Investment path for home (cha-ching)

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Dee-89
Posts: 5
Joined: Thu Jun 22, 2017 3:38 pm

Investment path for home (cha-ching)

Post by Dee-89 » Thu Jun 22, 2017 4:00 pm

:moneybag Hi All,

I am a Female, 28 yrs old and would like to buy a home. I am searching for short term investment options that could make me some money in the next 5 years or so. I would like to have a home by the time I am 35. I do not have enough money for a down payment right now.

Facts:
Salary: 110k (combined with spouse)
Total savings: 10k
Amount that we contribute to savings/month: $1,000
Location: DC/VA region
Rent for apartment: $1750

Which investment option do you think would give me a quick and fast return? Do you all suggest (index fund, mutual fund, stocks, bonds, etc...etc...) Which of these routes do you think will give me quick money? I am not trying to be a millionaire. I have a goal and the goal is to choose an investment path that can give me a little bit of money for a down payment on a home. By little bit I mean about 10k-15k. If its not possible to get this done in 5 years, just be honest and tell me so that I can choose another route (like go to the Casino) lol kidding :greedy

aristotelian
Posts: 3158
Joined: Wed Jan 11, 2017 8:05 pm

Re: Investment path for home (cha-ching)

Post by aristotelian » Thu Jun 22, 2017 5:00 pm

You are saving $1K per month. You have 60 months to save for your goal. That equates to $60K. That should be enough for a downpayment on a $300K house. Is that enough?

A savings account would be the only way to guarantee that you do not lose principal. That might make you $1500 over that period of time.

5 years seems like a long time, especially when you are saving for a big purchase that you would really like now. But in the grand scheme of investing, it is a short time. For example, short term bonds are defined as having 1-5 year duration. That means if interest rates change, you could be holding bonds below the price you paid for as much as 5 years. A short term bond fund is probably the maximum risk you want to take on, but your likely return might be more like $2500-$3000.

If you really want to accelerate your down payment savings, you will have a much larger effect from increasing your saving rate.

dbr
Posts: 24144
Joined: Sun Mar 04, 2007 9:50 am

Re: Investment path for home (cha-ching)

Post by dbr » Thu Jun 22, 2017 5:27 pm

Dee-89 wrote: Which investment option do you think would give me a quick and fast return? Do you all suggest (index fund, mutual fund, stocks, bonds, etc...etc...) Which of these routes do you think will give me quick money? I am not trying to be a millionaire. I have a goal and the goal is to choose an investment path that can give me a little bit of money for a down payment on a home. By little bit I mean about 10k-15k. If its not possible to get this done in 5 years, just be honest and tell me so that I can choose another route (like go to the Casino) lol kidding :greedy
The future value of $1000/month at 2% annual interest is $63,047 for a gain from investments of $3,047. If you think an all stock investment might be a candidate and imagine running the FV value calculation at 8% (disregarding cagr vs steady annual return issues) you would have $73,477 which gives you that 10k-15k from investments. If you invest in all stocks, though, the possible range of endpoint results would probably be something like -40% to +60%, meaning you could end up with somewhere between a loss of $15K and a gain of $50K. OK I am doing some really sloppy math, but trying to put some numbers on how uncertain the outcome is when you try to make quick money.

Now, if you really meant save rather than gain by investing $15K and in five years, you just need to save $250 a month anywhere and you are done. But $15K is going to be pretty useless as a down payment and $63,000 would be fine.

TheJoker
Posts: 58
Joined: Mon Apr 17, 2017 12:21 pm
Location: Bellingham, Wa

Re: Investment path for home (cha-ching)

Post by TheJoker » Thu Jun 22, 2017 6:02 pm

With a gross of $110, I estimate your monthly net to be $6K. It seems to me that you should be able to save more than $1,000 per month. I would review your monthly expenses and cut out luxuries as much as possible if you want to buy a home. My opinion is that a home is a long term financial necessity.

You get to lock in your rent (via mortgage) for 30 years. Rents increase 3-4% yearly over the long term. That means your rent will be 30 to 40% more in ten years. That keeps people from retirement. Save now or pay the price later.

You may also contact a realtor and find out what the % increase in home values is in your area also. If you do not buy ASAP, I promise you that you will regret it.

