Saving for a down payment on a house in 2022?

The housing market is tough. Inventory on the market is low and demand is increasing.

Saving for a down payment on a house can be a challenge!

Coupled with the fact that home prices have been increasing significantly lately, many people are discouraged and looking for ways to boost their down payment.

Cash doesn’t earn you anything so some people are thinking they should invest their down payment. So what should you do? Let’s find out.

Show Notes:

• Time, not timing, is what matters

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Anthony Saffer 0:00
Should you save for your down payment in cash or invest? Stay tuned and make the most of your money?

Hi, it’s Anthony and Alex at One Degree Advisors. Today we’re discussing how to save for a down payment, Alex saving in cash or investing the money. Yeah, the

Alex Okugawa 0:19
The housing market is tough. You know, inventory on the market is incredibly low. And demand is increasing. Right? So we have a situation where Millennials are getting older. They’re starting to form family units. And so they’re moving from a place of renting and they’re wanting to start buying homes. The problem is, there’s not much available in the prices are just out of this world.

Anthony Saffer 0:42
Yes, saving enough for a down payment is a challenge in itself building that amount up. But then looking at the rising housing prices, the low-interest rates on cash, it presents quite a dilemma.

Alex Okugawa 0:54
Yeah. And so a lot of people want to know like, well, what should I do? Right? And this isn’t specific advice. But I would say here are some general guidelines concerning saving for a down payment. There are two pieces, the timeline in the goal, right? So what are you saving? Or like how big of a house are you saving for? And what’s your timeline? If your timeline is in the next I’d say 12 to 24 months, that’s really when you should be looking at keeping that in cash. And I know cash isn’t earning you anything right now, I think the highest online savings rate that I’m aware of is like an Ally or Marcus by Goldman Sachs. And even that’s half a percent, right. So saving in cash, it’s not going to earn you anything. But for such a short period, it’s probably just not worth the risk if stability is more important at that point. Exactly. Now, if you plan to purchase a home in the next five to seven years, or you’re going to be building up your down payment over the next, let’s say five to seven years as an example. That’s when I would say okay, maybe we can consider investing some of the funds, but even then, even when you think about investing those payments or investing that down payment, you want to be very careful about the amount of risk that you’re taking on. So, here’s what we’re gonna do. We’re gonna pull up a chart here, this is from Kewanee. Let’s see what happened year to date, with essentially three different portfolios, a portfolio, that’s roughly 50% US stocks, 50% bonds, 70% US stocks, 30% bonds, and 35% US stocks and 65% bonds, obviously, the more stock you have, the riskier the account is, the more bonds you have, the less risky it is. But let’s see what’s happened year to date. I mean, you can see the portfolios with more bonds or more stocks in them are down a lot year to date. I mean, a portfolio with roughly 70% stocks and 30% bonds is down nearly 10%. Right. So when we think about, you know, you look at past market returns and you go okay, I should invest my down payment because I need to beat inflation, but then you run into this situation, right? Just year to date, you’re almost on 10%, your $100,000, that you’ve earmarked for a down payment goes down to $90,000. I mean, a lot of people are probably freaking out if they’re in that situation.

Anthony Saffer 3:04
And we’re showing this particular snapshot, which is a very short amount of time. Yep. What goes forward doesn’t necessarily mean it’s the same things gonna happen. But it’s this. In this particular timeframe, we’ve seen not only stocks go down, but even bonds come down a little bit as well

Alex Okugawa 3:18
Again, this goes back to how long are you going to be invested if you’re investing for the next five to seven years to build up that down payment? This probably I mean, it’s a concern for you, but you’re not too worried about it, right? You’re going I’m not going to touch this for five, seven years. If you could touch this money in the next 12 months, you’re going. Okay, I’m a little worried right now, with it being 10% Already done year to date. And Capital Group has a great stat that shows one-year investments produce negative results more often than those that are longer-term. And so historically, if you’re investing for at least five years, the stock market is positive 87% of the time, and we’ll link to the article from Capital Group with more details.

Anthony Saffer 4:00
So those odds increase the longer it’s invested. Now, there’s still risk involved. And that’s where people need to decide for themselves in terms of are they willing to take on that risk, even as their period gets a little bit longer?

Alex Okugawa 4:11
Exactly. It’s not a black-and-white solution? It comes down to what’s your goal? What’s your timeline? And are you willing to take a little bit of risk along the way,

Anthony Saffer 4:19
Saving for a down payment is tough. Certainly, these decisions are really important. Does someone stay in cash? Do they invest the money? These are important questions to answer timeframe plays a big part in them and let us know what you think. Are you saving for a down payment in cash or investing the money? Leave your comments below and if you have ideas for future videos, let us know as well. If you’d like this video, please like and subscribe. Thanks for watching.

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures