Portfolio for Saving for a House: Series-I Bonds and … ?

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Topic Author
Dolcetto
Posts: 77
Joined: Wed Sep 13, 2017 2:50 pm
Location: Michigan

Portfolio for Saving for a House: Series-I Bonds and … ?

Post by Dolcetto »

Hello! I genuinely appreciate all of the help that I’ve gotten on this forum over the years. What a tremendous resource and community.

I have approximately $30K saved for buying a house and plan to save at least another $20-30K/year for the next few years (I will continue to max out both 401K and Roth IRA). My intent is to keep this money in relatively safe investments and perhaps earn a little. If I have two goals, they are to (1) protect against inflation and (2) hedge against housing cost increases, but I understand that I likely can’t meet those goals perfectly given my desire for low risk.

Until recently it was all in a so called “high interest” (not right now) savings account, but I bought the maximum $10,000 of Series I Bonds and intend to do so each year. I understand the 1-year no selling rule and will not buy any after one year before I am ready to buy a house. I also understand losing three months of interest if sold before five years and consider that penalty insignificant.

Learning about I-bonds got me thinking, should I invest part of this money in some sort of real estate investment— maybe a REIT fund?

My questions are, concisely:
1. Is there another investment that I could buy, other than the maximum amount of I-Bonds, that offers similar inflation protection and low risk?
2. Should I invest part of this money in some sort of real estate investment? Which one?
3. Among one, two, and “high interest” savings, what should my allocations be? What should my house savings portfolio look like?

Thanks, as always. :sharebeer
“Wealth consists not in having great possessions, but in having few wants.” —Epictetus
calwatch
Posts: 1050
Joined: Wed Oct 02, 2013 1:48 am

Re: Portfolio for Saving for a House: Series-I Bonds and … ?

Post by calwatch »

If you know you aren't going to buy a house prior to one year being up, and since you already have a Treasury Direct account, I would definitely consider T-Bills as they pay more than high yield savings accounts or the equivalent 1 year CDs. While you could buy a residential REIT or a REIT index fund (which are mostly in office buildings and commercial, as the old residential REIT ETF REZ ended up diversifying into self storage and health care), the fluctuation in that category may not match your local market conditions. So if you want safe and are already doing I Bonds T-Bills are the next logical choice.
mega317
Posts: 4842
Joined: Tue Apr 19, 2016 10:55 am

Re: Portfolio for Saving for a House: Series-I Bonds and … ?

Post by mega317 »

Best Year Worst Year Max. Drawdown
16.61% -8.92% -12.50%
40.19% -37.05% -68.28%

One of these is an inflation protected investment other than I bonds, and the other is some sort of real estate investment. Which would you rather use for a large sum of money that you may need soon?

Link for the reveal:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
https://www.bogleheads.org/forum/viewtopic.php?t=6212
Atgard
Posts: 452
Joined: Wed Apr 09, 2014 2:02 pm

Re: Portfolio for Saving for a House: Series-I Bonds and … ?

Post by Atgard »

It's not fancy and won't make you a ton, but if you know you'll be buying a house in 3 years, I would continue buying I-bonds to the max as you say. For the rest, this year, buy a 3-year treasury or CD. Next year, buy a 2-year; the year after, buy a 1-year.

It's not glamorous. Those 2-3 year Treasuries & CDs are paying around 2.5%–3%. But it's completely safe and better than nothing -- and much better than a big loss right when you need the money.
000
Posts: 7652
Joined: Thu Jul 23, 2020 12:04 am

Re: Portfolio for Saving for a House: Series-I Bonds and … ?

Post by 000 »

Well, there's always REZ, AMH, and INVH, but note that REITs are quite levered and of course may not track your particular market or timing.
Topic Author
Dolcetto
Posts: 77
Joined: Wed Sep 13, 2017 2:50 pm
Location: Michigan

Re: Portfolio for Saving for a House: Series-I Bonds and … ?

Post by Dolcetto »

Thank you all for the advice. Mega317’s comparison of TIPS to REITs was especially illustrative. Originally I was thinking of maybe allocating 10-20% to REITs, but due to the risk and lack of available owner-occupied residential REITs with a regional focus I’m thinking the risk is too high and the extra complexity isn’t worth it. Thank you Calwatch and 000 for the comments about REITs.

So, that plan now is to really max out the I-Bonds and perhaps buy some treasuries or CDs as Calwatch and Atgard suggested. I don’t want more than a one year commitment to any asset, however, so that limits my options. I’ve read on the Boglehead’s Wiki and elsewhere on this forum that one can make an income tax prepayment and then use the refund that generates to purchase up to $5,000 in paper I-Bonds, which can then be converted to electronic by mailing them to the treasury. That would allow me to buy a total of $15,000/year. It’s a hassle, but if the inflation indexed interest stays high, may be worth the effort.

Given the above, best-case I manage to keep up with inflation and am lucky enough to buy at a discount during a housing crash; worst-case, I almost keep up with inflation, housing values continue to increase, and I buy at those prices. I’d be fine with either.

Thanks again. :beer
“Wealth consists not in having great possessions, but in having few wants.” —Epictetus
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