Where to invest home downpayment which I am not certain when to buy if ever?!

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BogleMelon
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Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 8:29 pm

Have read a couple of threads here about "Where to invest home downpayment", but was thinking that I may need a tailored advice, so thank you in advance!
Have start setting aside some cash to buy a home one day. My target is to save $50K~$60K. Part of our income is variable, so not sure if I will achieve my goal, in 2, 5 or more years!
Should I just stack the money up in the saving account? Or I will be better off investing in a couple of index funds? And if so, what asset allocation you'd advise me to have with that uncertainty regarding the period?
(I already maxing out our Roth IRA's but that will be only for retirement purposes, so any investing for the home will be in a taxable)
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Tyler Aspect
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Tyler Aspect » Mon Nov 06, 2017 8:45 pm

The traditional answer for saving up for house down-payment is in safe investments such as a short term bond fund or Treasury Notes.

However, it seemed that you have not decided if to buy a house if ever. If you belong to the Boglehead's anti-house faction, then you would just have taxable stock investments for retirement savings. Later, if you are "forced" to buy a house then the down-payment would naturally come out of the stock capital gains.
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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 8:48 pm

Tyler Aspect wrote:
Mon Nov 06, 2017 8:45 pm
If you belong to the Boglehead's anti-house faction, then you would just have taxable stock investments for retirement savings. Later, if you are "forced" to buy a house then the down-payment would naturally come out of the stock capital gains.
Does this means that the bogleheadish way to consider buying a house is only if one were able to maxing out all tax deferred accounts first?
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by bloom2708 » Mon Nov 06, 2017 8:51 pm

One option:

Start a taxable account at Vanguard (If you don't already have one).

40% Total US Stock index
60% Int-Term Tax-Exempt bond index

I don't know your tax bracket or what other funds you have. This is just a "it might work" idea.

We have a taxable account with Total US, Total International and Int-Term Tax-Exempt. About 50-50 stocks to bonds.

If this seems "risky", then stick with a savings account or a CD.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by KlangFool » Mon Nov 06, 2017 8:55 pm

BogleMelon wrote:
Mon Nov 06, 2017 8:29 pm
Have read a couple of threads here about "Where to invest home downpayment", but was thinking that I may need a tailored advice, so thank you in advance!
Have start setting aside some cash to buy a home one day. My target is to save $50K~$60K. Part of our income is variable, so not sure if I will achieve my goal, in 2, 5 or more years!
Should I just stack the money up in the saving account? Or I will be better off investing in a couple of index funds? And if so, what asset allocation you'd advise me to have with that uncertainty regarding the period?
(I already maxing out our Roth IRA's but that will be only for retirement purposes, so any investing for the home will be in a taxable)
BogleMelon,

You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house. So, you do not need to save for that down payment. If you disagree, please explain to us why you can afford such a house.

KlangFool

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by ThrustVectoring » Mon Nov 06, 2017 8:57 pm

BogleMelon wrote:
Mon Nov 06, 2017 8:48 pm
Tyler Aspect wrote:
Mon Nov 06, 2017 8:45 pm
If you belong to the Boglehead's anti-house faction, then you would just have taxable stock investments for retirement savings. Later, if you are "forced" to buy a house then the down-payment would naturally come out of the stock capital gains.
Does this means that the bogleheadish way to consider buying a house is only if one were able to maxing out all tax deferred accounts first?
It depends on how badly you want to be a homeowner. Live the life you want to live first, then save up so that you don't need to work forever to pay for it.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by adamthesmythe » Mon Nov 06, 2017 9:02 pm

BogleMelon wrote:
Mon Nov 06, 2017 8:48 pm
Tyler Aspect wrote:
Mon Nov 06, 2017 8:45 pm
If you belong to the Boglehead's anti-house faction, then you would just have taxable stock investments for retirement savings. Later, if you are "forced" to buy a house then the down-payment would naturally come out of the stock capital gains.
Does this means that the bogleheadish way to consider buying a house is only if one were able to maxing out all tax deferred accounts first?
A paid-off house means you will probably have lower and predictable housing costs when you retire. A house can also be sold and replaced by a cheaper one upon retirement. So deferring retirement savings for a time in order to build up a down payment can be a reasonable choice.

