Author Topic: Most effective way to save for shorter term savings goals at market peak?  (Read 1639 times)

maya_mustache

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Hi Everyone,

I'm new here and would love some advice from this community! I'm currently in my mid twenties and would love to buy my first home with as low of a mortgage as possible within 5 years, whether it be duplex, tiny house, or single family I'm still not sure, but a big purchase is on the horizon hopefully sooner rather than later, and I want to give myself lots of time to make sure the numbers work and wait for a good deal.

I understand that I should not try to time the market, and continue to invest periodically into a total market index fund, which I have been doing for awhile now! However, I have been hesitant to go all in knowing in the next few years I will need the money for a down payment, currently my portfolio is sitting about 50 percent in high yield savings account and 50 percent in VTSAX (not including my 401k). This probably seems extra conservative to most of you but I'm relatively new to this and still trying to determine the best strategy for me, which is why I'm here! I will definitely continue to contribute as much as possible to my Vanguard account and 401k for my long term goals. However, knowing the stock market is likely near the top right now and I will need the cash in under 5 years (plus I like to have my emergency fund of 6 months living expenses on top of that) what portion of my savings should go to cash vs investments? Is my 50/50 split too ridiculous? Should I put 25% of my cash into a total bond index or another more conservative route where it could grow without the risk? Should I just not worry about being at the top of the market and dump some more into VTSAX?

I am hesitant to part with my beloved cash cushion but I know it could be doing more work for me than it currently is! I just don't want to get into a situation where in 5 years when I want some of my money for a down payment, it will be the worst time to take it out and I put my house on hold while I wait for the recovery. I want to be buying at the lows not selling! :)

I really appreciate any advice you all might have for me! thank you!

ixtap

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Oh, the top is in?

You need an IPS. Sit down and identity your goals, your target allocations, and the purpose of your funds. Follow this independent of the tickers. Ignoring the market, decide how much cash to hold, how to hold it, and what to do with short term funds. And you need to take your whole portfolio into account, including the 401k.

If you are currently 50/50 just because you are confused, you need to educate yourself. If you are 50/50 because you have analyzed a number of strategies, determined that you pretty much have enough and your main goal is to keep pace with inflation, etc, then write that down. Are you going to rebalance at 45/55 or 40/69 or...?

If you expect 5 years out, what mid term products might be available for you? Right now, 5 year CDs are better than high yield savings, for example.

Rob_bob

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5 year money for a down payment needs to be in CD's, longer term will have the best rate.  Emergency funds in cash/CD's too, and don't have a bigger emergency fund than you really need.

Long term retirement money at your age should be in equities.  Keep adding regularly, don't read financial porn, be glad when there comes a big market correction because your continued contributions will be buying more shares.  Don't invest like a 60 year old  :)
« Last Edit: January 22, 2018, 04:27:07 PM by Rob_bob »

maya_mustache

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Thanks for the feedback!

Laura33

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100% of the money you need within the next few years should be in cash ó money markets, bank accounts, etc. ó whether the market is at the peak, in a trough, or anywhere in-between.

100% of the money you are putting aside for long-term savings should be invested in some manner, consistent with your risk tolerance and overall investment strategy. 

Donít conflate these two things and you will do fine.  The market is for long-term investments, not short-term safety.

JJ-

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We started saving for a house about 2 years ago to buy something at that 4-5 year mark and it kind of drive me up the wall to shift from putting everything into the market for that lovely 7% promised return over the long haul versus a measly 1% in savings. Here we are 2 years later and I don't even care what the market is doing or what the interest rate on the savings account is. I just take comfort in the "plan," so your view may change once you decide.

If market rate in rent really favors buying, I'd say 100% savings after match etc. If it's not strong or you are not on a hard deadline to buy --which it sounds like you're not -- I don't see a problem with investing 100% into the market at your normal allocation as long as you know you may need to delay that purchase timeline to 7-10 years.