEE

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Re: Saving for home Loan, where to invest?
« Reply #1 on: January 09, 2019, 08:20:43 AM »
It all depends on your risk tolerance.

If you want to go more risky, I'd do this:
In your situation, since you're looking at just at a little longer than a 2 year timeline (3 years and 8 months), I might consider starting with a more conservative stock/bond approach.  Warning: This approach can lose principal value, but can also help accelerate growth as well.  There is risk involved.

Perhaps start with the following until you've reached 40%-50% of your goal
30% US Stock Index fund
70% Short-term bonds

Then do this until you're at 50-60% of your goal
15% US Stock Index fund
85% Short-term bonds

Then you're within 2 years of your goal and I'd buy something like the following:
100% US 1year Tbills or a CD.

Then I'd look at my very short term options in the link below to give me some flexibility in when I use the money.

Write down your plan before you execute it so you don't do something stupid (selling low) if stocks take a downturn.

Or if you're looking for the more conservative approach:
Here is a post I made specifically to address your safer options.  With you're little bit longer timeline than 2 years, I'd also look at short-term Bonds as an option (realizing they can also lose value if not held to duration (usually 2 years or so)).  They are discussed more down-thread in the linked topic.

Of course, all of the numbers are suggestions only, and you can fill them in however you'd like.

Good luck on your goal!  I'm sure you'll achieve it!  Buying your first house is always a special time!

RWD

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Re: Saving for home Loan, where to invest?
« Reply #2 on: January 09, 2019, 08:23:23 AM »
Assuming that is planned for a 20% down payment, $500k is a lot for a first house.

Anyway, you're on track to meet your goal in 44 months with stuffing the money under your mattress. If you put it in a savings account (e.g. Ally) you could earn 2% per year you can get that down to 42 months. If you use a CD (2.70-2.75%) that comes down to 41.5 months. These are the general recommendations for money that you have earmarked for a relatively near-term expense.

You may earn more in the stock market but you can't guarantee a preservation of capital. On average an SP500 index fund will get you there in about 37 months.

Some recommended reading:
https://www.bogleheads.org/wiki/Getting_started
https://jlcollinsnh.com/stock-series/

radram

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Re: Saving for home Loan, where to invest?
« Reply #3 on: January 09, 2019, 08:30:29 AM »
It all depends on time-frame.

For me, I would not put any money I want to spend within 5 years into the market, unless I am willing to delay the spend if the market tanks.
For most people, they are not willing to risk that delayed purchase for a home.

An online bank savings or money market is where I would put it. 2.25% is available as I look today.

Something else to consider:
What are you paying in rent? Is it possible that a quicker purchase could net a better financial picture for you?

Car Jack

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Re: Saving for home Loan, where to invest?
« Reply #4 on: January 09, 2019, 08:31:53 AM »
5 years or less?

CD
HYSA
US Savings Bonds

That's it.

bw_94

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Re: Saving for home Loan, where to invest?
« Reply #5 on: January 09, 2019, 08:34:58 AM »
I am currently saving my cash with HSBC, getting a little over 2%. Or a bond fund or money market would be a good place.

EvenSteven

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Re: Saving for home Loan, where to invest?
« Reply #6 on: January 09, 2019, 10:42:23 AM »
Good advice so far, but it also depends on the consequences of the risk. What happens if over the next 4 years you see a -2% return?

I was in a similar situation as you a couple years ago and decided on a 40% equity/ 60% bond allocation for my house downpayment fund (which I would consider aggressive for a short time frame like ~3 years). The consequences of poor performance isn't me eating cat food, it's me waiting a few extra months before buying a house. No big deal.