Where should we put our home down payment money for two years?[ Edited ]
Hi Scott - my question is regarding the appropriate investment vehicle (if any) to save for a down payment on a home to be purchased in 2 years. My wife & I have an emergency fund (cash) in place covering 6 months of expenses. We max both of our Roth IRAs annually, and have no debt. I will transition from active duty in approximately 2 years, at which point we'd like to purchase our first home. We save monthly toward this goal and currently have about $75K in cash earmarked for a down payment. What do you recommend we do with that money? Needing the money in 2 years, in my opinion, is too short a horizon for equities as well as most bond funds. Would ultra short term bonds, with interest rates poised to rise, be appropriate? Fixed rate CDs are historically low but would be better than the next-to-nothing the money market is paying out. Variable rate CDs, or just wait for rates to rise and construct a fixed rate CD ladder in the future? Thanks so much for your help, I have learned a great deal from your straightforward approach to savings! -Nick
Thanks for the question, Nick! I’m glad to hear you’ve been finding the site helpful! And by the way, nice job on your personal finances; it sounds like you and your wife really have your acts together financially.
As for what to do with your house down payment money, I think you’re right on track there too. With a 2 year time horizon, equities would be completely out of the question for me. But what about ultra short-term bonds? The truth is, even though it could be argued that ultra short-term bond funds could make sense for some of your money, I probably wouldn’t even go there. The potential real dollar return difference over something completely safe like a CD wouldn’t be worth it for me. For a goal this close, I’d rather earn very little on the money and know it’s going to be there than try to earn a bit more and risk experiencing losses. In the interest of full disclosure though, I’m pretty conservative when it comes to things like this.
If your risk tolerance is higher than mine (which would be perfectly acceptable), I’d encourage you to contact our team of Financial Advisors here at USAA to discuss your options – just focus the conversation on the really conservative choices. Our team can be reached at 800-771-9960 if you want to discuss this in more depth.
Thanks again for your question and thank you for your service. Keep up the great work!