Having said that, forgoing an employer contribution is very unwise and maxing out tax-deferred savings is a very good idea.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Tyler Aspect » Mon Nov 06, 2017 9:06 pm

BogleMelon wrote:
Mon Nov 06, 2017 8:48 pm
Tyler Aspect wrote:
Mon Nov 06, 2017 8:45 pm
If you belong to the Boglehead's anti-house faction, then you would just have taxable stock investments for retirement savings. Later, if you are "forced" to buy a house then the down-payment would naturally come out of the stock capital gains.
Does this means that the bogleheadish way to consider buying a house is only if one were able to maxing out all tax deferred accounts first?
That is a good question. There is no rule that says we must max out every cent of tax efficiency. From my point of view it is goodness to have a modest taxable savings beyond the emergency cash.
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dm200
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by dm200 » Mon Nov 06, 2017 9:06 pm

Here is one approach:

Since home mortgage interest rates are among the lowest for just about any type of credit and, even with more stringent lending requirements today, those with excellent credit and income can often qualify for low down payment mortgages, take that investment money and put it into long term investments - max out retirement accounts and buy mostly equities for the long term. If/when you buy that house, get a large mortgage for a long period.

Do, though, keep an emergency fund in safe liquid place(s), such as CDs.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 9:25 pm

KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 9:39 pm

bloom2708 wrote:
Mon Nov 06, 2017 8:51 pm
I don't know your tax bracket or what other funds you have. This is just a "it might work" idea.

We have a taxable account with Total US, Total International and Int-Term Tax-Exempt. About 50-50 stocks to bonds.
I am in 15% tax bracket. Expect next year to be in 25%.
May I ask what is your own AA in the taxable between US and Intl?
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

bloom2708
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by bloom2708 » Mon Nov 06, 2017 9:45 pm

BogleMelon wrote:
Mon Nov 06, 2017 9:39 pm
bloom2708 wrote:
Mon Nov 06, 2017 8:51 pm
I don't know your tax bracket or what other funds you have. This is just a "it might work" idea.

We have a taxable account with Total US, Total International and Int-Term Tax-Exempt. About 50-50 stocks to bonds.
I am in 15% tax bracket. Expect next year to be in 25%.
May I ask what is your own AA in the taxable between US and Intl?
I do 20% international. Taxable is about 50/50, but overall we are 60/40.

In 15%, tax-exempt bonds may not make sense. 25% is the wash area. You could do a LifeStrategy Conservative Growth fund in taxable, but if you move up into 25%, then it may not be optimum. To me, even if it is a wash, I like having tax-exempt bonds in taxable so I'm not 100% stocks in taxable. Larger swings in value.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by KlangFool » Mon Nov 06, 2017 9:51 pm

BogleMelon wrote:
Mon Nov 06, 2017 9:25 pm
KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
BogleMelon,

1) Let's assume that you can save the 60K, what makes you think that you can afford a 300K house?

2) How much money would you have beside that 60K by that time?

Show us the math how it is going to work?

A) How much do you have now?

B) How much do you save per year now?

KlangFool

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 10:24 pm

KlangFool wrote:
Mon Nov 06, 2017 9:51 pm
BogleMelon wrote:
Mon Nov 06, 2017 9:25 pm
KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
BogleMelon,

1) Let's assume that you can save the 60K, what makes you think that you can afford a 300K house?

2) How much money would you have beside that 60K by that time?

Show us the math how it is going to work?

A) How much do you have now?

B) How much do you save per year now?

KlangFool
Let's keep other factors aside. U presumed that based on only the down payment, that i cant afford a home. Why is that?
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by KlangFool » Mon Nov 06, 2017 10:47 pm

BogleMelon wrote:
Mon Nov 06, 2017 10:24 pm
KlangFool wrote:
Mon Nov 06, 2017 9:51 pm
BogleMelon wrote:
Mon Nov 06, 2017 9:25 pm
KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
BogleMelon,

1) Let's assume that you can save the 60K, what makes you think that you can afford a 300K house?

2) How much money would you have beside that 60K by that time?

Show us the math how it is going to work?

A) How much do you have now?

B) How much do you save per year now?

KlangFool
Let's keep other factors aside. U presumed that based on only the down payment, that i cant afford a home. Why is that?
BogleMelon,

Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.

KlangFool

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Mon Nov 06, 2017 10:54 pm

KlangFool wrote:
Mon Nov 06, 2017 10:47 pm
BogleMelon wrote:
Mon Nov 06, 2017 10:24 pm
KlangFool wrote:
Mon Nov 06, 2017 9:51 pm
BogleMelon wrote:
Mon Nov 06, 2017 9:25 pm
KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
BogleMelon,

1) Let's assume that you can save the 60K, what makes you think that you can afford a 300K house?

2) How much money would you have beside that 60K by that time?

Show us the math how it is going to work?

A) How much do you have now?

B) How much do you save per year now?

KlangFool
Let's keep other factors aside. U presumed that based on only the down payment, that i cant afford a home. Why is that?
BogleMelon,

Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.

