Best kind of account to save for a home down payment?

[vthokie06]

Hi everyone,

I'm curious what people's thoughts are on opening an account to start saving for a home, like where to do it, what kind of account to use, etc.

So far I have an EF in high interest savings, along with an account saving for a car. I also have a Roth IRA fully funded for its short lifetime.

I'm single and in my early twenties, so I have awhile to save.

Thanks in advance!

[fruitbowlk]

Money market, CD or High Interest savings.

[disneysteve]

What is your timeline? If it is less than 5 years, I'd do a high yield money market or CD. If it is more than 5 years, I'd probably put a portion, maybe 20-30%, into the market in a broad based index fund like a Total Stock Market index.

[jIM_Ohio]

Originally Posted by disneysteve

What is your timeline? If it is less than 5 years, I'd do a high yield money market or CD. If it is more than 5 years, I'd probably put a portion, maybe 20-30%, into the market in a broad based index fund like a Total Stock Market index.

Same question here- how long will it take you to accumulate down payment?

If less than 2 years, do cash, CDs and money markets.
If 3-5 years, I might consider taking on more risk because you have some compounding which will help (if you get a 15% annual return in those 5 years, your downpayment could double).
If 5-10- years I would clearly take on some more risk, because with a 7% annual return, your down payment could double.
If greater than 10 years, I would definitely have a plan which accounted for higher returns and inflation.

If you are investing money in stocks, my guideline is no more than 10% in stocks for every year out (so 2 years out is 20% equities, 3 years 30%, 7 years 70%, 10 years would be where I might consider 100% equities). Going more conservative than the 10% guideline is where I would think it is prudent (meaning maybe it's only 7% per year and not 10%).

If I had to pick three mutual funds to consider for this it would be
PRPFX (25-30% stocks, very moderate risk)
RPSIX (15% stocks, 85% bonds, lowest volatility)
Vanguard Wellesley (40% stocks-60% bonds- highest risk of the three).

[noppenbd]

Originally Posted by jIM_Ohio

If I had to pick three mutual funds to consider for this it would be
PRPFX (25-30% stocks, very moderate risk)
RPSIX (15% stocks, 85% bonds, lowest volatility)
Vanguard Wellesley (40% stocks-60% bonds- highest risk of the three).

I am not sure that I would consider PRPFX "very moderate risk" just because the portion of stocks it holds is relatively small. The 3-year standard deviation is 6.63, compared to Wellesley with 3.24. PRPFX is 25% precious metals which I see as volatile these days.

It's not just me, either. Morningstar considers PRPFX "high risk/high return" and Wellesley "avg risk/high return".