Hi! I'd like to invest more in the stock market (esp during times like this) but I am also saving for a down payment. What % of my net pay should I use for investments vs house down payment?
Would it be silly to delay purchasing a house so I can invest more of my money in the stock market? Here are the pros/cons I see.
Pros
Flexibility. Who knows where my career might take me?
I can always sell my stocks if I want to purchase a house (stock market could tank when I want to buy a house though)
I can take more risks with my career
Cons
I live in a VHCOL area. House prices may continue to go up.
The way your post reads, it seems you're somewhat indifferent toward buying a house.
Most people I've known who are saving for a house will NOT be deterred from their goal. They wouldn't consider putting their house money in the stock market. It would be considered too risky.
Do you really want a house?
Buying a house can be a great experience, but it does come with additional costs and maintenance. If this isn't something you're looking forward to, then you may have your answer.
Perhaps I’m wrong about this, but it seems that you are viewing the current market as an optimal time to buy without having a plan in place. If this is the case, then I recommend spending some time reading the wiki, especially the sections on crafting an Investment Policy Statement. This will help you articulate your goals and objectives, think like a long-term investor, and avoid trying to time the market.
You can invest like a Boglehead while still reaching the goal of homeownership. But please don’t make decisions based on what your peers are (or aren’t) doing. You have your own life to live. Best to you.
salt_drummer wrote: ↑Wed Mar 15, 2023 8:35 pm
Hi! I'd like to invest more in the stock market (esp during times like this) but I am also saving for a down payment. What % of my net pay should I use for investments vs house down payment?
Would it be silly to delay purchasing a house so I can invest more of my money in the stock market? Here are the pros/cons I see.
Pros
Flexibility. Who knows where my career might take me?
I can always sell my stocks if I want to purchase a house (stock market could tank when I want to buy a house though)
I can take more risks with my career
Cons
I live in a VHCOL area. House prices may continue to go up.
I like having a home of my own
FOMO. Friends are buying homes.
If you live in an area where employment is heavily dependent on the tech industry, then it's probably worth waiting to buy a house. Things are going to get painful.
That may also be true of Financial Services (basically: New York). This Credit Suisse thing has the potential to be Lehman-like. It won't be, because the authorities have & will act, but it's a measure of the importance of that risk, which is now showing up.
Wait. I agree with all of your Cons and your Pros are tepid at best. “FOMO - friends are buying homes” is, pardon my bluntness, lame.
I advise my kids and any young people who will listen that renting can be a great solution. Geographical liquidity should not be underestimated. Having a house is a bit like having children (coincidentally, the urges often occur together). When it’s time, if it ever is, you will know.
To the OP, I would wait on the house. Rates will come down as inflation cools (my guess is within the next year or so). I also think that prices will continue to come down over that time, even in high cost areas.
Money saved for the down payment should not be in stocks though. Just pile it up in VMFXX (or similar).
I think this is more of a "net worth" decision than a "net pay" decision. Timing the market is great if you could do it, but obviously we're talking here about timing two markets. In this case I'd want to be ready to buy a house because of offsetting the rent. That tends to make it a bit of a bargain in my way of looking at it.
So the good news is there's no reason to hurry in either market as far as we know. By taking your time, you may not get a better deal, but you can certainly look for a house where you like the intangibles better. I don't know if house prices came down where you are, I hope so. They will certainly go back up eventually. Where I am, they haven't gone down.
It depends why you're buying a house. If you're buying a house because you want a long-term place to live, you should do so when you can reasonably afford it without being stretched. If you think it will be a good investment that's probably a mistake since a house is undiversified, so much riskier than diversified stocks/bonds.
Either way, yes, investing in stocks and bonds now a is a good idea. If you don't intend to use the money right away it's always a good idea.
salt_drummer wrote: ↑Wed Mar 15, 2023 8:35 pm
Hi! I'd like to invest more in the stock market (esp during times like this) but I am also saving for a down payment. What % of my net pay should I use for investments vs house down payment?
