Saving For a Home: Where to Allocate Money?
09-25-2008, 01:29 PM
#1
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Saving For a Home: Where to Allocate Money?
I've been saving since the beginning of this year and I have half of the savings in my high yield WAMU savings acct yielding 3.5% and the other half in a fund (AWF:AllianceBernstein Global Hgh Incm Fd Inc) that yields ~8% and distributes dividends of .0925 monthly which I have reinvested. Putting my money in the savings account has obviously been safe but the money I've put in AWF has net me negative returns due to market volatility despite the high yield.
My target for buying a home would be summer '09 - summer '10.
Where would you suggest me to put my money in the mean time?
I will also continue to keep saving and plan to keep adding to the savings and AWF.
My target for buying a home would be summer '09 - summer '10.
Where would you suggest me to put my money in the mean time?
I will also continue to keep saving and plan to keep adding to the savings and AWF.
09-25-2008, 02:44 PM
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Exody,
I'm in a similar situation. Unfortunately there is no good answer right now. I have been trying to invest diligently (after maxing out my Roth) and have been trying be diversify as much as possible. I am long in shipping, gold, a bit of finance, and consumer staples. I am going to monitor this to see what the investment nuts recommend as I am interested too!
I'm in a similar situation. Unfortunately there is no good answer right now. I have been trying to invest diligently (after maxing out my Roth) and have been trying be diversify as much as possible. I am long in shipping, gold, a bit of finance, and consumer staples. I am going to monitor this to see what the investment nuts recommend as I am interested too!
09-26-2008, 04:21 AM
#4
Since you are saving for a specific date that is not too far in the future, I would stick with an online savings account or CD's at this point. The economy is in too much of a shamble right now to put money in funds for that short of a time. CD's can get you a slightly higher return with no temptation to touch the money as it builds, but a savings account will allow you to access it more quickly without penalty in the case of an emergency.
09-26-2008, 09:02 AM
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Id go savings account like ING or something. its too dangerous at this time to invest, only to have your investment go down and you be FORCED to sell or even worse, refuse to sell and put your housing plans on hold until the market recovers. All in All LIQUID is better!
09-26-2008, 11:40 AM
#7
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Here is what I recommend (but probably not what I would do since I rarely follow my own advice).
I would first determine the MINIMUM amount of a down payment you can get away with. Let's say you are looking for a house that will run $500K all in and you want to put 20% down so $100K.
Work backwards and figure that you need to put $X in a savings account at an average return of say 3% to guarantee that you will have the money when you need it.
Hypothetically you've got one year to save $100K and you've got half of it or $50K set aside already. So, to get to your $100K target you need to deposit roughly $4100/month into a savings account. Since you've got some time you should opt to put that savings into CDs to earn a little bit more interest but only if the savings aren't doubling as an emergency fund.
Now, again hypothetically, let's say you can afford to put away $4500/month. With the extra $400/month I would put it at risk, definitely not something paying a dividend which I consider value. I'd be looking for growth and I'd be buying stock, something with a forward PE in the 15-25 range. Pick a few really well run businesses and buy stock.
The worst case is you lose money on the stock but still have what you need to buy the house and the best case is that you've got a much bigger chunk of change to put down to maybe do some improvements, add an addition, change the carpets, buy new appliances, that sort of thing. Paying for the house is one thing but unless you are buying it brand spanking new and have no desire to upgrade the cheesy contractor grade materials to something a little nicer you are going to have to spend a good deal of money after the fact to make the house a home. You can safely figure on spending an extra 10% after the purchase on just basic stuff.
$8000 for appliances, $5000 for carpet and flooring, $3000 for window coverings, $5000 on landscaping and tools, $2500 on paint and supplies, $2000 for lighting and accessories and let's not forget that the furniture you already have probably won't work or look very good in your new home so figure on $15000-$25000 (over time obviously) for furnishings and accessories. Fence all rotten and falling down? $2500-4000 Deck too small? $5000 Need a pool? $30000-50000 Driveway got potholes? $3500 Eves leaking? $1500 Windows drafty? $5000-$15000 Kitchen cabnets from the 50's? $15000 and lest we forget the granite countertop $5000-$10000
Hot damn! Welcome to the real world
Wisdom nugget: The house you think you can afford you probably can't. Sure you can pay for the shell but what about all that stuff I listed that you'll probably end up wanting to do with/to it? How do you pay the mortgage AND put money aside for that stuff? When figuring your loan budget and the payments you can afford try to leave some slack for a home improvement fund because you're going to need it and dropping $50000 on a new kitchen is not something you can do without foresight and planning.