KlangFool
This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Tyler Aspect
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Tyler Aspect » Tue Nov 07, 2017 1:09 am

BogleMelon wrote:
Mon Nov 06, 2017 10:54 pm
This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
The family home is a significant cost center. A larger living area means higher utility bills. You will have property tax to pay each year. There's furniture to fill. Gardens to upkeep. Repairs to maintain the house in acceptable conditions: plumbing, heating system, central air, garage door, etc. There's also the mortgage payment, which would limit your pre-tax savings to a much smaller amount given all the extra expenses.

In general I do not recommend early home purchases.
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foodstamp
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by foodstamp » Tue Nov 07, 2017 2:09 am

Buying a home as early as possible is going to be a great idea.

A mortgage is the only way the average American has to short the US dollar. It also will keep your expenses predictable. Ideally you'd want to find a place where you could AirBnb out the other half so it's also income producing.

Stick your downpayment in Capital One Money market - pays 1.3% and accessible whenever you want it.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by toblerone » Tue Nov 07, 2017 2:39 am

KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.

srj
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by srj » Tue Nov 07, 2017 3:40 am

The problem with investing your downpayment is that you may want to buy during a downturn. You might consider a mix, maybe something like 50% short/intermediate bonds, 25% cash, 25% stock.

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 6:56 am

toblerone wrote:
Tue Nov 07, 2017 2:39 am
KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.
I don't mind to give information about my financial situation. I did that a lot of time here before actually! It is just that i find KlangFool logic here is flawed. Here is how i see the conversation with him:
Me: where to invest a down payment of $60K?
Klang: oh based on that amount, you can't afford a home!
Me: why you are saying so? And when i can say i can afford one?
Klang: proof otherwise!!

He didn't ask if i can afford it or not. He didn't just even doubt it. But he insisted with certainty that I can't afford it. Before I even share any further information. Perhaps he saw something from my original post, but if so, i wish he simply share his insights.
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Edward Joseph
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Edward Joseph » Tue Nov 07, 2017 7:18 am

This is not my emergency fund but I do have a pile of money stashed away for a potential down payment in 1-3 years. Bear in mind this portfolio can lose 8-10% potentially in a year (max drawdown '08-'09). My emergency fund is at Ally Bank at 1.25%.
20% Total Stock Mkt (VTI)
35% Total Bond Market (BND)
20% Short Term Bond (BSV)
10% Short Term Corp Bond (VCSH)
15% Short Term TIPS (VTIP)

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by runner540 » Tue Nov 07, 2017 7:23 am

My house fund for a ~3-5 year time frame is 40% stock/20% bonds/40% cash. I like the Vanguard Life Strategy funds for this. New money goes into cash to gradually reduce risk. This might be more risk than others are comfortable with, but I don't have a hard deadline or an exact $ amount I need to have (it's well above 20% for the houses I'd like). If markets are down when I want to buy, I'll just have to take a slightly bigger mortgage, or the house prices will also be down. I'm in an area where house prices are rising fast, so I like to have some growth. Goal is to pay cash for the house.

KlangFool's rules are conservative, but they will keep you from losing your house in the next downturn, or from overextending yourself.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Alex GR » Tue Nov 07, 2017 7:26 am

BogleMelon wrote:
Tue Nov 07, 2017 6:56 am
toblerone wrote:
Tue Nov 07, 2017 2:39 am
KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.
I don't mind to give information about my financial situation. I did that a lot of time here before actually! It is just that i find KlangFool logic here is flawed. Here is how i see the conversation with him:
Me: where to invest a down payment of $60K?
Klang: oh based on that amount, you can't afford a home!
Me: why you are saying so? And when i can say i can afford one?
Klang: proof otherwise!!

He didn't ask if i can afford it or not. He didn't just even doubt it. But he insisted with certainty that I can't afford it. Before I even share any further information. Perhaps he saw something from my original post, but if so, i wish he simply share his insights.
BogleMelon, I agree with you 100%. I hate it when you ask a question and people answer a different question.
This reminds me of a conversation I had with a shipping store rep when my company sent me to Oman for several years:
Me: Hi, I am moving to Oman, how can I ship my personal belongings over there through your company?
Him: Why would you want to move to Oman??? :oops:

Besides, you could invest $60k but then only put $30k as a down payment on a house.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by retiredjg » Tue Nov 07, 2017 8:25 am

If it is likely you will buy a house within the next 5 years, the money should not be invested. It should be saved. High yield savings, money market, CDs, etc. I'd also probably put some of it in a short term bond - yes, I know this is "invested", but it is conservative and gives the money a getter chance to keep up with inflation.

