Saving for downpayment in Germany

[Geldbart]

Dear Mustachians!

Since I have not found an article on the topic I hope your combined wisdom will get me started on the right track on my way to FI. In getting there my spouse and I are planning to buy our own home in the next 2-3 years and are now saving for a 20% downpayment for a mortgage. This means we need about 60000-70000 Euros cash by the time we buy our home.

At the moment I have about 10000 Euros in a savings account at 1% p.a. but a healthy savings rate to get the rest of the money together. My question is: Where should I put all this money during that time?

If I put it all in the savings account I could just as well store under my mattress. On the other hand, an index fund or bond may loose money since 2-3 years is a relative short term investment.

To make things worse I live in Germany, so unfortunately I have no access to Vanguard and need to find a decent alternative for the European market. How do I identify a good fund apart from it's annual costs? What parameters do really matter?

Thanks for your help and greetings from Germany,
Geldbart

[Woody]

Hi Geldbart,
well, if you really want to buy a house within the next 2-3 years (and are not willing to wait for several further years when a crash has occured), you should not invest in stocks at all.

Yes, you could have a higher rate of return, but as you already mentioned, the risk is higher to be down when you really need the money. Your investment phase of 2-3 years is much to short to invest in stocks.

Maybe it's the best to keep a part of your savings in the savings account (or a Tagesgeldkonto with up to 1,5% p.a.) and invest the rest of the money in CDs (Festgeld/Sparbriefe) with an appropriate term (up to 3 years and less if you invest at a later stage). You could check for the best conditions e.g. here:
http://www.modern-banking.de/festzinsanlage_ueberblick.php

If you are absolutely sure, that buying a home is the way to go, stick with your plan. If you are not so certain, then read
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ by an early retiree who owned a house for quite a long time in his life
or
http://www.amazon.de/Kaufen-oder-mieten-richtige-Entscheidung/dp/3593390809/ref=sr_1_2?s=books&ie=UTF8&qid=1378569598&sr=1-2 by Gerd Kommer, who is THE german speaking proponent of index investing (IMHO).

Greeting from Germany,
Woody

[Geldbart]

Thanks for your advice, Woody!

I will definately have a look at your book recommodation. I already tried a couple of online calculators which all came up with completely different results of renting vs. owning. So I need to go more into detail here, although jlcollinsnh is right with his analysis that a property of your own doesn't really quallify as an investment.

But regardless if it's a good or bad investment I still need to save for a downpayment if I want to buy one. And I would like to invest that money somewhere so it generates some profit with a low risk of making a loss in 2-3 years. 1,5 % in a savings account would hardly keep up with inflation and CDs are not much better.

Any ideas on where to invest the money instead? I am not totally risk averse and can adopt my plans if really neccessary. Are there any bonds/fonds that you can recommend in Europe?

Thanks a lot!
Geldbart

ps.: Where about from Germany are you from? I'm from Munich

[Woody]

Hi Geldbart,

"I would like to invest that money somewhere so it generates some profit with a low risk of making a loss in 2-3 years"

have you ever heard of the magic triangle for financial investments (profitability, liquidity and security)? You can't have it all. You will not get a higher profit with a comparable risk. You could buy government or corporate bonds, but the ones with prime or high grade will not be better than CDs (they are even worse in my humble opinion) and if you choose e.g. emerging market bonds, the risks will be higher.
(Do you know that the bond values will drop, when the interest rate should go up? So even raising interest rates should not help you in the short run.)

There is no such thing as "a hot tip" which bond to choose. I'm really sorry - I wish there would be something I could recommend. We are currently in a phase of low interest, so get along with it and make the best of it by chosing rather safe investments.
If you said, you could wait even ten years from now, I might recommend to spend some of the money in a global ETF, but even five years from now would be way to short to invest in stocks.

BTW: Since you are considering a saving period of 2-3 years, most of the 60k-70k will depend on your savings rate. The compounded interest will be extremely low even if you could get 2-3% additionally compared to the investments I proposed in my previous post.

Best regards,
Woody

(I live quite near to Karlsruhe.)

[Geldbart]

Hi Woody,

what do you mean, there ist no such thing as the perfect investment? That's a bummer ... ;) You are right, that componded interest would not be that much over 2-3 years. Anyway I would like to learn a bit about investing and get some experience in order to plan my strategy.

I guess I will start with just a small amount of maybe 5000 EUR, find a suitable fond and see how it develops. Any ideas on what to look for except low annual costs? What online broker is the best option to choose?

Thanks,
Geldbart

[Christof]

Depends on your definition of "best". DiBa ING has regularly specials where you get a number of free trades within a certain period. OnVista has free trades if you put money into an account with them (2000 Euros at 0% interest give two free trades per month). They also offer 50 Euro cashback via qipu.de. Cortal Consors offers 3% saving if you move a depot of at least 6000 to them and save up to 20,000 Euros. You can also combine these:

- Open a Miles & More account, if you don't have one
- Open a qipu.de account, if you don't have one
- Use qipu.de to open an OnVista account (50 Euros cash back)
- Transfer a bit over 6000 Euros to OnVista and purchase shares/funds. Purchase should be free since you get a few FreeBuys initially.
- Wait until shares are in your depot
- Via Miles & More open a Cortal Consors account (Gets you 6000 miles initially, and 3000 miles after a year)
- Transfer 20,000 Euros in their Tagesgeldkonto (gives 3% interest for one year)
- Wait for cashback on qipu.de
- Transfer OnVista Depot to Cortal Consors and close OnVista account

If "best" did not mean "inexpensive" then a good depot is one with your local bank. Inexpensive online brokers let you pay extra for everything, like a printed statement, tickets for shareholder meetings, etc. You also pay more if you need to place orders by fax or phone.

[Geldbart]

Wow, you really put some effort into planning this! And 3% on a Tagesgeldkonto is actually a very good deal with 9000 bonus miles not being bad either. Thanks!