Question : Is a mutual fund the best way to save for a first home?
I'm looking in 3-4 years to purchase my first home. I have been currently saving for it, but if there was a decent way to marginally increase the overall downpayment that would help in the long run. I could buy into a blended mutual fund which has decent returns.Is this an okay way to do it without being hit with penalties or are CD's a better way to accumulate this money?
- asked by atg28
All Answers:
Answer #1
You have a pretty short time frame. Mutual fundson average will be better, but in that time frameyou might actually lose money. If you werewilling to take the risk, then go for it. I wouldsuggest CD's if 5%-10% drop is going to hurt you.
- answered by NYC_Since_the_90s
Answer #2
If you have a 3-4 year time horizon MFs are anexcellent way to invest. Look at the 3-5 year and10 year annualized returns. Chances are the next3-5 years will be close.If the economy is going toh***, then pull out the money in the MF and go toCDs.///
- answered by SWH
Answer #3
Pay attention to the mutual fund's expenses: thepurchase fees, the selling fees, the yearlyexpense ratio. Only then should you compare likefunds' performance. Index funds usually have thelowest expenses and fees.One other thing toconsider: Are you paying interest on any creditcards or loans that have an interest rate above10% APR? If yes, then pay off the loans/cc'sfirst. You'll save more in interest by payingthem down than you could make putting the capitalin an index mutual fund, which pays on average 10%per year.
- answered by VT
Answer #4
It really depends on which funds you're actuallyinvesting in, but I'd think most financialplanners would advise against it.You'd have tostart first of all with the issue of cost. Areyou buying a mutual fund that has an upfront salesload? Some can be as high as 5.75%. This meansyou lose 5.75% of your principal balance, theminute you buy it. Just to break even in 12months, this fund would have to gain in value by5.937% (since you're only actually investing $9425of every $10,000 paid). On top of that, even witha no-load mutual fund (the only kind you shouldconsider), there's annual maintenance and 12-bfees. These can run from 0.80 - 2% or possiblyhigher. So you need to add that on top of yourminimum gain just to break even after 12 months. It gets a little better on the money invested overtime, because you only pay an upfront load once,but the annual maintenance costs remain.Youwouldn't be investing into a tax-advantagedaccount, since those are more difficult towithdraw from, no point if you know you will be in3 years. You can actually have to cut a check fortaxable gains from your mutual funds, even if theactual cash value of your investment has dropped. Yes, you read that right. So. You basically haveto earn 8% annually just to break even after thefirst 12 months. More like 10%, to cover taxes. Your safest bet is a no-load index fund, like aVanguard/Fidelity S&P 500 mutual fund, or buyingQQQ Nasdaq tracking stock. These could very wellget you 10% annually. Over time, that's what ithas done. But in 2-3 years, you could also lose20% of your principal, without having enough timeto let the market return and get your moneyback.Much better to, as you suggested, buy someladdered CDs. Possibly even short-term Treasurybonds/T-bills? It's not hard to find FDIC-insuredmoney market/savings/CD's out there that arepaying 5-6% right now. Guaranteed return. Guaranteed to not lose principal. Guaranteed tobe repaid by the government if the bank goes undersomehow. 3-4 years time just isn't enough to wantmuch exposure to loss of principal.Maybe get agood savings account. Dump money in there for 3months, then put that into a 3 month CD. Startover, then combine the balances into a new CD(better rates are common with bigger balances). Keep doing that, reupping the duration of yourexisting CD's to squeeze higher yields whenpossible. Watch it grow. Lather rinserepeat...First step, identify a bank that ispaying high yields. