Best Vehicle for Home Savings

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bwn
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Best Vehicle for Home Savings

Post by bwn »

If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?

None. You do not need to save for the house down payment. You only need the emergency fund and your portfolio in order to buy a house that you can afford.

KlangFool
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

KlangFool wrote: Sun Sep 20, 2020 11:13 am
bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?

None. You do not need to save for the house down payment. You only need the emergency fund and your portfolio in order to buy a house that you can afford.

KlangFool
Can you provide a little more detail?
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

bwn wrote: Sun Sep 20, 2020 11:33 am
KlangFool wrote: Sun Sep 20, 2020 11:13 am
bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?

None. You do not need to save for the house down payment. You only need the emergency fund and your portfolio in order to buy a house that you can afford.

KlangFool
Can you provide a little more detail?

A) Your annual savings need to be high enough to buy a house and pay for the mortgage plus saving 10% to 15% after buying the house. Aka, you are saying much more than 10% to 15% of your income now.


B) Your emergency fund needs to be high enough


i) To protect you from unemployment after buying the house


ii) For furnishing and house maintenance


Between (A) and (B), you should have enough money to buy a house that you can afford with a 20% down payment.

To go through the number, you should provide an example of

i) Income


ii) Annual Saving


iii) Price of the house


KlangFool
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mmmodem
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Re: Best Vehicle for Home Savings

Post by mmmodem »

Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
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anon_investor
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Re: Best Vehicle for Home Savings

Post by anon_investor »

bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?
In today's low interest rate environment you can protect principal or take some risk to beat inflation, but not really both. With such a long time frame putting it in a balanced index fund might make sense.
bernina
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Re: Best Vehicle for Home Savings

Post by bernina »

Definitely not an expert so please take with a grain of salt and listen to other advice/do your own research.

We have a great local credit union and have always had our mortgages through them. When we bought our current house 15 or so years ago we did a 30 year fixed at a good rate but did not have 20%. We were able to bridge the gap between our down payment and 20% by taking out a HELOC through the same credit union. It was an interest only loan that varied with prime. We knew we didn't want this sitting around for a long time and constantly threw extra at it every single month. We paid it off quickly and when I looked at total interest paid it was much less than what we would have paid via PMI during that time.

This could allow you to invest more of the money you plan to save into something moderately aggressive (assuming you have a healthy emergency fund) and bridge any gap due to market loss with a HELOC.

We are very happy with our choice. We also now have an open HELOC that we can pull from at any time at a good interest rate. It helps me to justify investing more of our "excess" emergency fund since in a pinch it's as easy as an account transfer to access.
lazynovice
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Re: Best Vehicle for Home Savings

Post by lazynovice »

Five to ten years is a long time. Roth IRA and a taxable brokerage account. I’d put it into equities in the beginning and shift to bonds/cash as the purchase date gets closer.
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bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
lazynovice
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Re: Best Vehicle for Home Savings

Post by lazynovice »

bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

lazynovice wrote: Sun Sep 20, 2020 12:49 pm Five to ten years is a long time. Roth IRA and a taxable brokerage account. I’d put it into equities in the beginning and shift to bonds/cash as the purchase date gets closer.
If we want to separate our retirement savings from home savings, would it make sense to save to a taxable brokerage account, money market account, money market fund, or CDs in order to fight inflation and protect the money we save from market swings?
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

lazynovice wrote: Sun Sep 20, 2020 1:02 pm
bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
In addition to the strategy above, I want to separate our retirement savings from home savings, would it make sense after emergency savings, maxing out Roth IRA, and putting some money into the 403(b) to have a separate savings account for a house? If so, what is the best place to put this money? Taxable brokerage account, money market account, money market fund, or CDs? The goal would be to match inflation and protect the money we save from market swings?
lazynovice
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Re: Best Vehicle for Home Savings