If you are simply hoping for a house and realize it is likely to be 10 years or more, you could invest the money more aggressively. If the market crashes, the house would be delayed.

There is no reason not to save for this if you have a desire for it to happen. If the house does not happen, you can use the money for other things - like retirement.

You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Grt2bOutdoors » Tue Nov 07, 2017 8:35 am

retiredjg wrote:
Tue Nov 07, 2017 8:25 am
If it is likely you will buy a house within the next 5 years, the money should not be invested. It should be saved. High yield savings, money market, CDs, etc. I'd also probably put some of it in a short term bond - yes, I know this is "invested", but it is conservative and gives the money a getter chance to keep up with inflation.

If you are simply hoping for a house and realize it is likely to be 10 years or more, you could invest the money more aggressively. If the market crashes, the house would be delayed.

There is no reason not to save for this if you have a desire for it to happen. If the house does not happen, you can use the money for other things - like retirement.

You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.

+1.
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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 8:40 am

retiredjg wrote:
Tue Nov 07, 2017 8:25 am
You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.
I contribute to a work plan (no matching though), so that 2 roth's + amount contributed in the work plan = 15% of our Gross income
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Grt2bOutdoors
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Grt2bOutdoors » Tue Nov 07, 2017 8:44 am

BogleMelon wrote:
Tue Nov 07, 2017 8:40 am
retiredjg wrote:
Tue Nov 07, 2017 8:25 am
You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.
I contribute to a work plan (no matching though), so that 2 roth's + amount contributed in the work plan = 15% of our Gross income
Over time, you should aim to save 20%+ of gross income for retirement. That can be a combination of Roth, workplace savings and taxable accounts. 15% is a good place to start for retirement, so congrats on that because not many save even close to that percentage.
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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 8:47 am

Grt2bOutdoors wrote:
Tue Nov 07, 2017 8:44 am
BogleMelon wrote:
Tue Nov 07, 2017 8:40 am
retiredjg wrote:
Tue Nov 07, 2017 8:25 am
You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.
I contribute to a work plan (no matching though), so that 2 roth's + amount contributed in the work plan = 15% of our Gross income
Over time, you should aim to save 20%+ of gross income for retirement. That can be a combination of Roth, workplace savings and taxable accounts. 15% is a good place to start for retirement, so congrats on that because not many save even close to that percentage.
Thanks! Actually my current dilemma is: Should I aim for 20% for retirement first (but won't be able to save a dime for a potential future home) or save 15% + downpayment and after buying the home one day I start to shot for 20% or even higher?!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Wakefield1
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Wakefield1 » Tue Nov 07, 2017 8:52 am

It might not be tax efficient or have the best possible return but my inclination is to keep money thought to be needed (and is needed immediately when it is needed) for down payment and/or closing costs on a possible house purchase in the Credit Union,with a bit of extra work some of it could be put in whatever CD type is offering promotional interest rates instead of in the "money market savings account" perhaps check on what the early withdrawal penalties are on breaking a CD,perhaps the penalty wouldn't be bad enough to wipe out the potential advantage of the CD over the savings account.
Sort of a jumbo emergency fund.

retiredjg
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by retiredjg » Tue Nov 07, 2017 10:20 am

BogleMelon wrote:
Tue Nov 07, 2017 8:47 am
Grt2bOutdoors wrote:
Tue Nov 07, 2017 8:44 am
BogleMelon wrote:
Tue Nov 07, 2017 8:40 am
retiredjg wrote:
Tue Nov 07, 2017 8:25 am
You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.
I contribute to a work plan (no matching though), so that 2 roth's + amount contributed in the work plan = 15% of our Gross income
Over time, you should aim to save 20%+ of gross income for retirement. That can be a combination of Roth, workplace savings and taxable accounts. 15% is a good place to start for retirement, so congrats on that because not many save even close to that percentage.
Thanks! Actually my current dilemma is: Should I aim for 20% for retirement first (but won't be able to save a dime for a potential future home) or save 15% + downpayment and after buying the home one day I start to shot for 20% or even higher?!
Saving 20% just for retirement would be nice, but it is not a reachable number for many people in my opinion. I think saving 20% total, including for the house, is reasonable and that is still more than some can save. And certainly more than many choose to save. :(

But do you really have to decide now how the money will be used? If you save in taxable and don't get the house, you still have the money. Yes, some of it could have gone into tax deferred accounts (if you have space left), but that option reduces your opportunity to get the house (or at least reduces your flexibility about where the money comes from).

Another option is to save more in your work plan and use your contributions (not earnings) from Roth IRA for the house if the opportunity for the house presents itself. And you can take a certain amount out of your work plan (if it is 401k/403b) penalty free (but not tax free) for a first house.

