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

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

    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!

    #2
    Money market, CD or High Interest savings.

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      #3
      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.
      Steve

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        #4
        Originally posted by disneysteve View Post
        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).

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          #5
          Originally posted by jIM_Ohio View Post
          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".

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