Real Estate Investor former Real Estate Broker. TheJoker (and the advice is no Joke)

Dee-89
Posts: 5
Joined: Thu Jun 22, 2017 3:38 pm

Re: Investment path for home (cha-ching)

Post by Dee-89 » Fri Jun 23, 2017 2:35 pm

So What I am understanding is if I keep saving 1k then in 5 years I will have enough money to get a house SO no need to invest in anything risky right now.

That was easy. Thanks!

centrifuge41
Posts: 1155
Joined: Mon May 17, 2010 9:04 am

Re: Investment path for home (cha-ching)

Post by centrifuge41 » Fri Jun 23, 2017 2:41 pm

Hi Dee-89,

Yes. That's right. Avoid risk and look at 5 year CDs perhaps. Maybe find ones that pay decent interest and also have a small early termination fee, just in case.

Don't mind TheJoker's thoughts too much. Apartment rents have gone up, say, 100 a month per year (1750 to 1850, or 5%+), but home prices have only gone up about 2% or 3 a year in Northern VA. It's been a very stable market since ~2011. http://www.economist.com/blogs/graphicd ... y-chart-20

Dee-89
Posts: 5
Joined: Thu Jun 22, 2017 3:38 pm

Re: Investment path for home (cha-ching)

Post by Dee-89 » Fri Jun 23, 2017 3:22 pm

Yes I heard of CDs or money market accounts!

For example:

If I chose to be very risky and take the (stocks route) how much can stocks make you per year? Say I invest $10,000 in a stock. I dont know any off the top of my head. But lets use a popular one as an example (may not be a wise choice, but for example sake) say I chose the Apple stock. Today it shows as $146. So if I buy $10,000 worth of that, In one year how much profit can I get? Would I make something insignificant like $200 or something like $2000.


Lets use last year as a example. If last year I invested 10k in Apple Stock how much money would I have made now?

I am not familiar with how to calculate a stocks profit per year. Can someone explain it in elementary terms or child terms. Please feel free to use a different stock than Apple as an example.

runner540
Posts: 436
Joined: Sun Feb 26, 2017 5:43 pm

Re: Investment path for home (cha-ching)

Post by runner540 » Fri Jun 23, 2017 3:32 pm

Here is the link for a wiki on stocks:

https://www.bogleheads.org/wiki/Stock_basics

No one can predict how much a stock or a group of stocks will earn or lose in a given year or 5 year period. It could be +50%, flat, or -50%. That's why all stock asset allocation is not recommended for shorter term goals like yours.

dbr
Posts: 24144
Joined: Sun Mar 04, 2007 9:50 am

Re: Investment path for home (cha-ching)

Post by dbr » Fri Jun 23, 2017 7:27 pm

Dee-89 wrote:Yes I heard of CDs or money market accounts!

For example:

If I chose to be very risky and take the (stocks route) how much can stocks make you per year? Say I invest $10,000 in a stock. I dont know any off the top of my head. But lets use a popular one as an example (may not be a wise choice, but for example sake) say I chose the Apple stock. Today it shows as $146. So if I buy $10,000 worth of that, In one year how much profit can I get? Would I make something insignificant like $200 or something like $2000.


Lets use last year as a example. If last year I invested 10k in Apple Stock how much money would I have made now?

The total return for 2016 was 12.15% so in that year you would have made $1215. The total return for 2015 was -2.8% so in that year you would have lost $280. According to this stock screener http://www.cnbc.com/stock-screener/ there are 48 stocks that multiplied in price by tenfold in the last year. There are 169 stocks that lost more than 90% of their value in the same year. You would be a big winner in Acology Inc. and a big loser in 1PM Industries Inc. But I am just teasing you a little bit to make the point that stocks are very uncertain, and individual stocks are much, much more uncertain than stock mutual funds. General Motors, one of and still one of the biggest and best known companies in the world went bankrupt in 2009. If you were invested in them then you would have lost all your money.

I am not familiar with how to calculate a stocks profit per year. Can someone explain it in elementary terms or child terms. Please feel free to use a different stock than Apple as an example.

