[WarrENDeatH]

My wife and I plan on buying a house in the early portion of next year. I'm putting aside some money, and want to make some money off that money (money for the fourth time).


What is the best way of doing this? I've heard some say CD, IRA, or just throw it in a savings account. Some have suggested the stock market, which can be a relatively large risk.


Some on here are financial wizards, and I figured I'd ask to see what you guys thought.

[04mazdaspeed]

I'm not a financial wizard but I wouldn't want my short term savings in a high risk account. When I saved up for my house for 2yrs, I just used a regular savings account. Some people may be different but that's what I did and it worked out for me. Sadly your not going to make a whole lot this way. Especially if your saving for less than a year.

[WarrENDeatH]

Originally Posted by 04mazdaspeed

I'm not a financial wizard but I wouldn't want my short term savings in a high risk account. When I saved up for my house for 2yrs, I just used a regular savings account. Some people may be different but that's what I did and it worked out for me. Sadly your not going to make a whole lot this way. Especially if your saving for less than a year.

Not too far off what I thought. Figured I'd dump it into savings, and then just add to it paycheck by paycheck. Probably far more effective than a CD.

[XIX]

Originally Posted by WarrENDeatH

Not too far off what I thought. Figured I'd dump it into savings, and then just add to it paycheck by paycheck. Probably far more effective than a CD.

Not sure about over there, but over here you can get more return if you lock your money away ( 3 months, 6 months etc ) than just a normal account. Have a look at some higher yield options rather than a standard savings account if you have time up your sleeve.

[Joe240]

One thing I'd suggest if you do not want to drop all of your liquidity into a higher yield investment is CD Lattering.

Essentially you buy CDs every month for a year each (or whatever time frame you are able too) so that way you always have money maturing and making additional funds for you.

Example:
You have 12k in your savings and want to invest the money so it works for you, but you also want to be able to have liquidity in case of an emergency (flat tire, sick pet, etc.). So you take 1k every month and purchase a CD with it that has a maturity date of a year. So after 12 months, you have spent all 12k of your savings, except that very first one that you purchased with a 1 year maturity date has just matured at a 3% interest rate. So now you turned that $1k invested into $1030. You can now take that money and reinvest it into the next CD, or bank it.

If you bank it, as well as the other 11 CDs that will mature over the next 11 months, then you made $360 within 2 years (remember it took a year to invest all 12k, and a year to have them all mature) on your total of $12k invested.

If you decide to reinvest the money into a new CD at 3%, then after a year it will mature at $1060.90, and so will each additional CD you purchase with the next month's matured amount.


Although it takes twice as long to get the same amount of profit for your money (investing 12k once instead of 12 installments at 1k each), you do not give up your entire liquidity should you need the emergency funds. Remember that this also doesn't take into account the additional money you may put towards the CD each month from your paycheck (extra $50 one month, nothing the next, then an additional $300 from a bonus you received, etc.).

CDs typically require a minimum amount to purchase, such as $500 or something (depends on the financial institution) and the interest rate depends on how long the CD takes to mature (longer the maturity, the higher the interest rate). Some financial institutions offer promotions such as 1-2% higher interest rates because it's their XX year anniversary and the promotion may only run for a month or 2. Take advantage of these offerings if you can to get a higher rate without having to invest more or for longer periods.

I'm not a financial wizard, but this was one of the biggest, and coolest things I took away from my personal finance class I took for my minor.

[TomHudson]

What amount of money are you talking about? How much is the house/how much are you borrowing?

You only have six - eight months...so best advice- don't risk, save save save...

[BEM-S4]

Originally Posted by TomHudson

What amount of money are you talking about? How much is the house/how much are you borrowing?

You only have six - eight months...so best advice- don't risk, save save save...

That's basically it. There's a direct relationship with how soon you need your money and how risky you can be.

Saving for house aside if you look at a 30 year old saving for retirement they should be something like 70 equity 30 fixed income, then a 60 year old that would flip.

[mbanks21]

I'd rather do a high yield bond fund at 4.5% vs a CD at 0.3%

[TomHudson]

Where are you getting an 8 month bond?

$20,000 at 4.5% in 8 months is $607 ... which you can't buy.

[mbanks21]

Originally Posted by TomHudson

Where are you getting an 8 month bond?

$20,000 at 4.5% in 8 months is $607 ... which you can't buy.

What do you mean by you can't buy? You referring to the CD?

[shadow191]

With a window of ~6 months, there's not much you can do. Can't play the market since this isn't money you can afford to lose. I wouldn't even put it into a bond fund with only 6 months or so. Bonds and stocks are both pretty much at record highs and with most bond yields being very low, you'd be buying at the top of the market. Minimal upside with higher risk.

Just save as much as you can and put it into a savings account. With a short term window, you don't really have the ability to benefit from interest/returns/compounding.

Short term CD's don't pay much right now, I think it's less than 1% for a 6 month CD. Can't put the money into an IRA because that's a retirement account and there are penalties for withdrawing before certain ages. IRA is a type of account, not an investment vehicle.

