How should I allocate this cash I was going to use for a down payment?

June 17, 2015 10:35 AM

Since I graduated a few years ago and started working, I focused on saving money in order to (1) pay down my student loans and (2) use as a down payment for a home. After establishing an emergency fund and starting retirement fund payments, I put half of my savings to the student loans and half in a low interest savings account intended for the down payment (with ~20% in an investment account). Now goal 2 is proving elusive, and I'm wondering what I should do with the money.

Today, I have essentially paid off my loans, but goal 2 is proving elusive due to market forces (i.e., I can't make an all-cash offer and the money to buy a 2BR now gets you a studio) and personal circumstances. I keep saving, and I'd like to be able to buy in about 2 years, but that's not guaranteed.

So if I'm not going to buy in the immediate future, what should I do with the cash? I'm open to investing some/most of it, but the amount of cash I have on hand is considerable and I'm concerned about dumping it into the market all at once. It's currently accruing .75-1% APY in savings accounts. The investment portfolio I currently have is essentially all index funds, 70/30 stocks/bonds.

posted by benbenson to Work & Money (5 answers total)

Leave it in the savings account. You have a near-term intended use for the money, and there are numerous situations when you would need it much sooner than two years from now: A home comes on the market below market value, you find a great place and decide to put less than 20% down, etc.

I speak from experience on this. My wife and I gave up our house search, and decided to put it off for two years, only to end up buying four months later (a condo with a below market price, and we only put 5% down to keep a lot of cash on hand in case we decided to renovate or do other projects immediately upon buying).
posted by NotMyselfRightNow at 10:53 AM on June 17, 2015

Seconding just keeping it in the account. You never know when you could be, like, hit by a jeep or something (yes, I know you have an emergency account, but trust me, more than one emergency can happen at the same time).
posted by EmpressCallipygos at 10:56 AM on June 17, 2015

I would shift more of it to investments. You can get money back out of an investment account; obviously you run the risk that you'll get hit by a bus (or find the perfect home to buy) during a market downturn, but that's two unlucky things at once.

Obviously it would suck, psychologically, if you put a bunch of money in the market and it immediately crashed, but on average it's still probably a good idea. And the value is unlikely to go down to *zero* even in a really bad market situation, and it will most likely come back eventually.

I am more risk-tolerant than a lot of people, though.
posted by mskyle at 11:59 AM on June 17, 2015

I would keep it parked. If owning is something you really want to do, life might unwind in a wierd way that makes it possible for you in the next few years.
posted by WeekendJen at 7:29 PM on June 17, 2015

I'll chime in to say that you shouldn't touch it. If anything, keep saving money as you can. At worst, you'll have a nice sized down payment. At best, you'll have a nice sized down payment AND a padding for anything that comes up after buying a place.
posted by arishaun at 7:54 AM on June 19, 2015