Generally you are interested in the stock performance with dividends reinvested, so assume you have done that. You find the value of your investment at the beginning of the year, the value of your investment at the end of the year, and you calculate

(end value-begin value)/(begin value)

and express it as a percent. Only we don't call it profit; we call it return. The return on any given stock can be hugely variable from losses of 100% (all your money) to gains of 1000's of percents. Stock mutual funds are less variable but can gain or lose 50% or more in a year.


itstoomuch
Posts: 4823
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: Investment path for home (cha-ching)

Post by itstoomuch » Fri Jun 23, 2017 8:40 pm

+1 @ theJoker.
You need to save and invest (if necessary) faster than housing appreciation in the area you wish to live.
example: Our son did not participate in 401k except for match if available, for 3 years prior to purchase + 1 year after purchase. He also invested some of the home purchase savings in individual stocks. This is a fairly high risk gambit but in his location, Seattle, home prices was and continues to rise by 12%/yr with scant housing inventory.
YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

Dee-89
Posts: 5
Joined: Thu Jun 22, 2017 3:38 pm

Re: Investment path for home (cha-ching)

Post by Dee-89 » Sat Jun 24, 2017 7:54 am

dbr wrote:
Dee-89 wrote:Yes I heard of CDs or money market accounts!

For example:

If I chose to be very risky and take the (stocks route) how much can stocks make you per year? Say I invest $10,000 in a stock. I dont know any off the top of my head. But lets use a popular one as an example (may not be a wise choice, but for example sake) say I chose the Apple stock. Today it shows as $146. So if I buy $10,000 worth of that, In one year how much profit can I get? Would I make something insignificant like $200 or something like $2000.


Lets use last year as a example. If last year I invested 10k in Apple Stock how much money would I have made now?

The total return for 2016 was 12.15% so in that year you would have made $1215. The total return for 2015 was -2.8% so in that year you would have lost $280. According to this stock screener http://www.cnbc.com/stock-screener/ there are 48 stocks that multiplied in price by tenfold in the last year. There are 169 stocks that lost more than 90% of their value in the same year. You would be a big winner in Acology Inc. and a big loser in 1PM Industries Inc. But I am just teasing you a little bit to make the point that stocks are very uncertain, and individual stocks are much, much more uncertain than stock mutual funds. General Motors, one of and still one of the biggest and best known companies in the world went bankrupt in 2009. If you were invested in them then you would have lost all your money.

I am not familiar with how to calculate a stocks profit per year. Can someone explain it in elementary terms or child terms. Please feel free to use a different stock than Apple as an example.

Generally you are interested in the stock performance with dividends reinvested, so assume you have done that. You find the value of your investment at the beginning of the year, the value of your investment at the end of the year, and you calculate

(end value-begin value)/(begin value)

and express it as a percent. Only we don't call it profit; we call it return. The return on any given stock can be hugely variable from losses of 100% (all your money) to gains of 1000's of percents. Stock mutual funds are less variable but can gain or lose 50% or more in a year.

$1215 in 2016 only???? Geez thats nothing..... I was thinking you can make more money through stocks. My perception of the stock market is grossly misconstrued then LOL.

If investing 10k in Apple stock in 2016 only gives a return of $1215, then forget that!

Ill just continue depositing 1k and even bump it up to 2k in my savings account. The stock route seems low to me since the return is barely anything significant. Only $1215!!! haha im still shocked!

dbr
Posts: 24144
Joined: Sun Mar 04, 2007 9:50 am

Re: Investment path for home (cha-ching)

Post by dbr » Sat Jun 24, 2017 7:59 am

Dee-89 wrote:
$1215 in 2016 only???? Geez thats nothing..... I was thinking you can make more money through stocks. My perception of the stock market is grossly misconstrued then LOL.

If investing 10k in Apple stock in 2016 only gives a return of $1215, then forget that!

Ill just continue depositing 1k and even bump it up to 2k in my savings account. The stock route seems low to me since the return is barely anything significant. Only $1215!!! haha im still shocked!
So if you put the $10,000 in a savings account at 1% you get $100. How do you figure that solves your problem?

My advice is that you spend some time actually learning about money and investing. A good place to start is on the "getting started" pages of the Wiki.

Probably the best way to get a lot more money next year is to figure out how to get paid more for your work.

TANSTAAFL

runner540
Posts: 436
Joined: Sun Feb 26, 2017 5:43 pm

Re: Investment path for home (cha-ching)

Post by runner540 » Sat Jun 24, 2017 8:00 am

Dee-89 wrote:
dbr wrote:
Dee-89 wrote:Yes I heard of CDs or money market accounts!

