(Closed) Saving for downpayment. advice

posted 8 years ago in Home
Post # 3
Member
11325 posts
Sugar Beekeeper
  • Wedding: February 2011

In general the rule is that higher reward = higher risk. Moneymarkets guarantee that you don’t lose your money, but they have pretty low return. You could invest in the stock market but thats very risky. Since you’re planning to need that money in 2 years I’d guess you don’t really want to risk losing your savings. I’d recommend that you talk to a financial planner. Surprisingly enough you do NOT need to be rich to have one, and often times they don’t cost anything at all (they get commissions from placing you with different funds). It might seem silly to use one when you don’t have all that much but they love forming relationships at this stage for people in school because they know that some day you WILL have money and you’ll already be comfortable with them. 

Post # 4
Member
50 posts
Worker bee
  • Wedding: December 2010

It depends on the risk you are willing to make. Right now the stock market is a good place because it has gone down so much. But you need to be open to the risk that you could loose it.

CD’s are good too but in your case you would need to find one that you can add money which might not be easy.

You could save for a year and put that money into a CD for a year and then continue saving in a money market.

Money markets seem to be the best IMO for having the freedom to do what you wish and not have any risk of loosing money. If you find a good non local bank they have better rates.

Post # 5
Member
277 posts
Helper bee
  • Wedding: July 2010

If you want a high interest account without it having to be a CD, check out online banks such as ING Direct and HSBC.  ING is offering 1.1% APR on savings accounts right now. In the past, when the market was better, I was getting 3%.

I would probably suggest stocks for you though. If you do enough research, you can buy some conservative stocks and earn dividends as well as gains.

Post # 6
Member
1995 posts
Buzzing bee
  • Wedding: June 2010

I agree – check out some free financial planning.  Often they don’t cost anything unless you make money.  If you invest in Edward Jones they’re free to use.

Post # 7
Member
375 posts
Helper bee

Actually my money market (capital one bank) is doing better than most CD rates currently. I’m getting 1.34%. And I can take the money out whenever.

Post # 8
Member
5271 posts
Bee Keeper
  • Wedding: October 2009

Like others said, I think for your case, the stockmarket is too risky, you want to gurantee in two years that you have at least gained some profit, not lost.

Typically a CD will give you a better rate then a money market, but if you end up changing your mind and want a house sooner then what you initially though, this will burn you. If you can stick to a strict date, I would def go with a CD over money market.

When we were saving we didn’t have a strict time, and we wanted a house sooner then later to take advantage of the first time homebuyers credit, so like another bee suggested, we actually just dumped our money into an HSBC savings account. At the time the rate was almost 3%, it has gone down since then, but it gave us the flexiability to pull out the money whenever we needed it.

Post # 9
Member
2829 posts
Sugar bee
  • Wedding: June 2011

We did piecework like maniacs for 2 summers and then invested our gains into pennystocks. After one year we had seen a 100% return on our investments, which we then used for our downpayment.

We have since re-invested in pennystocks and have seen a 50% return in 8 months.

Now, that is not to say that investing is not risky, it is INSANELY risky, and is basically the root of all our stress. But if you have a good financial advisor that you TRUST it can be really worth it. Also, I would suggest learning about technical analysis and charting long before you decide to make any investments– technical analysis & charting is basically learning to read the stock market or individual stock & can help you learn when to buy & sell & when the stock is consolidating.

If you want something that is super super super safe there are stock options available for that as well, but you wouldn’t see as high a return, but an Financial planner/advisor could direct you.

Post # 10
Member
558 posts
Busy bee
  • Wedding: August 2009

We have a Sallie Mae high-yield savings account. It pays 1.4% APR, and I have it linked to our regular checking account so I can go ahead and transfer and extra savings money we have before we spend it. They also have an auto-saving option that I use. Plus, that’s the best rate I’ve found on just a standard savings account. They offer pretty good rates on CDs, too.

Post # 11
Member
6661 posts
Bee Keeper
  • Wedding: May 2010

We just have our $ in our banks normal savings account since it’s now the same interest as my old ING account. Since the market is so volatile, I am not comfortable investing it in anything and this isn’t just ‘fun’ money, we need it for a down payment.

I don’t want to sound too cynical, but I personally wouldn’t trust a financial planner at this time. Everything is so topsy turvy now as far as who actually benefits when stocks go up and down and when investors like you and me win or lose, I just wouldn’t 100% trust that he/she was acting in our best interest. A lot of investment banks are changing their entire business models now so to be in the interest of the call desk, not the individual investor.

Post # 12
Member
1701 posts
Bumble bee
  • Wedding: October 2010

First of all, congrats on being debt free!  That is a really big accomplishment at any age!  Also, congrats on saving for a house.  I used to be a financial advisor.  The only guaranteed investment is cash and as other bees noted, the returns are a little low.  Stocks MAY offer a better return but the market has been really volatile.  Bonds are not an option because your time frame is too short.

If you are OK with some risk, take a certain percentage and invest in stocks/mutual fund.  If you go the fund route, read the fine print CAREFULLY.  The fees can be tremendous depending on the fund, type of shares, etc.  Invest the remaining (and I recoomend larger) percentage in money market, CDs, etc.  As your money grows, you may be able to negotiate a higher interest rate.

A good financial advisor can be a tremendous asset.  A bad one is a problem.  And the industry is filled with bad ones.  I recommend you interview several before you make any decisions. Once you have a significant amount of money, do NOT invest it all with the same person.

Post # 13
Member
14656 posts
Honey Beekeeper
  • Wedding: June 2011

Have you looked into government bonds?  I’m not too familar with it, but my financial advisor had suggested that to me before. 

Also if you want to invest in the stock market, look into options trading also.  You can buy put options (to protect you from the stock ever falling) and sell covered calls against your stock for additaional income on top of any gains your stock may have.  (this take a LOT of time to look into – Fiance does this, I’ve been too lazy to. and he’s getting a pratically no risk 4% gain each month – or about 40-50% yearly)

Honestly though, if you really do need that money in 2 years, and cant stomach losing it, I would jsut keep it in a money market.  Rule is dont invest what you cant risk losing. 

Post # 14
Member
3762 posts
Honey bee
  • Wedding: May 2010

We were in the same boat a while ago and we ended up just put it all into a high yield savings account.

I did recently read an interesting post from Mint.com (i believe) that talked about how you can find CD’s now that are long term (aka higher yield) but with minimum early withdrawl penalties.  You have to purchase directly from the bank but often the yield over two years will out weigh the penalty cost. 

Best of luck on saving up for a house! 

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