Where to put home down payment saving

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3CheersforLkyJack
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Where to put home down payment saving

Post by 3CheersforLkyJack » Mon Mar 25, 2013 7:39 pm

I'm planning on purchasing my first home in about 2 years. Currently, I have a little over $125,000 in non-retirement equity mutual funds and plan to save approximately $2,000 more each month. How should I go about transferring that $125,000 to safer vehicles over the next two years so it is available when I purchase to home? I'm wondering about timing of transferring and what to put the money in now and going forward each month. Thanks for everyone's help!

dimdum
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Re: Where to put home down payment saving

Post by dimdum » Mon Mar 25, 2013 7:50 pm

For 2 year time frame, high yield CD and saving account are your best bet.

STC
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Re: Where to put home down payment saving

Post by STC » Mon Mar 25, 2013 7:51 pm

Are your gains long term? And how much do you need for downpayment?

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3CheersforLkyJack
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Re: Where to put home down payment saving

Post by 3CheersforLkyJack » Mon Mar 25, 2013 9:24 pm

All gains would be long term. My hope is to put down at least half of the total cost, if not more.

STC
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Re: Where to put home down payment saving

Post by STC » Mon Mar 25, 2013 9:44 pm

3CheersforLkyJack wrote:All gains would be long term. My hope is to put down at least half of the total cost, if not more.


And how much is that...?

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3CheersforLkyJack
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Re: Where to put home down payment saving

Post by 3CheersforLkyJack » Mon Mar 25, 2013 9:58 pm

150-175

STC
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Re: Where to put home down payment saving

Post by STC » Tue Mar 26, 2013 5:57 am

3CheersforLkyJack wrote:150-175


So you need $150 - $175

You have $125
You can save $48
Total: $173
Delta: +$23 - -$2

Now run assume a 40% decline in equities over the next two years (worst case).

You do nothing
You have $75
You can save $48
Total: $123

You cut your equities to 1/2
You have $100
You can save $48
Total: $148

You cut your equities to 1/4
You have $112.5
You can save $48
Total: $160.5

Since you cant predict when the next 40% decline will hit, the best way to ensure you meet your goal range is to immediately sell 3/4 of your current $125k taxable portfolio. Those funds could go into CD's or savings accounts to protect the principle. You can get more aggressive with your assumptions if you are ok with missing your goal, or delaying the home purchase.

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3CheersforLkyJack
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Re: Where to put home down payment saving

Post by 3CheersforLkyJack » Tue Mar 26, 2013 8:14 am

What about putting half of that in a short term bond fund like VFSTX and the other half in CDs or cash? Or would that to be too risky?

STC
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Re: Where to put home down payment saving

Post by STC » Tue Mar 26, 2013 10:45 am

3CheersforLkyJack wrote:What about putting half of that in a short term bond fund like VFSTX and the other half in CDs or cash? Or would that to be too risky?


VFSTX has a standard deviation of 3.31 over 5 years, and a 3.87% annualized return over that time period. If you were to incur a loss, it would be minimal (1-3% in a bad case). I keep my short term money in:

VCSH - Vanguard Corp Short Term
SHM - iShares short term national muni

I am fine with the minimal volatility.

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