Post by lazynovice »

bwn wrote: Sun Sep 20, 2020 1:06 pm
lazynovice wrote: Sun Sep 20, 2020 1:02 pm
bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
In addition to the strategy above, I want to separate our retirement savings from home savings, would it make sense after emergency savings, maxing out Roth IRA, and putting some money into the 403(b) to have a separate savings account for a house? If so, what is the best place to put this money? Taxable brokerage account, money market account, money market fund, or CDs? The goal would be to match inflation and protect the money we save from market swings?
CDs and money markets will not match inflation. If you needed this money in a year or two, that might make sense but five years out I would be in a mix of bonds and stocks and ten years out, I would be heavier equities. If you really can’t stomach losing any of the money, the CDs and cash...
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

lazynovice wrote: Sun Sep 20, 2020 1:11 pm
bwn wrote: Sun Sep 20, 2020 1:06 pm
lazynovice wrote: Sun Sep 20, 2020 1:02 pm
bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
In addition to the strategy above, I want to separate our retirement savings from home savings, would it make sense after emergency savings, maxing out Roth IRA, and putting some money into the 403(b) to have a separate savings account for a house? If so, what is the best place to put this money? Taxable brokerage account, money market account, money market fund, or CDs? The goal would be to match inflation and protect the money we save from market swings?
CDs and money markets will not match inflation. If you needed this money in a year or two, that might make sense but five years out I would be in a mix of bonds and stocks and ten years out, I would be heavier equities. If you really can’t stomach losing any of the money, the CDs and cash...
Thank you!
nix4me
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Re: Best Vehicle for Home Savings

Post by nix4me »

Taxable brokerage account. VTI.
IowaFarmWife
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Re: Best Vehicle for Home Savings

Post by IowaFarmWife »

I would suggest putting some of the down payment into I bonds through Treasury Direct. Although the returns will not be spectacular, it is a safe investment and the savings will keep up with inflation.
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

bwn wrote: Sun Sep 20, 2020 1:06 pm
lazynovice wrote: Sun Sep 20, 2020 1:02 pm
bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
In addition to the strategy above, I want to separate our retirement savings from home savings, would it make sense after emergency savings, maxing out Roth IRA, and putting some money into the 403(b) to have a separate savings account for a house? If so, what is the best place to put this money? Taxable brokerage account, money market account, money market fund, or CDs? The goal would be to match inflation and protect the money we save from market swings?

bwn,

<<I want to separate our retirement savings from home savings, >>


A) Why? If you do that, you will pay more taxes.


You can access your Roth IRA contribution at any time for any reason without tax and/or penalty. Your Roth IRA contribution across 5 to 10 years is more than enough for a 20% down payment on a house that you can afford.


B) Why do you want to pay more taxes instead of contributing to the 403(b)?


What is the price of the house that you are looking for?


Back to my question, why do you need to save for a house down payment? There is no reason to do that.

A) What is the price of the house that you are planning to buy?


B) What is 20% of that?


KlangFool
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

OP,



FYI. You can use the Roth IRA to store your emergency fund too.


https://www.bogleheads.org/wiki/Roth_IR ... gency_fund


KlangFool
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

KlangFool wrote: Sun Sep 20, 2020 2:26 pm
bwn wrote: Sun Sep 20, 2020 1:06 pm
lazynovice wrote: Sun Sep 20, 2020 1:02 pm
bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
Yes. Look at your 403(b) plan information regarding loans, rates and repayment terms. It was always the repayment terms that bugged me, so I did not go that route.
In addition to the strategy above, I want to separate our retirement savings from home savings, would it make sense after emergency savings, maxing out Roth IRA, and putting some money into the 403(b) to have a separate savings account for a house? If so, what is the best place to put this money? Taxable brokerage account, money market account, money market fund, or CDs? The goal would be to match inflation and protect the money we save from market swings?

bwn,

<<I want to separate our retirement savings from home savings, >>


A) Why? If you do that, you will pay more taxes.


