Saving for a Down Payment

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giulist's picture
giulist
Status: Member (Offline)
Joined: Feb 16 2012
Posts: 4
Saving for a Down Payment

First-time poster here...

I would appreciate any feedback from folks here as to their recommendations for saving for a down payment.

A little background:  I currently have a mortgage (condo), and am looking to hopefully buy a home in the next 2 or 3 years.  I've saved up some money to go towards a down payment, but at this time, it is basically all in a savings account.

As I'm sure most folks here understand, I'm not particularly comfortable with that arraingement.  Given the threat of inflation, I am concerned about losing considerable buying power over the course of the next 2 to 3 years.

So my question is, "Where should I store this money while I accumulate enough to make a 20% down payment?".

Buy gold? Foreign Currency? Leave it in savings? 

Obviously, I don't want to lose money, so my concern is the volitility of gold, etc.  I realize gold is likely a very good play in the long-run, I'm just wondering if it would be recommended for the shorter time frame (2-3 years).  This would have to take into consideration re-sale, liquidity, taxes, etc.

Any thoughts would be greatly appreciated.

Thanks!

Steve

shawns333's picture
shawns333
Status: Bronze Member (Offline)
Joined: Dec 30 2011
Posts: 42
giulist wrote:I would
giulist wrote:

I would appreciate any feedback from folks here as to their recommendations for saving for a down payment.

...

As I'm sure most folks here understand, I'm not particularly comfortable with that arraingement.  Given the threat of inflation, I am concerned about losing considerable buying power over the course of the next 2 to 3 years.

So my question is, "Where should I store this money while I accumulate enough to make a 20% down payment?".

Buy gold? Foreign Currency? Leave it in savings? 

Obviously, I don't want to lose money, so my concern is the volitility of gold, etc.  I realize gold is likely a very good play in the long-run, I'm just wondering if it would be recommended for the shorter time frame (2-3 years).  This would have to take into consideration re-sale, liquidity, taxes, etc.

Things to consider:

  1. No one has a crystal ball, so the best we can do to is look at signs and make good estimates and that needs to be part of your decision-making and not just as a caveat.  In other words, stay educated, keep your eyes/ears open and be nimble
  2. The 2-3 year time horizon looks to be perhaps the most interesting, in terms of the changes and potential crisis/collapse situation that some envision.  Given that...
  3. You need to be prepared for the possibility of both strong deflationary and inflationary forces at play.  In both situations, arguably, precious metals will be wise to be invested in with at least 25-50% of your portfolio depending on your personal beliefs and aggressiveness.
  4. Some percentage, say 10-25% should also be liquid and somewhat safe in terms of cash or US t-bills.  Yes, both are scarier to hold today than in the past in terms of inflation and general dollar-denominated worries, but I believe in hedging your bets to be safe.
  5. We don't know how much cash you're talking about and you don't need to share, necessarily, but the remainder could be in some sort of secured investment or personal/business loan to generate a decent interest rate (~5-12%).  If you have enough cash and the right partners, you can get into "hard money" lending, it need not be "risky" at all relatively speaking due to it being well secured and you can be pretty comfortable you will not only get all of your money back, but the timeline is stable/pre-determined as well as the relatively high and guaranteed rate of return.
  6. Finally, a wildcard, you can also look at return on your investment in terms of those things you can do in your life or to your condo to save money.  Whether we're talking about solar panels, greater efficiency appliances, more efficient automobile, etc., these all will likely give you a guaranteed rate of return in terms of reduced cost (gas, electricity, etc.) and they will also perhaps add to the price you sell your condo for later.  Some of this is guaranteed in terms of cost savings and maybe even have more upside if say gas or electricity prices go up, but of course, there's the downside as well in terms of the upgrades to your condo not teasing out a 100% return on your investment.  Again, these are worthwhile to look at in terms of hedging your bets.
  7. If there's a crisis/collapse scenario, then your precious metals investment is relaly more about wealth preservation.  Because that asset class may be the strongest one standing, there is the possibility that it will act as an investment versus merely just preserving your wealth, because you can trade your preserved wealth for perhaps a depressed asset class --- like that real estate you have in mind.  Again, that differential is not guaranteed and given the circumstances of what you have your eye on in terms of housing, it may be a wash.
  8. Absent a crisis/collapse scenario and the precious metals continue to climb for all of the reasons they have been climbing for the past 11 years, you could "invest" in them in such a time period.  Just realize that you will have a 28% gains tax via the IRS.  So, you have somewhat of a gamble there in terms of where you purchase, where you sell, the dealer spread/buy price and the taxes for the government.  I would keep this in mind if you were considering going "double-down" on this asset class, especially in a non-crisis/collapse 2-3 year scenario.

I hope that all makes sense and, if not, let me know if you have questions.  I'm no expert and this represents my studies currently.  Good luck!

giulist's picture
giulist
Status: Member (Offline)
Joined: Feb 16 2012
Posts: 4
Thanks so much for your

Thanks so much for your reply shawns333!  I really appreciate the feedback!

Your last couple of points really stand out to me.  It's that wealth preservation that I'm seeking, but precious metals have not usually been the best place for that on a 2 to 3 year timeframe.  That 28% tax is a kicker.

I tend to think PMs may not be the place for funds that I really don't want to put at risk over a relatively short time frame.  Perhaps a combination of savings and a foreign account (Canada).

Thank you again for your input!

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