Would it be silly to delay purchasing a house so I can invest more of my money in the stock market? Here are the pros/cons I see.
Pros
Flexibility. Who knows where my career might take me?
I can always sell my stocks if I want to purchase a house (stock market could tank when I want to buy a house though)
I can take more risks with my career
Cons
I live in a VHCOL area. House prices may continue to go up.
I like having a home of my own
FOMO. Friends are buying homes.
Home ownership is fine to seek, but I would tend to not take it lightly. I do not want to rely on a VHCOL income to fuel a VHCOL home because one cannot guarantee that VHCOL income. My concern is that if the VHCOL income downgrades, the home could downgrade, but the mortgage still remains VHCOL.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
ThEre is a real aversion here to timing the market, which is true. The market is also on sale right now, not so much the real estate market (high interest rates, few houses on the market, etc). Make hay when the sun is shining (cheap markets). I invested last year, pretty much at the top of the market, an inheritance, but DCA’ed from $115 To $ $98 VTSAX and Vanguard total bond market $10.60 per share (AA 50;50). I have 4 more months till retirement and a pension, and it drives me crazy not to buy more total market, but I need the cash now, so my investing days care coming to a close. But damn, seeing VTSAX at $94 makes me cranky.
A house is a lifestyle and not an investment. To me this is a bad time to buy given the high interest rates and probably more market decreases in home prices in certain areas. If you are in a tech heavy geographic region I would definitely wait. If you are employed by tech or a tech dependent job red lights should be flashing in your head and you should be padding your emergency fund. It also looks like banking could be headed for some choppy times. If your in a secure job and want the lifestyle then go for it.
You can't time the house market
You can't time the stock market
Both can go down or up.
Luck plays a bigger role then skill
Buy a house when your fiscal situation and lifestyle aline for home ownership and ready to stay in one place at least 5 to 10 years. Until then rent.
Buy index funds not individual stocks
bikeeagle1 wrote: ↑Thu Mar 16, 2023 8:43 am
To the OP, I would wait on the house. Rates will come down as inflation cools (my guess is within the next year or so). I also think that prices will continue to come down over that time, even in high cost areas.
Money saved for the down payment should not be in stocks though. Just pile it up in VMFXX (or similar).
Financial media, our real estate agent, several posts on here say mortgage rates will come down. The avg since 1970 is 7.75 and we are at 6.6 now. The last 10 years or so with mortgages at around 4 weren’t normal. Why would they go back there?
bikeeagle1 wrote: ↑Thu Mar 16, 2023 8:43 am
To the OP, I would wait on the house. Rates will come down as inflation cools (my guess is within the next year or so). I also think that prices will continue to come down over that time, even in high cost areas.
???
But if rates come down, why would house prices come down?
Often house prices go up when rates go down.
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CaptainT wrote: ↑Fri Mar 17, 2023 10:47 am
You can't time the house market
You can't time the stock market
Both can go down or up.
Luck plays a bigger role then skill
Buy a house when your fiscal situation and lifestyle aline for home ownership and ready to stay in one place at least 5 to 10 years. Until then rent.
Buy index funds not individual stocks
There is no perfect answer here. If we are sharing opinions, I personally would prioritize a house as I sincerely do not like renting; but that’s my personal preference. I also prefer not having a mortgage; so I paid cash on my most recent primary residence in 2020 even with rates having been at an all-time low.
My point here is people will say buying a house is worse than renting or vice versa, but do what is best for you and your current situation. If you need a house and you can comfortably afford it, buy it. If you don’t care to own, then don’t and invest your “down payment” (DCA/lump) into the market while continuing to rent.
I bought SFH real estate well before I contributed to the stock market as that’s what I understood best and needed most — it eventually allowed me to contribute significant amounts to the stock market in my mid 20s; but I acutely remember growing up and watching my parents suffer through 2007/2008’s real estate crash.