For example:

If I chose to be very risky and take the (stocks route) how much can stocks make you per year? Say I invest $10,000 in a stock. I dont know any off the top of my head. But lets use a popular one as an example (may not be a wise choice, but for example sake) say I chose the Apple stock. Today it shows as $146. So if I buy $10,000 worth of that, In one year how much profit can I get? Would I make something insignificant like $200 or something like $2000.


Lets use last year as a example. If last year I invested 10k in Apple Stock how much money would I have made now?

The total return for 2016 was 12.15% so in that year you would have made $1215. The total return for 2015 was -2.8% so in that year you would have lost $280. According to this stock screener http://www.cnbc.com/stock-screener/ there are 48 stocks that multiplied in price by tenfold in the last year. There are 169 stocks that lost more than 90% of their value in the same year. You would be a big winner in Acology Inc. and a big loser in 1PM Industries Inc. But I am just teasing you a little bit to make the point that stocks are very uncertain, and individual stocks are much, much more uncertain than stock mutual funds. General Motors, one of and still one of the biggest and best known companies in the world went bankrupt in 2009. If you were invested in them then you would have lost all your money.

I am not familiar with how to calculate a stocks profit per year. Can someone explain it in elementary terms or child terms. Please feel free to use a different stock than Apple as an example.

Generally you are interested in the stock performance with dividends reinvested, so assume you have done that. You find the value of your investment at the beginning of the year, the value of your investment at the end of the year, and you calculate

(end value-begin value)/(begin value)

and express it as a percent. Only we don't call it profit; we call it return. The return on any given stock can be hugely variable from losses of 100% (all your money) to gains of 1000's of percents. Stock mutual funds are less variable but can gain or lose 50% or more in a year.

$1215 in 2016 only???? Geez thats nothing..... I was thinking you can make more money through stocks. My perception of the stock market is grossly misconstrued then LOL.

If investing 10k in Apple stock in 2016 only gives a return of $1215, then forget that!

Ill just continue depositing 1k and even bump it up to 2k in my savings account. The stock route seems low to me since the return is barely anything significant. Only $1215!!! haha im still shocked!
Dee-89, I can't tell if you are being serious or sarcastic. $1215/$10,000 is 12%. A 12% return in one year is very, very high. To understand the impact, you need to study the math of compound interest. I strongly suggest you keep saving, and keep reading the resources on the Wiki and the forum to learn more about the financial markets.

Dee-89
Posts: 5
Joined: Thu Jun 22, 2017 3:38 pm

Re: Investment path for home (cha-ching)

Post by Dee-89 » Sat Jun 24, 2017 11:01 am

Sorry Im not trying to be facetious.... I just thought 12% return seems kind of low as a return on 10k.

If you asked me "what ideal amount would be a decent return on a 10k investment for you in stocks?" I would say: ahhhh prob "5-10k is a decent return in 1 year." Most of you would prob think thats nonsense, but thats how the media and people try to portray stocks. As a noobie investor when you hear people say they made money off stocks you think to yourself man they must of made a lot of money.

But then you all tell me on a 10k investment you got a 12% return in 2016 on apple, im thinking how did these rich people make money then??? Then I realize 10k is such a small amount Thats why the return is so low. If we used 100k as the amount instead of 10k and it gave me 12% at the end of the year, then yea I would be happy and cool with it. I guess I have to change my perspective. Anyway I will do more research on this issue to try to understand what these percentages at the end of the year say about a persons return.

runner540
Posts: 436
Joined: Sun Feb 26, 2017 5:43 pm

Re: Investment path for home (cha-ching)

Post by runner540 » Sat Jun 24, 2017 12:25 pm

Got it. To sum up, it is great that you have money in your budget to save and invest! That is the key to build wealth. Keep saving, keep reading and following the forum to learn more. The people you see on TV claiming to have gotten rich by investing in the "right" stocks at the "right" time, are either fibbing, trying to sell you something, or extremely lucky speculators. Not a role model to follow. The path that this forum advocates to achieve wealth is slow and steady: earn enough money to pay expenses and save (you already are doing this), and invest wisely for the long term. If you save $10k and invest it for the long term, it might grow at an average rate of 6% a year. That means every 12 years, your money doubles, without you doing anything! So in 12 years you may have $20k, and in 24 years, $40k, and 36 years when you are close to retirement age, you would have $80k. This is just an example, and shows why it's important to start saving young (like you are).

Start here: https://www.bogleheads.org/wiki/Getting_started

Good luck!!

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