Keep in mind that the important thing is to save money. Where you save it is also important, but not as important.

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 10:32 am

retiredjg wrote:
Tue Nov 07, 2017 10:20 am
But do you really have to decide now how the money will be used? If you save in taxable and don't get the house, you still have the money.
Thank you for your inputs. You are right, I can put more in retirement account and withdraw some of them penalty free when I buy the home. But the question will be then, should I invest these extra amounts aggressively as they may be never withdrawn and I would stay a renter for long long time, or more conservatively just in case I needed them sooner for a home? I think my overall AA in the retirement account will be too complicated to maintain (1 account for 2 purposes, short term and long term) :oops:
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Jack FFR1846 » Tue Nov 07, 2017 10:41 am

I am going to assume that you have over $300k in iBonds (paper, of course) and an emergency fund of $50k in some easily accessible account, separate from the $60k for the house.

Now, I'd put $35k in a Redneck Bank Megamoney account at 1.5% and $25k in an Ally savings account (I think they're at 1.25% but everyone's moving up pretty quickly lately).

There. I answered the question and made everyone else happy with my assumptions!
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retiredjg
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by retiredjg » Tue Nov 07, 2017 10:46 am

There are two options I can think of.
  • Invest all the money for retirement for now. When you realize the house is probably going to happen within 5 years, take some or all of that money off the table.

    Invest all the money in a lower stock to bond ratio. Separate buckets in one account are not necessary.

Jags4186
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Jags4186 » Tue Nov 07, 2017 10:55 am

OP,

With a goal of $60,000 I would look to bank bonuses. You could easily earn a 10% return of your money if you are aggressive with opening and closing savings and checking accounts for the new customer bonus. My wife and I will earn just shy of $11,000 of new account bonuses this year by moving around about $60k which is our emergency fund.

Definitely takes work--you must be organized--and it isn't scaleable much beyond $30,000 per person but it's a great return for no risk and fits right in with the amount you're looking to save.

Since you aren't 100% sure about buying a home I would still aim to have everything good order:

1) Have no debt
2) Get your emergency fund set up
3) Max out retirement accounts
4) Save for home

If it takes longer than 2 years to save for the 20% downpayment for the home you want then you're likely buying too much home.
Last edited by Jags4186 on Tue Nov 07, 2017 11:02 am, edited 1 time in total.

retiredjg
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by retiredjg » Tue Nov 07, 2017 11:00 am

Jags4186 wrote:
Tue Nov 07, 2017 10:55 am
My wife and I will earn just shy of $11,000 of new account bonuses this year by moving around about $60k which is our emergency fund.

Definitely takes work--you must be organized--and it isn't scaleable much beyond $30,000 per person but it's a great return for no risk and fits right in with the amount you're looking to save.
Interesting concept. I assume that $11k is taxable?

Jags4186
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Jags4186 » Tue Nov 07, 2017 11:02 am

retiredjg wrote:
Tue Nov 07, 2017 11:00 am
Jags4186 wrote:
Tue Nov 07, 2017 10:55 am
My wife and I will earn just shy of $11,000 of new account bonuses this year by moving around about $60k which is our emergency fund.

Definitely takes work--you must be organized--and it isn't scaleable much beyond $30,000 per person but it's a great return for no risk and fits right in with the amount you're looking to save.
Interesting concept. I assume that $11k is taxable?
Correct it's interest income.

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Ketawa
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Ketawa » Tue Nov 07, 2017 11:03 am

Regarding the type of account, if you are not maxing tax-advantaged savings (IRA and 401k), then I would increase those contributions. If you do not buy a house, you will be better off having the investments in tax-advantaged. If you do buy a house, you can consider taking out IRA contributions (not earnings) or a 401k loan.

Grt2bOutdoors
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Grt2bOutdoors » Tue Nov 07, 2017 11:20 am