You can access your Roth IRA contribution at any time for any reason without tax and/or penalty. Your Roth IRA contribution across 5 to 10 years is more than enough for a 20% down payment on a house that you can afford.


B) Why do you want to pay more taxes instead of contributing to the 403(b)?


What is the price of the house that you are looking for?


Back to my question, why do you need to save for a house down payment? There is no reason to do that.

A) What is the price of the house that you are planning to buy?


B) What is 20% of that?


KlangFool
Thanks for the response!

I've read that you shouldn't plan on having to use any retirement savings (Roth IRA) for emergency expenses. That is why I was trying to create a separate 3 month emergency savings account.

If I did put money to a 403(b), rather than a different account for home savings, would I be able to pull money out of that account for a down payment or would there be fees due to pulling before age 65?
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

bwn wrote: Sun Sep 20, 2020 2:56 pm

Thanks for the response!

I've read that you shouldn't plan on having to use any retirement savings (Roth IRA) for emergency expenses. That is why I was trying to create a separate 3 month emergency savings account.

If I did put money to a 403(b), rather than a different account for home savings, would I be able to pull money out of that account for a down payment or would there be fees due to pulling before age 65?
bwn,


<<I've read that you shouldn't plan on having to use any retirement savings (Roth IRA) for emergency expenses. >>

There is no such thing as "retirement savings" and/or "Retirement Account".


A) They are tax-advantaged accounts.


B) Money is fungible.


<<If I did put money to a 403(b), rather than a different account for home savings, would I be able to pull money out of that account for a down payment or would there be fees due to pulling before age 65?>>


Back to my question again. Why do you need to pull money out of 403(B)? What is the price of the house that you plan to buy? If you go through the calculation and planning, you will find out that it is not possible you need you need to do this.

More stuff for you to read.


https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
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mmmodem
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Re: Best Vehicle for Home Savings

Post by mmmodem »

bwn wrote: Sun Sep 20, 2020 12:59 pm
mmmodem wrote: Sun Sep 20, 2020 11:54 am Hahaha. Gotta love Klangfool responses. When I was younger, I saved in a high yield savings account, 401k loan, Roth IRA. In that order. We bought a low enough cost home that the HYSA was enough for 20% down without having to touch retirement accounts.

Now, that I am older, I don't save for anything. Everything is invested tax efficiently and at my asset allocation. I will liquidate whatever costs me the least in taxes. My AA will be rebalanced accordingly.
Thanks for your feedback! I'm currently maxing out my Roth IRA and creating a 3 month emergency fund. Once the three month fund is complete, then I'm planning to start putting additional savings in a 403(b). Does this process make the most sense strategically? I'm not familiar with a 401k loan, so I'll have to look into that.
I'm not familiar with a 403b, you'll have to read up on it. Your process makes sense to me. Meet the match in your 403b first, then second max out your Roth IRA. As Klangfool said, you don't need a separate emergency fund if you have your Roth IRA. The Roth IRA is your EF.

When it was unknown when I would buy a home, I contributed as much to my 401k as possible knowing I can take out a loan or even take out a distribution for a primary home purchase without penalty. I suspect a 403b will be very similar. I didn't want to pay unnecessary taxes when I don't know what when the purchase will happen. As soon as we knew exactly when, I stopped contributing beyond the match.

This is due to 401k rules for distribution or loans. There are risks and complications. You may have to pay it all back immediately if you are no longer employed, there's extra paperwork to prove where the money came from to qualify for the loan and to prove you are buying a primary home. The amount you can borrow may be impacted by the size of the loan. And so on. So while it is possible use my 401k, I'd like to avoid it if at all possible.

So I would continue doing what you are doing sans the separate EF savings.
chassis
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Re: Best Vehicle for Home Savings

Post by chassis »

bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?

@bwn You mentioned inflation a couple of times, and protecting the money from market swings. Is this correct? If I said you have low risk tolerance, would this be accurate in your view?

