The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Panfish on March 01, 2016, 08:32:54 AM
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I have been mulling over whether or not to invest my future down payment. My wife is in graduate school getting her PhD and I work as (kind of) an engineer, combined we make approximately $100,000/year depending on my bonus. I max out my HSA and nearly max out my 401k (my bonus can vary widely and I get it right at the end of the year so I want to make sure I don't over contribute resulting in a loss of my employer 6% match). We currently rent and my issue is that I don't want to buy a house unless I plan to be in it for a minimum of 5 years and we may or may not have to bounce around for ~10 years until my wife is settled in the career she wants. At this point I would probably retire because we don't need to be making ~$200,000 a year. In my certain circumstance would it make sense to just invest the roughly $2,000 monthly surplus after expenses and tax advantaged accounts into a taxable vanguard index fund? I suppose a Roth IRA would work but do I have to wait for 5 years to access my principle as we may be in a position to buy in 3.5 years? Any advice would be much appreciated.
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This is a common question, and the search function might bring up some more threads on the subject.
In brief:
If you think you WILL need that money in <3 years I would certainly suggest you put it into a secure savings account
If you think you WILL need that money in 3-5 years it's a personal call
If you think you won't need that money for >5 years it should be in the market.
given that you say you "may bounce around for ~10 years [before buying a home]" I'd strongly recommend investing everything in the market right now.
You'll notice that I put "WILL" all in capitol letters. That's because how certain you are that you will need this money for a downpayment has a lot to do with where you put it. If you have flexibility and aren't dead-set on buying a home in x years, then you can choose to put the money in the market and let that help dictate whether or not to buy a house in several years. If you go this route and the market drops, you can decide to keep renting for a few more years until you can save more for the down payment.
Regardless, with $2,000/mo surplus you could at any time start piling money into a savings account and rapidly have a large downpayment. You should do this whenever purchasing a home goes from "sometime years down the road" to "possibly in the next 1-3 years". If you later decide against it - no worries, just take all that accumulated cash and invest it into the market.
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Great answer, thank you so much.
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I suppose a Roth IRA would work but do I have to wait for 5 years to access my principle as we may be in a position to buy in 3.5 years? Any advice would be much appreciated.
If you're eligible for the Roth, fill it up. There's no waiting period to withdrawal contributions. You can deposit today and withdrawal tomorrow penalty free. The 5 year wait applies to conversions only.