Protecting money for a Home down pymnt...and earning a little?

[TxSteve]

Hey all,

My first post on this forum...was just curious to see if any of you had any opinions.

I'm saving to buy a new home. I will be making this purchase in 9-12 months.

beginning next month, I will have approximately 9000/month to put toward the next home purchase.

what are opinions on what i should do with that money? i need something fairly safe (obviously) as i WILL be needing the money in a finite period of time.

i, of course, would also like to make a couple %...as having all that money sitting in a checking account earning almost no interest seems crazy as well.

if this post doesn't really fit with the forum, please forgive me and ignore it

[adios]

If your looking for low risk stocks forget about it, the time frame is way too short. Fixed income investments should have a duration of no more than 12 months since that's when you'll need the money. Therefore you need the highest return for your 12 month investment with zilcho risk of losing capital. I would think that some financial institutions might offer relatively attractive rates for 12 month CD's and bank deposits. Don't know which ones those are though.

[TxSteve]

yeah...those were my thoughts too..

unfortunately, with 9K per month, i could only put the first 9k into a CD and cash it in time..which would leave 100k or so floating around

I know there is going to be some risk no matter what i do..

[Ray Zee]

only good option is a money market fund from your broker.
or if there is a credit union in your state they sometimes pay more than money funds. mine does.

[Six_of_One]

[ QUOTE ]

unfortunately, with 9K per month, i could only put the first 9k into a CD and cash it in time..which would leave 100k or so floating around

[/ QUOTE ]

You can get CDs with a shorter term than 12 months, too. Of course, the rates suck...I work at a credit union, and with the balances you're talking about, you could get about 1.45% on a 3-month CD, and 1.80% on a 6-month.

[GeorgeF]

1) If you can really sock away $9000/month then you might be able to get a mortgage now.

2) You might consider currency diversification with www.everbank.com (http://www.everbank.com) rather than going 100% US$. There will be cap gains/loses on money you convert back to US$.

[TxSteve]

thanks everyone for the replies. you are more or less confirming what my thoughts were

george, i'm sure i could go ahead and buy a new house now..but i would probably only have 50K or so for a down payment (from the house i currently live in)

my plan was to have at least 100K to put down to keep my monthly payments somewhat low...

as of now..the plan is to put 100K or so down, get a 300-400K loan, keep my monthly payments in the 3K range or so..

i'm not sure this is the best plan though...i suppose i need to sit down and punch some numbers and see if there are better options.

as a side note...a friend of mine with a lot of experience in the financial world has recommended investing in SPY (basically the s&p 500) as a low risk, low reward solution to at least take a shot at earning some with the money.

all thoughts are still more than welcome...i'm very new to the arena of "having money to invest" and really need to concentrate on learning more

[adios]

[ QUOTE ]
as a side note...a friend of mine with a lot of experience in the financial world has recommended investing in SPY (basically the s&p 500) as a low risk, low reward solution to at least take a shot at earning some with the money.

[/ QUOTE ]

Too short term given your time horizen, thus more or less a crap shoot FWIW.

[astroglide]

i hope you're paying taxes on poker

[TxSteve]

all of that income comes from my job..no poker income

i am not a big winner playing poker...i'm up a few hundred per month..and haven't cashed out at all...i'm just building a bankroll hoping to play higher and higher limits..

[boedeker]

i need a job like this. 2 degrees, a year of law school. 10 bucks per hour. what do you do?

[TxSteve]

no degrees

family business

i'm EXTREMELY lucky

[midas]

For short term with no risk stick to the Money market option (I 2nd the credit union suggestion). I would stay away from SPY - the market could go down in the short run. Also, if you do ever buy SPYfor long-term investing, buy MDY and get some mid-cap exposure as well

[astroglide]

what is the business? not the name, just the general area and your general position

[TxSteve]

we sell products to the oil and gas industry

we are very small employee wise (<10)
<5 million in sales each year

since we are so small...positions and titles don't really apply...i suppose i would be considered "heir to the throne"

[holman3rd]

[ QUOTE ]

as a side note...a friend of mine with a lot of experience in the financial world has recommended investing in SPY (basically the s&p 500) as a low risk, low reward solution to at least take a shot at earning some with the money.



[/ QUOTE ]

I think you need a new friend, or at least one with real experience. Not sure what type of experience this "friend" has, but it can't possibly be in investments. The statement that Spyders are low-risk, low-reward is absurd. It's basically an ETF that tracks the performance of the S&P 500, which, as your friend obviously doesn't know, it out on the risk/reward spectrum.

Sorry to be so curt, but I think this whole thread is rediculous. You have significant cash flow coming in over the next 12 months that you know you need in 12 months. Instead of trying to squeek out a few extra basis points (at the risk of losing money), just park it in a money market and sleep well at night. The KISS principle certainly applies here.

You are fortunate to be able to save that much $$ each month, and I applaud your forward thinking in terms of positioning yourself to own a home without a significant financial burden. Just write a check each month into your money market and be done with it.

One more thought, if you truly are interested in "taking a shot at earning some with the money," stick to a 20% downpayment and invest the rest for the long term. With rates this low, it is not always the wisest decision to put more down. You have to consider the opportunity cost of locking that cash up in a downpayment, vs. investing it for the long term. Historically speaking, the hurdle rate you must earn on your long-term investment to make it better than lowering your loan amount (and paying less interest) isn't that high currently.

[playerfl]

if you absolutely must have return of at least 100% of your money in 9 months then you should just look at CD's and T-Bills. don't get fancy.

[TxSteve]

Thanks everyone. Some very logical, solid, easy to understand advice there.

As is obvious, I don't know much of anything and haven't had "investment" money for very long.

The latest plan has been to store away money for the next 3 months or so (probably just in a very low interest money market) and list my current house within 2-3 months.

This should give me enough cash to put a decent down payment in. I agree, putting extra money into the house, vs a long term investment in another form is something that needs to be looked at.

As of now, I will probably put 100K down on the house. 3-400K mortgage which keeps payments within my means. And begin learning about investments and try to educate myself.

As a side note. Any one have any books/learning methods to recommend?

[jon76]

Given the short time frame I would avoid stocks altogether. You really can't predict what will happen. Maybe you can put about $10k in the market but with the rest I would just put in something rock solid like ING savings or something like that.

I would recommend opening an ING savings account. They pay 2.1% interest compounded daily. This is one of the best available rates. It also allows you easy access to the money if needed as opposed to a CD where a penalty could apply. It's pretty easy to transfer money online between your ING savings account and your regular checking account...there are no fees and transactions are normally is completed with 1-3 days. Personally, I'm very happy with it.

If you want, I can send you a link where you get $25 in your account for signing up and I get $10 for the referral.

[Nemesis]

I think i'd be interested in that. Can you send me the link?

[astroglide]

300k-400k seems small