Look at a direct online cash account. Interest rates are in the range of 0.75% now. The rates fluctuate. Or put the money in a 5 year CD for a similar interest rate. I don't like CDs because of the maturity requirement (can't touch your money). The direct online cash account gives a similar interest rate as a CD but your money is always accessible.

Or put the money in a savings account at your bank/credit union. No inflation hedge there, but protected from market swings, and FDIC insured.

The Federal Reserve has given guidance (my words now) will allow higher inflation than 2% for as long as they think it makes sense. It might take years to achieve 2% inflation, let alone higher than 2%. So the 0.75% interest rate is a reasonable inflation hedge for now.
Mode32
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Re: Best Vehicle for Home Savings

Post by Mode32 »

Meet the match in your 403b first, then second max out your Roth IRA.
I may have missed it, but if you’re not at least contributing 403b employer match percentage, I would consider that before anything else because it’s free money you would otherwise miss out on.
oldfort
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Re: Best Vehicle for Home Savings

Post by oldfort »

If you're in a market where it makes more sense to buy than rent, I would look for ways to buy sooner than 10 years in the future. Either buy a home with less than 20% down or look at less expensive homes.
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bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

oldfort wrote: Sun Sep 20, 2020 10:05 pm If you're in a market where it makes more sense to buy than rent, I would look for ways to buy sooner than 10 years in the future. Either buy a home with less than 20% down or look at less expensive homes.
I've read that with less than 20% down you have to pay much higher fees (e.g., mortgage insurance). Can you provide more specifics?
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

Mode32 wrote: Sun Sep 20, 2020 9:27 pm
Meet the match in your 403b first, then second max out your Roth IRA.
I may have missed it, but if you’re not at least contributing 403b employer match percentage, I would consider that before anything else because it’s free money you would otherwise miss out on.
Unfortunately, there is no employer match.
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

chassis wrote: Sun Sep 20, 2020 8:39 pm
bwn wrote: Sun Sep 20, 2020 11:07 am If you were 5-10 years out from putting 20% down on a house, what is the best place to save money to fight inflation while protecting the savings from market swings?

@bwn You mentioned inflation a couple of times, and protecting the money from market swings. Is this correct? If I said you have low risk tolerance, would this be accurate in your view?

Look at a direct online cash account. Interest rates are in the range of 0.75% now. The rates fluctuate. Or put the money in a 5 year CD for a similar interest rate. I don't like CDs because of the maturity requirement (can't touch your money). The direct online cash account gives a similar interest rate as a CD but your money is always accessible.

Or put the money in a savings account at your bank/credit union. No inflation hedge there, but protected from market swings, and FDIC insured.

The Federal Reserve has given guidance (my words now) will allow higher inflation than 2% for as long as they think it makes sense. It might take years to achieve 2% inflation, let alone higher than 2%. So the 0.75% interest rate is a reasonable inflation hedge for now.
I actually have 90% stocks and 10% bonds right now, so I would say that I have higher risk tolerance. I guess I was just looking for a safer place to put this extra savings.
Topic Author
bwn
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Re: Best Vehicle for Home Savings

Post by bwn »

When it comes to this particular question, I had read
"what I would do is make sure you have your emergency fund in place of three to six months of expenses, and of course you are debt-free to boot. The rest of the money we just pile up over in a money market account. It’s not going to earn you much money. It’s just a safe place to park the money to save as quickly as you can to buy something.I think the problem is that if you start sticking money in mutual funds, and then the housing market is down six months later when you are ready to buy, then you’ve actually lost some money. That’s not the route I want to go. I will forego making money to keep it safe for this particular goal."
Many of you have recommended not having a separate savings for a house down payment from your normal investments. If this were the case, are you suggesting to just pull money from a 403(b) and Roth IRA for the down payment?
KlangFool
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Re: Best Vehicle for Home Savings

