Investment vehicle for home down payment?

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DeadCactus

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I have a down payment on a home saved up but I won't be buying for at least 1 year and possible 5+ years. Trying to decide the best place to store it. Money market? CD? Split between stocks and bonds?

Any suggestions?

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I have a down payment on a home saved up but I won't be buying for at least 1 year and possible 5+ years. Trying to decide the best place to store it. Money market? CD? Split between stocks and bonds?

Any suggestions?

Money market or CD. While the share value of $1 cannot be guaranteed in a money market account, it's been mighty reliable historically.

With an investment horizon of 5 years or less, stocks and bonds don't make any sense.
 
Don't write off stocks and bonds yet. I have a friend whom doesn't have any school debt, owns a home and car, and he's 27... I jokingly tell him to screw medical school and stick to what he is obviously good at (not that he's a bad student).

Stocks can be risky but also very rewarding. Bonds are at least more diversified and are considered a safer bet. Check into something like (SPY) which is a fund that corresponds to the S&P 500. It again won't have the growth potential but can shield you from one bad company.

If you are definitively not a risk taker, I would do an I series bond, not a CD. But the catch is you can only purchase 10k per year. They are inflation protected; keep in mind inflation is ~3% per year.

IMO i'd check out a fund, they're generally stable and can provide you something along the lines of 4-5%.

But keep your eye out for the next big thing, Netflix has gone up 500%+ from 2005-2010.
 
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In my estimation given your timeframe, I-bonds make perfect sense. They've got built-in inflation protection, they're yielding more than CDs, and they're much more stable than other market products. You can only buy 10k per person per year worth of i-bonds. I'm assuming you're married? And if you have a kid, you're looking at 30k per year purchased.

You do make your assets illiquid for the first 12-months when you buy I bonds (ie can't redeem them within this period), but after that, they're very liquid, and you can just drop into a bank and pick up your funds. You do forfeit interest paid on the last 3 months if you use them within 5-years.

I'd be cautious with bonds/bond funds, or at the very least look at a short-term bond fund. They've never dropped by more than 10% or so in a given year, but with interest rates this low, it's hard to have a bullish perspective on them (not their purpose, anyway).

Stocks are obviously volatile. Yes, Netflix can go up by 500%. But that also means it can suffer a similarly disastrous decline. I wouldn't invest in something so volatile as individual stocks when you have such a short time horizon before you need the money. If it were my money, I'd shy away from stocks on such a short time horizon.

I see no advantage to a money market fund over i-bonds other than the money market is more liquid and acts as a better emergency fund (for the first 12-months). The only advantage to CDs is that you can purchase more than 10k per person per year.
 
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Curious where people stash their down payment funds these days. Say you were looking to buy in ~2 years.

I bonds would still be a good choice as well as CDs, a high interest savings account, or money market account. A 2 year time frame would not be something you'd want to rely on stocks or bonds for...
 
No, wasn't thinking about stocks or bonds. I am putting it in a savings account for now.

What kind of interest rate does your savings account get? I use Ally bank and get 0.87% on my savings--I have no complaints about the bank thus far. :)
 
What kind of interest rate does your savings account get? I use Ally bank and get 0.87% on my savings--I have no complaints about the bank thus far. :)
I have mine with CIT. It's about the same. You can't get much better than that rate anywhere else that I'm aware of. "High interest" is all relative. :-d
 
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