CaptainT wrote: ↑Fri Mar 17, 2023 10:47 am
You can't time the house market
You can't time the stock market
Both can go down or up.
Luck plays a bigger role then skill
Buy a house when your fiscal situation and lifestyle aline for home ownership and ready to stay in one place at least 5 to 10 years. Until then rent.
Buy index funds not individual stocks
x infinity. In some markets housing prices are not cyclical but instead geometric. My parents bought their house for 36K and it sold decades later for almost 300K. It was a steady march upwards the whole time. But there is real estate near where I live that has gone just as steadily down due to many factors, none that could have been easily predicted. Nothing economic can be reliably timed. If it could, then everyone would be a millionaire.
If it were me, I’d delay buying a house for a year or two and invest all the money in the market. Will that be the correct answer in the end? Who knows. But I think more likely than not it will be.
Background: I have a high risk threshold. I was buying bank stocks Thursday and Friday. But my core investments are index funds. I own no bonds.
For long term investment performance, a diverse stock portfolio will outperform the overall RE market 11 times out of 10. Will it do so where you live? No one knows. Your house is an expense not an investment. Make sure you are putting away enough young enough that it can grow into a nice sun when you are older. Then you can buy a house if you want to. But always make investments the first priority.
OP,
Are you married or about to be married?
If not is that something you want in the future?
What about kids? Same questions.
Houses are great to plant roots and build a family. As you said renting gives you flexibility and at a young age I think building wealth and progressing in your career is far more important than weighing yourself down by home ownership. Plus, once you are getting married, your spouse may want a home that’s different than what you have forcing you to move incurring costs.
salt_drummer wrote: ↑Wed Mar 15, 2023 8:35 pm
What % of my net pay should I use for investments vs house down payment?
I'm not necessarily suggesting it but this is what I did and would do again.
Save as much as possible and invest with balance (something like 60 stock /40 bonds) across taxable and tax advantaged. Sell from the taxable and rebalance when you want to buy a house. Obviously, the percent you can save increases as your disposable income rises.
It may be a matter of circumstance, but I have never purchased a home priced higher than 50% of my total net-worth. My threshold for a down payment in a non-recourse state would probably be around 20% of my net-worth. A 20% loss of net-worth wouldn't disturb me if it was a one time event.
salt_drummer wrote: ↑Wed Mar 15, 2023 8:35 pm
Hi! I'd like to invest more in the stock market (esp during times like this) but I am also saving for a down payment. What % of my net pay should I use for investments vs house down payment?
Would it be silly to delay purchasing a house so I can invest more of my money in the stock market? Here are the pros/cons I see.
Pros
Flexibility. Who knows where my career might take me?
I can always sell my stocks if I want to purchase a house (stock market could tank when I want to buy a house though)
I can take more risks with my career
Cons
I live in a VHCOL area. House prices may continue to go up.
I like having a home of my own
FOMO. Friends are buying homes.
Stocks and houses are vastly different things. Stocks are numbers on a computer. A house is a physical object with monthly payments that requires near constant upkeep. It can be essentially a second job. But it’s also your house and you can make it however you want.
I don’t think the comparison works because they are too different. And also - I’m not sure either investment would do well in the near term. Rates are high and stocks are (maybe) overvalued. In the longterm, both might be a good investment.
What I’d tell anyone is if you want a house, buy well below your means. Buy the smallest, cheapest house you can feel comfortable living in. Then use the extra money to invest or do other things that make you happy. Don’t become house poor.
bikeeagle1 wrote: ↑Thu Mar 16, 2023 8:43 am
To the OP, I would wait on the house. Rates will come down as inflation cools (my guess is within the next year or so). I also think that prices will continue to come down over that time, even in high cost areas.
???
But if rates come down, why would house prices come down?
Often house prices go up when rates go down.
Because rates will come down due to a recession, which will further deflate the massive everything bubble, including housing.
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