Post by KlangFool »

bwn wrote: Mon Sep 21, 2020 7:22 am When it comes to this particular question, I had read
"what I would do is make sure you have your emergency fund in place of three to six months of expenses, and of course you are debt-free to boot. The rest of the money we just pile up over in a money market account. It’s not going to earn you much money. It’s just a safe place to park the money to save as quickly as you can to buy something.I think the problem is that if you start sticking money in mutual funds, and then the housing market is down six months later when you are ready to buy, then you’ve actually lost some money. That’s not the route I want to go. I will forego making money to keep it safe for this particular goal."
Many of you have recommended not having a separate savings for a house down payment from your normal investments. If this were the case, are you suggesting to just pull money from a 403(b) and Roth IRA for the down payment?
bwn,

1) Why do you need to do that?


2) Your annual savings has to be high enough to fund 403(b), Roth IRA, and the Emergency Fund for a few years in order to buy the house.

3) What is the price of the house that you can afford to buy if (2) is not true?


4) You need to save at least 20K to 30K per year in order for (2) to be true.


KlangFool
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mmmodem
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Re: Best Vehicle for Home Savings

Post by mmmodem »

bwn wrote: Mon Sep 21, 2020 7:22 am Many of you have recommended not having a separate savings for a house down payment from your normal investments. If this were the case, are you suggesting to just pull money from a 403(b) and Roth IRA for the down payment?
To be honest, I think most people would recommend you save separate from retirement accounts for a home. Probably in money market, CD's or HYSA that will lose to inflation.

I think you're better off in tax advantaged accounts when the future is far off. I am living 3000 miles on the opposite side of the country. 3 years ago, I would've never imagined this. I think it's a safe bet that 5-10 years from now, your life situation will not be what you have planned today. Accepting that premise, why pay extra in taxes on your savings? You have tax advantaged accounts. Use them. You can take them out later penalty free to buy a home.

It's the same thing with private mortgage insurance. Why pay PMI when you can save the 20% to avoid it? It's paying extra to buy the same thing. If you can't save 20%, I would argue you can't afford the home.

Many think it's sacrilege to pull from retirement accounts for anything but retirement. But money is fungible. If you hadn't funded the 403b you would've saved in a taxable account instead. The money is the same. There would be more of it in the 403b because it is tax deferred.

My opinion changes when home buying is more defined. You have a date range much shorter than 5-10 years. You have a price range. You know what type of home to buy. And so on. That's when you can no longer take risks with market swings. Now you save in a HYSA or similar that will not beat inflation but you won't lose principal.

The Holy Grail is that you manage to save that amount in cash without touching retirement accounts. As someone who purchased a home in HCOL area Bay Area, CA without a 6 figure salary with 20% down in a nice neighborhood, I would say this is absolutely possible. I had my 401k loan and Roth IRA as backup if needed. They did serve as our emergency funds as we nearly emptied out our savings accounts for the down payment and closing costs.
oldfort
Posts: 1902
Joined: Mon Mar 02, 2020 8:45 pm

Re: Best Vehicle for Home Savings

Post by oldfort »

bwn wrote: Mon Sep 21, 2020 7:16 am
oldfort wrote: Sun Sep 20, 2020 10:05 pm If you're in a market where it makes more sense to buy than rent, I would look for ways to buy sooner than 10 years in the future. Either buy a home with less than 20% down or look at less expensive homes.
I've read that with less than 20% down you have to pay much higher fees (e.g., mortgage insurance). Can you provide more specifics?
With good credit, PMI can be 0.5% or less of the loan balance. This is one factor in home affordability, but hardly the most important one. It's like the difference between buying a home when interest rates are at 4% instead of 3.5%. Unlike interest rates which are fixed for the life of the loan or until you refinance, PMI typically goes away after your mortgage balance is less than 78% of the purchase price.
https://www.bankrate.com/mortgages/pmi- ... it-scores/
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