Invest Or Save For A House?

[Svoboda]

Hi all just a quick question on my situation. Is it a bad idea to pile your money into index funds if you're planning on buying a house in say 8 -10 years and withdrawing the money when ready. Or is this not the best idea as index funds are more of long term investment strategy. Looking to make my money work for me instead of just sitting in a bank account. Any help is appreciated for a first home buyer. Thanks!

[webguy]

Is it going to take you 8-10 years to save up for a house? If so, are you buying it all in cash or just putting 20% down for a mortgage? If the latter, then if it takes you 10 years to save 20% then you can't really afford that house. If the former, then I would save enough till you have 20% down and invest the rest.

If you can save the 20% in 1-2 years then just invest for 6-8 years and then save up for the 20% in cash for 1-2 years.

[Svoboda]

Thanks for the response I should have made the situation more clear, I intend to buy with a 20% down payment but don't intend to take 8 - 10 years to get there. I guess I was asking if it was a wise idea to tie the house deposit savings up in investments now, but 8 - 10 years is a long time and your answer of investing now and saving for a few years later answers it!

[Retire-Canada]

I would invest the money. Your worst case scenario is that in say 10 years when you want the money to buy a house the market crashes at the same time and your investments are worth less than their max paper value. You probably still have more in the account than you put in over that long a period of returns so you likely didn't "lose" anything. You could take the money out and buy a house or you could wait a few years until the market recovered and but then.

Personally I am not rich enough to let 20% of a home deposit sit around for years getting eaten up by inflation to avoid the small risk of that ^^^ scenario.

[YttriumNitrate]

If the market crashes and you are willing to forgo buying a house for a couple of years, then yes, absolutely invest. If there is a date by which you absolutely positively must own a house, then no, keep your money money safe.   

[ChpBstrd]

The historical odds of the market being lower in 8-10 years than it is today are very low. That's all you need to know. Others on this board have calculated the odds, but I don't have them on hand.

If you need a supplemental argument:
In a Great Depression scenario where markets were lower in that timeframe, the 20% downpayment would also be a lot lower.

I'd worry less about externalities and more about areas of control. E.g. how to raise earnings so the down payment is easy to save? move to a LCOL area instead of buying coastal property? Downsize expectations of a house? Buy REITs until they pay the rent for you? Ask whether you really need the risks and hassles of home ownership and being geographically locked down?