BogleMelon wrote:
Tue Nov 07, 2017 8:47 am
Grt2bOutdoors wrote:
Tue Nov 07, 2017 8:44 am
BogleMelon wrote:
Tue Nov 07, 2017 8:40 am
retiredjg wrote:
Tue Nov 07, 2017 8:25 am
You mention Roth IRAs, but no plan at work. Maybe you don't have enough income to use both right now, but as you move into the 25% bracket, you definitely need to start using a work plan if available. Two Roth IRAs is generally not enough to save for retirement.
I contribute to a work plan (no matching though), so that 2 roth's + amount contributed in the work plan = 15% of our Gross income
Over time, you should aim to save 20%+ of gross income for retirement. That can be a combination of Roth, workplace savings and taxable accounts. 15% is a good place to start for retirement, so congrats on that because not many save even close to that percentage.
Thanks! Actually my current dilemma is: Should I aim for 20% for retirement first (but won't be able to save a dime for a potential future home) or save 15% + downpayment and after buying the home one day I start to shot for 20% or even higher?!
At the prospect of being skewered here, 15% + downpayment. (If I had gone by some posters criteria for home buying, I'd still be paying rent that costs more than 2x my mortgage for similar living conditions). You need to live and you need to put your family first. I'm not saying you are being a consumer, but you need to evaluate the costs of buying vs. the future costs of renting. Sometimes the math and the living conditions requirement works out that a home is best for the family. You can get to the 20% later on, try the save 1% more method - each year bump your savings rate up by 1% or more as your budget permits until you get to 20%.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Grt2bOutdoors » Tue Nov 07, 2017 11:22 am

Ketawa wrote:
Tue Nov 07, 2017 11:03 am
Regarding the type of account, if you are not maxing tax-advantaged savings (IRA and 401k), then I would increase those contributions. If you do not buy a house, you will be better off having the investments in tax-advantaged. If you do buy a house, you can consider taking out IRA contributions (not earnings) or a 401k loan.
Careful, a 401k loan can backfire if one loses their employment.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Wakefield1
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Wakefield1 » Tue Nov 07, 2017 11:36 am

[/quote]

At the prospect of being skewered here, 15% + downpayment. (If I had gone by some posters criteria for home buying, I'd still be paying rent that costs more than 2x my mortgage for similar living conditions). You need to live and you need to put your family first. I'm not saying you are being a consumer, but you need to evaluate the costs of buying vs. the future costs of renting. Sometimes the math and the living conditions requirement works out that a home is best for the family. You can get to the 20% later on, try the save 1% more method - each year bump your savings rate up by 1% or more as your budget permits until you get to 20%.
[/quote]

In other words,perhaps the priority of buying a house and becoming free of being a tenant with uncertain rising rental payments shouldn't always be absolutely secondary to maximizing retirement account contributions?

KlangFool
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by KlangFool » Tue Nov 07, 2017 1:59 pm

BogleMelon wrote:
Tue Nov 07, 2017 6:56 am
toblerone wrote:
Tue Nov 07, 2017 2:39 am
KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.
I don't mind to give information about my financial situation. I did that a lot of time here before actually! It is just that i find KlangFool logic here is flawed.
BogleMelon,

<<I don't mind to give information about my financial situation. I did that a lot of time here before actually!>>

Bingo!

<<It is just that i find KlangFool logic here is flawed. >>

Why do you assume that someone will just ignore whatever that you had posted before?

It is obvious that you cannot afford a 300K house in 5 years. So, please explain to us why that is not true?

KlangFool

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 2:08 pm

KlangFool wrote:
Tue Nov 07, 2017 1:59 pm
BogleMelon wrote:
Tue Nov 07, 2017 6:56 am
toblerone wrote:
Tue Nov 07, 2017 2:39 am
KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.
I don't mind to give information about my financial situation. I did that a lot of time here before actually! It is just that i find KlangFool logic here is flawed.
BogleMelon,

<<I don't mind to give information about my financial situation. I did that a lot of time here before actually!>>

Bingo!

<<It is just that i find KlangFool logic here is flawed. >>

Why do you assume that someone will just ignore whatever that you had posted before?

It is obvious that you cannot afford a 300K house in 5 years. So, please explain to us why that is not true?

KlangFool
Klang, my income and my saving rates changed completely from whatever you remember posted here.
And yes, once I have the down payment (assuming my circumstances didn't change to worst) then I would be able to afford the home along with its expenses if compared to renting.
I budget and log every single receipt and reconcile every bank account and credit card balance I have with my budget category balances (google YNAB)
I use online calculators to see and study these renting vs buying ideas, and spreadsheets to know would be the budget after including all the home surprising expenses.
I do with personal finances more than you can think of.
So please stop assuming things about me!!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by KlangFool » Tue Nov 07, 2017 2:25 pm

BogleMelon wrote:
Tue Nov 07, 2017 2:08 pm
KlangFool wrote:
Tue Nov 07, 2017 1:59 pm
BogleMelon wrote:
Tue Nov 07, 2017 6:56 am
toblerone wrote:
Tue Nov 07, 2017 2:39 am
KlangFool wrote: Those factors are relevant. So, please explain to us why you can afford a 300K house? The answer should be obvious after you give us the numbers.
BogleMelon wrote: This is irrelevant to my question. We are drifted away. I am asking about where to invest. I am not here to proof i can afford it. Thanks!
OP I would give the info, maybe Klang is onto something? This is anonymous so who cares? Even if proven you can afford it, there may be some good advice to follow.
I don't mind to give information about my financial situation. I did that a lot of time here before actually! It is just that i find KlangFool logic here is flawed.
BogleMelon,

<<I don't mind to give information about my financial situation. I did that a lot of time here before actually!>>

Bingo!