[CTinline-six]

Originally Posted by BEM-S4

That's basically it. There's a direct relationship with how soon you need your money and how risky you can be.

This. I'd go the savings account route.

[David70]

If you need the money 6 months from now there isn't anything that is both super low risk and at the same time will pay you a substantial amount of money.

CD's are completely safe but you find one paying 1% for 6 months and are investing $30k you are looking at a giant profit of around $150 which you will then pay tax on. Better than nothing and worth opening the account but not substantial.

Stocks are a great longer term investment but faced with 6 months time there is a chance you could lose 20% ($6k in the above). No financial adviser would recommend it.

I also do lattering for CD's for part of my emergency fund (see above) but it doesn't apply to cases where you need all of the money a short time from now.

[insanecoder]

imo the yields on most instruments at this point are not worth the risk esp if you really need the cash in 6 months time
and for stocks we are in the dangerous half of the year
cds are considered safe but the yields are pathetic
and nothing is 100% safe not even CDs (ie.. there is not enough FDIC insurance payout to go around..underfunded)
maybe tbills
jmho

[Maynard]

When we bought our first house (Cleveland) they were particular about having the majority of savings 'vested' - i.e. able to show it had been in the account for some time, not just a quick gifted amount. You may want to check w/ your lender(s) to be sure that whatever vehicle you choose, it passes muster with the bank. Would not be worth a few hundred in interest to be told that you still need to wait another year.

[JasonCSU]

You could use an online savings account like this one from Discover. It won't earn much, but it is low risk and liquid.

https://www.discover.com/online-bank...vings-account/

[jmg]

Originally Posted by WarrENDeatH

My wife and I plan on buying a house in the early portion of next year. I'm putting aside some money, and want to make some money off that money (money for the fourth time).


What is the best way of doing this? I've heard some say CD, IRA, or just throw it in a savings account. Some have suggested the stock market, which can be a relatively large risk.


Some on here are financial wizards, and I figured I'd ask to see what you guys thought.

You're not going to have any significant gains from this year to next that doesn't come with risk. Your best bet is a savings or money market account, which gives you a slightly higher interest than a savings account. Just ask your bank what it's restrictions are to keep your fees low and keep that money liquid for when you need it. The stock market is too volatile for your hard earned savings, only invest what you can lose and even then diversify.

One piece of advice: If you have the means, the mortgage should only be in either you or your wife's names, not both. That way, if the market takes a dump, you can always take a hit and default your upside down home, leaving the other person's credit intact for a purchase of another home in a buyer's market. What does that mean? You can take advantage of the market even if you are getting raped. This tactic has literally saved me $150k in depreciation of a condo into a $250k appreciation on a new home in 4 years. $400k positive swing in 4 years while people were upside down on their mortgages? And property value is still climbing despite the pre-bubble houses just now recovering? I'd say mitigating risk paid off.

[Fundguy1]

As a 21 yr financial pro, talk to a financial advisor. Csrs possibly but you're lucky to break even after taxes and inflation. Saving and bank accounts are just plain stupid. Keep a couple months bill money there max at any time. Stocks are to volatile. Bonds would typically be a good option but interest rates are rising so it hurts them. Biggest advice I can give you is sit down with a qualified advisor or two and get advice. Also, rates are going up. Sooner you can lock in a loan the better. Expect them to be almost 2% higher within 18 months. That's big money on a house.

[jmg]

Originally Posted by Fundguy1

As a 21 yr financial pro, talk to a financial advisor. Csrs possibly but you're lucky to break even after taxes and inflation. Saving and bank accounts are just plain stupid. Keep a couple months bill money there max at any time. Stocks are to volatile. Bonds would typically be a good option but interest rates are rising so it hurts them. Biggest advice I can give you is sit down with a qualified advisor or two and get advice. Also, rates are going up. Sooner you can lock in a loan the better. Expect them to be almost 2% higher within 18 months. That's big money on a house.

Correct me if i'm wrong, real estate regulations might have changed since, but wouldn't an FHA allow the OP to get the house with less down if this is his first? He could then lock in the lower rate sooner then drop MIP down the line when rates are more favorable? Is there a way to drop MIP/PMI without changing the rate if the rate is higher than your mortgage?

[Fundguy1]

Originally Posted by jmg

Correct me if i'm wrong, real estate regulations might have changed since, but wouldn't an FHA allow the OP to get the house with less down if this is his first? He could then lock in the lower rate sooner then drop MIP down the line when rates are more favorable? Is there a way to drop MIP/PMI without changing the rate if the rate is higher than your mortgage?

I don't know. Not on the real estate side of finance. I'm on the investment side. I know the rates because one of the funds I wholesale is tied to them, and my firm is the largest issuer of those bonds in the industry.

[Mingwan]

Bet it all on black. 50% success rate with a 100% yield. Could change things for you....

[jmg]

Originally Posted by Mingwan

Bet it all on black. 50% success rate with a 100% yield. Could change things for you....

No, no no. RED is where it's at. 50% success rate, 100% yield.