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do I have too much cash?

Home Mortgages and Home Buying do I have too much cash?

  • Avatar gasdoc86 
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    32 years old. Saving for down payment for a house in 1-1.5 years. Fairly HCOL area. I’m about 8 months into my first attending job and enjoying it.

    I use Vanguard Prime MM fund for my house down payment. Have about 130K now with savings goal of 200K, which I believe I can hit by July.

    My retirement accounts are about 100K, 100% US stock. I max 403b and governmental 457b. Employer fills up 401a.

    No debt. No kids. Rent an apartment now with my wife.

    I ache to put more money in the stock market in a taxable account. But I shovel everything I’ve got at the end of the month into the MM account for the house down payment, about 10-20K a month. Would you guys do the same, or invest some of the money in VTSAX?

    #187353 Reply
    White.Beard.Doc White.Beard.Doc 
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    Short term money needed for a house downpayment should not be invested in stocks, unless you like to gamble and don’t mind if you lose half of your downpayment in a bear market.

    ENT Doc ENT Doc 
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    32 years old. Saving for down payment for a house in 1-1.5 years. Fairly HCOL area. I’m about 8 months into my first attending job and enjoying it.

    I use Vanguard Prime MM fund for my house down payment. Have about 130K now with savings goal of 200K, which I believe I can hit by July.

    My retirement accounts are about 100K, 100% US stock. I max 403b and governmental 457b. Employer fills up 401a.

    No debt. No kids. Rent an apartment now with my wife.

    I ache to put more money in the stock market in a taxable account. But I shovel everything I’ve got at the end of the month into the MM account for the house down payment, about 10-20K a month. Would you guys do the same, or invest some of the money in VTSAX?

    Click to expand…

    I’d save for the house with a 20% down payment goal and base my purchase decision/savings timeline on your family situation and projected needs (as well as job desirability).  The more you have for a down payment the more options you’ll have for financing.  Also saves you on cash flow later.  If you’re putting 10-20k a month into savings I don’t think you’ll be worrying much down the road either way.

    #187355 Reply
    Avatar gasdoc86 
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    I realize not to put the downpayment money into stocks since the market may drop in the short term. I guess what I’m asking is if you were in my shoes and you were saving for a house, would you split the left over money at the end of the month and use half to invest and half designated as a downpayment in MM?  Or some other percentage, like 30% invest/70% downpayment. I don’t want to miss my prime compounding years saving too much for a downpayment, but houses are expensive here and prices might skyrocket at any time.

    #187356 Reply
    Avatar ginmqi 
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    A side question related to the OP.

    Is there any advantage between putting cash (whether its for downpayment or your emergency fund) between a high yield savings account (aka Ally bank at 2.2%) or a Vanguard money market fund? Seems like the two have similar returns/yields?

    #187361 Reply
    CordMcNally CordMcNally 
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    About how much do you think your house will cost you?

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #187365 Reply
    Avatar FIREshrink 
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    Whatever the opportunity cost of saving up a large cash down payment will pale in comparison to the opportunity cost of buying an expensive home in a HCOL area and keeping it for decades. If you’ve made the decision to buy despite knowing that, it shouldn’t phase you to save up the 10% in cash. That’s just the beginning!

    #187368 Reply
    Drop it into MD Drop it into MD 
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    When do you plan to buy?  If it is this summer then crank away and get done by july as you said.  If not till next year fill it more slowly and put some into VTSAX.  Also remember that buying a house, especially a first house, double especially a big house, requires more then just a down payment.  There are always things you need to do right away; paint, furniture, decorate, carpets, etc.  The hidden cost of moving.

    #187369 Reply
    Liked by gasdoc86
    Avatar gasdoc86 
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    To gnmqi: I selected the Vanguard MM over a savings account because the dividend yield with the Vanguard MM fund will adjust with the interest rate environment. Since I’ve been contributing to it, the yield has risen from 1.8% to 2.5% now. Not sure if savings accounts work the same way, but that was my rationale.

    #187372 Reply
    Avatar Dont_know_mind 
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    Splash Refinancing Bonus

    Murphy’s law, you put your deposit in stocks and it goes down 10% and you sell out.

    If you don’t use the deposit to buy stocks, then you’ll watch stocks increase 10% and think you missed out.

    I wouldn’t invest a deposit in anything risky. But it would be an interesting thought experiment.

    You might have a marginal positive expected return if you don’t sell out after a decline.If you’re a weak hand though and likely to sell with a small loss (like 10-20% declines) then you’re much more likely to lose.

    Say you put the 130k in stocks and there was a bear market, and it became work 65k – what would your plan be then ? Would you be able to hold for a further say 2-5 years before being able to offload the stocks at a profit and then save another 200k for the house deposit.

    There’s nothing wrong with gambling as long as you know you’re gambling, the odds and you can cope with losses.

    #187373 Reply
    Avatar Peds 
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    What’s happens if you don’t have enough money but find a house you like?

    #187375 Reply
    Avatar Dont_know_mind 
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    NB: I would be more worried about a property boom in your area before you buy than missing out on a stockmarket boom with your deposit. Say property appreciates 20% pa for 2 years in your area and you have index funds on your 130k deposit which also appreciated 20%pa for 2 years. You will still be screwed.

    If stockmarket is flat or declines on deposit investment and the housing you want booms you are doubly screwed.

    If I was you I would not view myself as having too much cash.

    I would think of your position as:

    +130k cash

    Short 1 house (or -1M house).

    You actually have a large short house position and your focus should be on how to lay that off with the least cost/risk.

    #187377 Reply
    Liked by gasdoc86
    triad triad 
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    Would you guys do the same, or invest some of the money in VTSAX?

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    it depends on how quickly I want to buy the house.  if you’re ok with renting for a little while longer then I would probably go 50/50 MM/VTSAX.  I was more into FIRE so I bought an inexpensive house and put the rest into vanguard funds.  with all the talk of single payer health care I’d race to FIRE but I’m fairly risk averse

    #187414 Reply
    Avatar gasdoc86 
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    About how much do you think your house will cost you?

    Click to expand…

    Probably in the 600-800K range. The lower the better for me.

    What’s happens if you don’t have enough money but find a house you like?

    Click to expand…

    Good point. That wouldn’t be fun.

    #187544 Reply

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