Where should I park my down payment?

Real Estate
#1

First post after purchasing the course and joining the community!!

I currently have my down payment parked in two different saving vehicles. I am wanting to consolidate and continue to make regular monthly contributions. I expect to need the money in 2 - 5 years or sooner and can’t assume very much volatility if any.

Option 1:
CIO Conservative ETC Core held in a brokerage account. The asset allocation is 30% equity, 68% fixed income, and 2% cash. I also pay an advisory program fee of about $2-$3 that compounds monthly. I believe this is a percentage based on the account amount.

Option 2:
High Yield Savings Account with Ally Bank with a 0.50$ Annual Percentage Yield and no maintenance fee or anything to that effect.

My question is what is the best and safest place to continue to park the funds? Does it make sense to also consider something like a money market mutual fund, a money market account, or a state-sponsored first-time home-buyers savings account? Any ideas or clarification would greatly be appreciated. If there is something I am not considering, some constructive criticism would be great.

Cheers!

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#2

Breck, welcome! I like option 2 if you are certain you will buy in the near term - it is safer and you are paying for certainty that your cash will be there. My state doesn’t have one, but the state-sponsored first-time home-buyers savings account look like a good option to consider!

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#3

Hi Breck,
Thank you for your first post! Since you are looking for the “safest place”, a money market fund or high yield savings account would likely be best. I would explore FHSA if your state offers one! I have never lived in a state that offers one, but I know they can be attractive depending on the state you’re in.

I think Option 1 could be right for a lot of people, but since your priority is to not lose any of the principal, I don’t know if that risk profile is best.

I hope that helps!

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#4

Back in 2020 I didn’t think I’d buy a house until 2025, so I put most of my down payment in VTTVX (Vanguard target date 2025 index fund). Last year I found a house I wanted and put in an offer without any expectation that it would get accepted, but it got accepted and I had to sell VTTVX for my down payment. My down payment grew modestly for the year it was in VTTVX, but I would’ve saved myself a lot of anxiety about market activity and when I should sell if I had just kept the money in my Ally savings account, which is what Jeremy recommends for any money you may need within the next 5 years.

Bottom line: even if you think you won’t need to the money sooner than 2-5 years from now, you never know when you will actually need it.

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