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Short Term Places for a Downpayment (lemm.ee)

submitted 1 year ago by [email protected] to c/[email protected]

4 comments fedilink hide all child comments

Hi all -

I need reassurance that having 60-80k in cash isn't wild if we plan to buy/look at buying a home in the next 2-3 years. We're in a DINK lifestyle in a LCOL area and are easily saving $2k+ towards specifically a down payment per month.

Currently: 8k is in a Vanguard account and has been invested in index funds for about 2-3 years now 10k is in treasury funds 5k is abroad in a high interest account that's locked for about another year from a grandparents inheritance 5k is in a CD making ~5% APY

I'm thinking that as we start building up more I'll be trying to keep opening 3-12 month CDs on a regular basis as long as rates stay at 5%

But I'm super risk tolerant and part of me sees all the cash laying around as a waste when I could add to the Vanguard account with more stocks. Mostly because until now I haven't had a real timeline for buying and it always seemed so far in the future that keeping it in stocks made sense.

Can someone help me think through what I'm giving up with both options? 5% isn't bad for now but I don't think rates are going to stay so high forever either.

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[–] [email protected] 8 points 1 year ago* (last edited 1 year ago)

If you're firmly going to buy a house in 2-3 years, putting a down payment into stocks just adds volatility to the amount you're putting down, meaning volatility to the type of house you're able to afford and/or whether or not you are able to afford a house at all. Stocks usually go up 10% ish as a long term average, but they could easily go down 20% in both of the next 2 years.

If you're willing to take the risk and maybe wait up to 3 more years or something to actually buy a house, probably putting them in stocks helps you because the money grows faster. But most people, for lifestyle reasons, want a house in the next 2-3 years and that timeline is firm and not really relying on that money to grow. That is why the advice is usually a CD or high yield internet savings account like Ally or Discover.