The best way to save for a down payment
by: Kathryn Vasel
What’s the best way to keep savings for a house down payment? Cash loses value from inflation, bonds will drop if interest rates go up, and stocks are risky. –Susan, 31, St. Louis
Coming up with thousands of dollars for a down payment is tough, especially if you’re already struggling with obligations like student loans, car payments, rent, and well … life.
What to do with all that cash?
Your time horizon and risk tolerance play a big role on where to keep your down payment savings.
Whether becoming a homeowner is a decade out or you’re already house hunting, here’s where financial planners suggested keeping the funds:
10 years out:
If it’s going to be another decade until you plan to buy a home, there’s an opportunity to invest the savings and try to grow the money a little before you actually need it.
“This is a great time to get into the market because it’s low,” said Ellen Jordan, a certified financial planner and senior vice president at Bryn Mawr Trust.
But stocks come with risk.
“You’ve worked hard to save this money. The last thing you want to see is a drop in value that could prevent you from being able to purchase a home,” said Taylor Schulte, certified financial planner and CEO of Define Financial in San Diego.
Throwing some bonds into the mix could help temper the risk even more, since bonds are less volatile than stocks.
Jordan suggested a diversified portfolio might look something like this: 50%-60% in stocks and 50%-40% in bonds.
Be sure to pay attention to the maturity dates on the bonds, with none going longer than seven to 10 years, she added.