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More Down Payment Investment Thoughts

April 25th, 2013 at 04:12 pm

I'm still researching and pondering this down payment investment. I briefly mentioned putting the down payment money into a stock fund to my husband. He seemed surprised. I did tell him I wasn't sure yet, so I think he just let it be.

If only we could know the future or expect future results based on prior returns...but we can't. I know that if I lock the money into a CD for 15 months I can get 1.50%. Maybe I should be happy with that given interest rates.

I went to Vanguard again to use a tool they have to suggest recommended investments. Including our risk tolerance, investment time frame the tool suggested 60% in the Bond Index, 28% in Total Stock Market Index, and 12% in International Stock Index.

This is slightly different from another recommendation the site gave me another time. I think that time I put in a longer time before withdrawal. Likely three years rather than 2 year or less that I picked this time.

I tend to like the newer suggestion only because only some of the money is put in stocks to take advantage of market appreciation. The rest stays in bonds were it is likely to be more stable while interest rates are this low.

I really am aware that putting money that we need or may want to use in 2 years in the stock market is generally a big no. I can't ever see myself advising anyone else to do that same investment for such a short period of time, but right now all I am doing is pondering my options.

I'm just so frustrated with low interest rates! And I don't want inflation to erode the purchasing power of this money. I'm sure I'm not the only one who is looking for something better.

I appreciate everyone's interest and input in the topic. Feel free to share more ideas and thoughts. will not be deciding anything this week. In fact, I have company coming and a small trip planned and hope to even get out in the yard and enjoy spring this weekend.

11 Responses to “More Down Payment Investment Thoughts”

  1. ceejay74 Says:

    Yeah, I don't have to decide until later this year. But I'm glad to be thinking about it earlier rather than later!

  2. baselle Says:

    Good to plan ahead for this. I'd be careful with bonds - bond interest and bond value go in opposite directions (low interest, high value/high interest, low value). Bonds might be surprisingly risky - super low interest rates means super high bond value. And when interest rates rise, bond value drops. Who knows when that will happen, but there it is - a good likelihood that bonds won't stabilize your nut if stock prices drop. Definitely don't pick long term bonds, aim for short.

  3. creditcardfree Says:

    @baselle, that is what I was thinking. Bonds must be very high in value right now.

    I didn't say this in my post, but my gut says to put in the stock fund and take the risk. My logical mind says just leave it in the money market or get a CD. Still plenty to ponder.

  4. Petunia 100 Says:

    I think putting some of your down payment fund into stocks is fine. But not all!

    Before I bought my current house, I was keeping my down payment fund (65k) 70% in cash, 15% in Vanguard Total Stock Market Index, and 15% in Vanguard Total Intl Stock Index. It grew nicely. If the stocks had tanked, I still had the option to put less down and give the stocks time to recover.

  5. MonkeyMama Says:

    To put it basically, this is market timing. Current market returns (alone) is not a good reason to change underlying risk. (This basic investing principle seems to be forgotten by most in this day and age - low interest rates for borrowing and on cash - but is a rule still followed by my very well off financial mentors).

    I will now contradict myself. I do believe in considering the overall market when making investment decisions. I lived in the middle of the tech bubble and the real estate bubble, and it was quite predictable. (Not all the details were predictable, but we were literally considering buying an investment property in 2005 and decided not to based on market fundamentals. This was just our "common sense" conclusion, and a very wise one. You don't have to know nothing about nothing - just have some common sense). All this to say, the stock market right now seems entirely unsustainable and so I Would be really wary to put any short term money in there right now. I would be wary anyway (don't put short term money in stock market!), and I would have said the same thing 6 months ago, but it is what it is. It doesn't mean no one ever gambles and wins. It's just that I like to play better odds.

    I like Petunia's answer. The exception is if you are well aware of the risks and you have a Plan B. Petunia had a Plan B. She also got lucky. If you think through the worst case, how you would cope, etc., you would be better off than most people. So, just think it through. I think the decision is less important than the thought put into the decision.

    Another option is to consider is buying individual bonds, like Treasury bonds. Check out mymoneyblog, he has had a lot of discussion about buying treasury bonds.

  6. My English Castle Says:

    I'm not a big fan of bond funds. I like MM's idea of individual bonds rather than the funds. Sometimes bond fund managers strive to hit certain targets and their trading expenses and missed targets often come of of fund yields.

    I'm completely with you on the low yields. It's so frustrating.

  7. rob62521 Says:

    I am with you...hate the low interest rates.

  8. snafu Says:

    MM had set it out very well. I was attempting to caution about Bond Funds due to the risk/reward ratio. Your short time frame for an important purchase is critical in this instance. Would you be ok with investing a percentage of savings? While the market has been mostly positive, the underlying foundation is wobbly, unemployment/underemployment is still high, government debt is tottering with GDP, QE means they are printing money, people individually [not SA] are carrying too much debt etc.

  9. creditcardfree Says:

    @snafu, yes I would consider investing a portion of the savings. I will be thinking about what percentage might make sense in the coming days.

  10. scfr Says:

    ccf - Do you have BBVA/Compass in your area? If so, you may want to add their "Build My Savings" Account to your list of options. You save a fixed amount each month and at the end of each year they give you a bonus up to $250. Here is their interactive calculator:

    I played around with it for your 2 year time frame, going for the maximum bonus ($500) with "least" amount of savings. For example, if you initially deposited $1,000 and added $525 per month, you'd get $500 in bonuses over 2 years.

    And I *think* that each person can have up to 3 of these accounts.

  11. creditcardfree Says:

    scfr, thanks for posting that information. We do not have that bank here, but I will look at it to see if that beats any other local savings here, if we are eligible.

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