What to do with money earmarked for a home down payment in the near future?

[hoyahoyasaxa]

I know that MMM promotes a very basic investing philosophy with regards to the market, in terms of index investing.  I'm fine with this, and it actually fits my philosophy, as well.  But I'm wondering what we should be doing with a fairly large slice of money that my wife and I have earmarked for a home down payment that we would like to make sometime in the next year and a half.  Right now, these are our assets:

$40,000 in a savings account
$5,000 in checking
$27,000 in Roth/Rollover IRAs
$30,000 in Ally Bank CDs at 2%

I'm 27 and she's 26.  Right now, based on our income (we pull in about $85k combined), I'm comfortable at about the $250K range for a home, which would entail at least a $50K down payment, which we basically have now ($20K stays in the savings account for an emergency fund and we take the other $20K from there plus the $30K from the CDs).  Given the short term nature of needing this money though, I feel that it's not wise to put it in the market, even in a really conservative fund.  But I wanted to hear some advice from others about whether it's better to keep it in savings/CDs right now.

[Another Reader]

If you need the money in the next 18 months, keep it where you currently have it.  I don't think any one year CD's will beat the Ally or Sallie Mae money market accounts right now, with the possible exception of PenFed, if you are eligible to join.  Short term bond funds have higher yields, but entail the risk of principal loss.  That's too much risk for me for a down payment I expect to need in 18 months.

[Mr Mark]

Hang on. You are looking for 50k +closing exp. You have 70 k now.

If the question is "i have 70k now , where's the best investment plan given i must have around 60k in 18 months"

Then I'd not leave it all in short term cash deposits.

Say, leave the 30k in CD s and put the rest in vanguard Wellesley fund. If a meteorite wipes Wellesley down more than 25%,  the house will probably be a lot cheaper anyhow!

[marty998]

Sooner you buy the house sooner you can start paying it off. At least that's the Oz mentality anyway. If you wait 18 months here you find yourself having to fund an extra $40,000 with prices moving so fast.

A high interest online saver is best, wherever you can get the best rate.

And face punch coming...what emergency could you possibly have that costs twenty thousand dollars

[Khan]

I, like many others don't actually manage a separate emergency fund. Any emergency worth funding that needs more then 3 months from my bank(about what I've been floating as of late) can be subsidized by liquidating a couple stock positions. I'd ask if you truly, truly think having 20k of dead money(losing out to inflation among other things) is worth the "peace of mind" compared to having money split up among asset classes so different, that the risk of them being all wiped out... well in the world where that happens, we'd be wiping our asses with hundred dollar bills in a post apocalyptic society anyways so **** it. You have a nice nest egg, and after the housing situation is sorted out, I'd highly recommend you start putting some of that money to work for you(2% cd's? That's less then inflation.)

As for the question of a home down payment in the near future, safety is important, but more then that, locking in a mortgage in todays interest rate environment.

Also, their's a difference between what you are comfortable with from a loan perspective, and what you actually want/need for housing.

[COguy]

You and the wife can put $20,000 a year into I-bonds which will match the CPI (inflation) before taxes.  Plus no state tax is paid on the interest.

The main caveat: You cannot pull the money out for 1 year and forfeit 3 months interest after that, but it is about the best no principle loss savings vehicle out there.  Probably always will be.   

http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

As for me, This is where about half of my house down payment money is stored (10% down payment).  The rest I have in a mix of vanguard total international and total us stock index funds (~10% down payment).  The way I see it, no matter what I will have at least a 10% down payment, but since I don't want to buy right away, I can keep my money working for me.  That may be really stupid though if the stock markets crash around the time I want to buy a house

[Mr Mark]

For very short term (week or so or less) money in UK or nz, you can put it savings bonds that pay interest like a lottery, with capital guaranteed.