The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: lbonga1 on March 10, 2017, 09:32:39 PM
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I understand that investing a down payment is not typical. Would it make sense to invest if the purchase is going to be on a longer timeline, possibly 6-8 years from now? I am considering a mix of 60% stocks/40% bonds, such as the Vanguard LifeStrategy Moderate Growth Fund. Thanks in advance for any advice.
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It makes perfect sense to do that, as long as you don't mind waiting an indeterminate amount of time for the market to recover when you otherwise would by buying...
And why put it into the life strategy fund and pay higher fees when you could just split it into a total stock and a total bond fund yourself?
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Mostly because of the minimums when starting out ($3k per fund), as opposed to just $3k for the LifeStrategy fund. But it seems the fees are the same, at least compared to the investor shares. The LifeStrategy fund has a 0.14% expense ratio.
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Ok, that's not bad.
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I understand that investing a down payment is not typical. Would it make sense to invest if the purchase is going to be on a longer timeline, possibly 6-8 years from now? I am considering a mix of 60% stocks/40% bonds, such as the Vanguard LifeStrategy Moderate Growth Fund. Thanks in advance for any advice.
I would not hold onto cash for a house I was planning to buy in 6-8 years. I would invest it. I am not rich enough not to have all my money working for me. Most likely it will be worth far more when I go to buy the house than it was when I put it in. In the less likely scenario of a market crash around the time I want to buy the house I may well still have more value in the investment account than I put in irregardless of the momentary loss in value so I could still pull it out and buy the house. I might also decide to just wait until the markets recover to benefit from the high value of the investments once recovered.
That small, but real potential risk is well worth the far more likely doubling of my initial investment. Although buying a house exactly when I want to would be nice I'd far rather have to be flexible on that by a few years and have twice as much money to buy the house with.
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I understand that investing a down payment is not typical. Would it make sense to invest if the purchase is going to be on a longer timeline, possibly 6-8 years from now? I am considering a mix of 60% stocks/40% bonds, such as the Vanguard LifeStrategy Moderate Growth Fund. Thanks in advance for any advice.
I would not hold onto cash for a house I was planning to buy in 6-8 years. I would invest it. I am not rich enough not to have all my money working for me. Most likely it will be worth far more when I go to buy the house than it was when I put it in. In the less likely scenario of a market crash around the time I want to buy the house I may well still have more value in the investment account than I put in irregardless of the momentary loss in value so I could still pull it out and buy the house. I might also decide to just wait until the markets recover to benefit from the high value of the investments once recovered.
That small, but real potential risk is well worth the far more likely doubling of my initial investment. Although buying a house exactly when I want to would be nice I'd far rather have to be flexible on that by a few years and have twice as much money to buy the house with.
I would think in a market crash a few things could happen as well. You could have a stock crash, without housing prices going down. In this case you wait a bit longer (year or two).
You could have a HOUSING price crash due to over building, in which case, you are going to get a sick deal.
I am a gambling man myself, but I would just do 100% stocks are remain at least a little flexible.
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I did this. I started putting money in Vanguard Wellesley Income Fund Investor Shares (VWINX) (40% stocks, 60% bond .22% expense ration) in a taxable account 6 years ago when I decided to start saving for a downpayment. Then I moved it to Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) to reduce the amount of tax that I was paying on dividends. The expense ratio is 0.11%, it is 50% bonds, 50% stocks, and the bonds are invested in tax-free municipal bonds.
I'm still not sure when I'll buy a house. At the earliest, it will be one year from now but most likely it will be another 2 to 3 years away. In the meantime, I'm really glad I chose to invest my downpayment because it has grown at a 7.3% rate of return, which is magnitudes more than if it had stayed in a savings account.
I can't say that this is the best choice of funds but it is the one(s) that I felt comfortable with. Looking back, I didn't realize that it would take me so long to buy a house. The decision was more for personal reasons, not financial. If I had known that it would take me 7 to 9 years to buy a house, I might have chosen a slightly more aggressive allocation. However, I don't have any serious regrets.
Better to invest now and tweak your fund choice later than to sit around trying to choose the best fund. It won't matter that much if you choose to change funds 3 or 4 months from now.
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When we sold one home, and moved, we rented in the new location for 3 years, as we wanted to learn about the new location better before buying.
During that time, we invested our "house money" to keep up with inflation (prices were rising rapidly at that time, we did not want to fall behind).
The years? 2006-2009.
Next time, I would just stick any money I need to get a hold of within 3 years into a fixed income fund.
Just say'n.