Most people (me included) buy the most house they can afford and then rely on debt to pay for improvements and future expenses. If people (I) were smart I'd be paying that forward into a savings account and earning 3% interest on it rather than paying it backward to a bank and paying 5-8% interest on it.
I told you I don't take my own advise, not that it isn't good, I'm just too stupid to know a good idea when I think of it.
I would first determine the MINIMUM amount of a down payment you can get away with. Let's say you are looking for a house that will run $500K all in and you want to put 20% down so $100K.
Work backwards and figure that you need to put $X in a savings account at an average return of say 3% to guarantee that you will have the money when you need it.
Hypothetically you've got one year to save $100K and you've got half of it or $50K set aside already. So, to get to your $100K target you need to deposit roughly $4100/month into a savings account. Since you've got some time you should opt to put that savings into CDs to earn a little bit more interest but only if the savings aren't doubling as an emergency fund.
Now, again hypothetically, let's say you can afford to put away $4500/month. With the extra $400/month I would put it at risk, definitely not something paying a dividend which I consider value. I'd be looking for growth and I'd be buying stock, something with a forward PE in the 15-25 range. Pick a few really well run businesses and buy stock.
The worst case is you lose money on the stock but still have what you need to buy the house and the best case is that you've got a much bigger chunk of change to put down to maybe do some improvements, add an addition, change the carpets, buy new appliances, that sort of thing. Paying for the house is one thing but unless you are buying it brand spanking new and have no desire to upgrade the cheesy contractor grade materials to something a little nicer you are going to have to spend a good deal of money after the fact to make the house a home. You can safely figure on spending an extra 10% after the purchase on just basic stuff.
$8000 for appliances, $5000 for carpet and flooring, $3000 for window coverings, $5000 on landscaping and tools, $2500 on paint and supplies, $2000 for lighting and accessories and let's not forget that the furniture you already have probably won't work or look very good in your new home so figure on $15000-$25000 (over time obviously) for furnishings and accessories. Fence all rotten and falling down? $2500-4000 Deck too small? $5000 Need a pool? $30000-50000 Driveway got potholes? $3500 Eves leaking? $1500 Windows drafty? $5000-$15000 Kitchen cabnets from the 50's? $15000 and lest we forget the granite countertop $5000-$10000
Hot damn! Welcome to the real world
Wisdom nugget: The house you think you can afford you probably can't. Sure you can pay for the shell but what about all that stuff I listed that you'll probably end up wanting to do with/to it? How do you pay the mortgage AND put money aside for that stuff? When figuring your loan budget and the payments you can afford try to leave some slack for a home improvement fund because you're going to need it and dropping $50000 on a new kitchen is not something you can do without foresight and planning.
Most people (me included) buy the most house they can afford and then rely on debt to pay for improvements and future expenses. If people (I) were smart I'd be paying that forward into a savings account and earning 3% interest on it rather than paying it backward to a bank and paying 5-8% interest on it.
I told you I don't take my own advise, not that it isn't good, I'm just too stupid to know a good idea when I think of it.
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09-26-2008, 12:27 PM
#8
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wow. that is about as good as any advice i've ever heard about home buying. i'll definitely keep that in mind when i'm in the market for a home/condo purchase myself in 2-3 years. thanks cthree.
09-26-2008, 12:39 PM
#9
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cthree, that was a great post. I've honestly read it over 3 times already and plan to read it again. You're right about the fixing up the house, that is something I've certainly not budgeted yet.
I'll sit down and crunch out the numbers this weekend and see how things go.
I'll sit down and crunch out the numbers this weekend and see how things go.