<<It is just that i find KlangFool logic here is flawed. >>

Why do you assume that someone will just ignore whatever that you had posted before?

It is obvious that you cannot afford a 300K house in 5 years. So, please explain to us why that is not true?

KlangFool
Klang, my income and my saving rates changed completely from whatever you remember posted here.
And yes, once I have the down payment (assuming my circumstances didn't change to worst) then I would be able to afford the home along with its expenses if compared to renting.
I budget and log every single receipt and reconcile every bank account and credit card balance I have with my budget category balances (google YNAB)
I use online calculators to see and study these renting vs buying ideas, and spreadsheets to know would be the budget after including all the home surprising expenses.
I do with personal finances more than you can think of.
So please stop assuming things about me!!
BogleMelon,

Show us your numbers.

<< I do with personal finances more than you can think of.
So please stop assuming things about me!!>>

Then, you should be confident enough to show us the numbers.

KlangFool

nyclon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by nyclon » Tue Nov 07, 2017 2:37 pm

BogleMelon wrote:
Mon Nov 06, 2017 8:29 pm
Have read a couple of threads here about "Where to invest home downpayment", but was thinking that I may need a tailored advice, so thank you in advance!
Have start setting aside some cash to buy a home one day. My target is to save $50K~$60K. Part of our income is variable, so not sure if I will achieve my goal, in 2, 5 or more years!
Should I just stack the money up in the saving account? Or I will be better off investing in a couple of index funds? And if so, what asset allocation you'd advise me to have with that uncertainty regarding the period?
(I already maxing out our Roth IRA's but that will be only for retirement purposes, so any investing for the home will be in a taxable)
I'm in a similar predicament. We know that owning a home is something we want to do at some point, and we've identified the price point, but we don't know when due to a variety of reasons.

I came to the realization in the past month that having all of the down payment money in 5-year CDs simply didn't sit well with me. So, I looked around for investment ideas which were appropriate for a 3-5 year outlook. I found two comps:
1. LifeStrategy Income Fund: 80/20 equities/fixed income
2. Vanguard Target Retirement 2010 Fund (VTENX): 70/30 equities/fixed income

I thought that option #2 likely had a time horizon longer than 3-5 years, since, if you're a few years into retirement, Vanguard assumes a few decades before you need all of the money.

Using portfolio visualizer to run historical analysis, the "max draw" was obviously higher on the 70/30 allocation vs. the 80/20, but I was comfortable with 70/30.

So I ended up re-allocating our down payment from 100% CDs to this:
30% equities (60/40 US/int'l)
40% intermediate-term municipal bonds
30% CDs

I've also instituted a similar strategy on our emergency fund.

This level of risk is certainly not for everyone, and I realized that the risk appetite for emergency fund and down payment is largely based on personal preference.

I found comfort in this allocation by looking at portfolio visualizer for several time periods, assessing the CAGR/standard deviation/max draw trade-off, and getting comfortable that although historical performance is not indicative of future results, it is something, and no, it's not different this time.

Max draw and recovery period were most important to me because there's a good chance I'll use the emergency fund or down payment when there's a large market correction.

I'm curious to see where you end up with your decision!

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 2:42 pm

nyclon wrote:
Tue Nov 07, 2017 2:37 pm

I'm curious to see where you end up with your decision!
Thank you, I was also considering Vanguard LS 20/80. And I used the back test method as well..
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Grt2bOutdoors
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by Grt2bOutdoors » Tue Nov 07, 2017 2:54 pm

[/quote]
At the prospect of being skewered here, 15% + downpayment. (If I had gone by some posters criteria for home buying, I'd still be paying rent that costs more than 2x my mortgage for similar living conditions). You need to live and you need to put your family first. I'm not saying you are being a consumer, but you need to evaluate the costs of buying vs. the future costs of renting. Sometimes the math and the living conditions requirement works out that a home is best for the family. You can get to the 20% later on, try the save 1% more method - each year bump your savings rate up by 1% or more as your budget permits until you get to 20%.
[/quote]
Wakefield1 wrote:
Tue Nov 07, 2017 11:36 am
In other words,perhaps the priority of buying a house and becoming free of being a tenant with uncertain rising rental payments shouldn't always be absolutely secondary to maximizing retirement account contributions?
Precisely. Define maximizing retirement account contributions with your own personal situation. It would be detrimental to one's health/relationship to insist on contributing the maximum amount allowed by the IRS into a employer retirement plan of $18K if your yearly gross wages were say $40K. I certainly was not "maximizing my 401k contributions" early in my career when doing that would have essentially given me zero take home pay - you can not live on zero take home pay, but you may be able to live on 90% or 85% of your gross wages. Not many people can raise a family on 22K gross (45% reduction in gross income) in say a HCOL or MCOL area without some sort of negative impact on family life. However, it you are able to sock away 15% you are still doing better than most while accomplishing your overall goals - safe place to live, food on table, health insurance, retirement, some level of discretionary spending possibly. Everything in moderation until you have the excess capacity to be able to do more. Rome was not built in one day and this is no different. Sometimes these recommendations to "max out retirement savings", while well-intentioned can seem out of touch with one's individual personal finance situation. Personal finance is just that, personal. You literally have to put yourself in one's shoes or have been in that exact situation to appreciate what it is a person is trying to accomplish.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

quantAndHold
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by quantAndHold » Tue Nov 07, 2017 2:58 pm

BogleMelon wrote:
Mon Nov 06, 2017 10:24 pm
KlangFool wrote:
Mon Nov 06, 2017 9:51 pm
BogleMelon wrote:
Mon Nov 06, 2017 9:25 pm
KlangFool wrote:
Mon Nov 06, 2017 8:55 pm
BogleMelon,
You should not buy a house with a down payment of 50K to 60K in 2 to 5 years. You cannot afford such a house.
Why not? And what kind of scenarios then I would consider myself can afford a house, if saving $60K (20% down)is not enough?!
BogleMelon,

1) Let's assume that you can save the 60K, what makes you think that you can afford a 300K house?

2) How much money would you have beside that 60K by that time?

Show us the math how it is going to work?

A) How much do you have now?

B) How much do you save per year now?

KlangFool
Let's keep other factors aside. U presumed that based on only the down payment, that i cant afford a home. Why is that?
BogleMelon, let me introduce you to KlangFool, the head of the anti home ownership faction that you were asking about. I believe the story is that he bought a house once, and it didn't work out, so he's extrapolated that experience to the belief that nobody should own a house unless they can pay cash.

As far as your original question about where to stash a down payment, I'll back up a step. If you buy a house with 20% down, do you know how much your payments will be all in (including tax, insurance, expected maintenance)? Is it significantly more than you're paying on rent now? If it is, will you be able to pay that out every month and still save for your other financial goals (retirement, college, vacations, etc)? If you can, then I'd bank the difference between your current rent and your expected mortgage/tax/insurance/maintenance in a "down payment" account, probably a short term bond fund, and continue investing the remainder for your other goals. If you can't make the numbers work, then you might want to rethink your goals.

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BogleMelon
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by BogleMelon » Tue Nov 07, 2017 3:09 pm

quantAndHold wrote:
Tue Nov 07, 2017 2:58 pm

BogleMelon, let me introduce you to KlangFool, the head of the anti home ownership faction that you were asking about. I believe the story is that he bought a house once, and it didn't work out, so he's extrapolated that experience to the belief that nobody should own a house unless they can pay cash.
That gave me a good laugh :mrgreen: Thanks!
quantAndHold wrote:
Tue Nov 07, 2017 2:58 pm
As far as your original question about where to stash a down payment, I'll back up a step. If you buy a house with 20% down, do you know how much your payments will be all in (including tax, insurance, expected maintenance)? Is it significantly more than you're paying on rent now? If it is, will you be able to pay that out every month and still save for your other financial goals (retirement, college, vacations, etc)? If you can, then I'd bank the difference between your current rent and your expected mortgage/tax/insurance/maintenance in a "down payment" account, probably a short term bond fund, and continue investing the remainder for your other goals. If you can't make the numbers work, then you might want to rethink your goals.
Very interesting way to look at it! I can actually save for a down payment monthly which is more than this difference (the current rent and the new monthly expenses including everything). But I haven't looked at it that way before. Appreciate your thoughts!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

retiredjg
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Re: Where to invest home downpayment which I am not certain when to buy if ever?!

Post by retiredjg » Tue Nov 07, 2017 4:48 pm

I feel like this thread is getting a little bit personal and contentious. If this does not stop, the thread will be locked.

Klang Fool, you've made your point. There is no need to demand proof.

Boglemelon, if you've been in poor shape in the past and have cleaned up your act, that is all you need to say. A house may be in your future. But if you (still?) have bad habits and a significant amount of debt, you should listen to Klang Fool and get more realistic about the future.

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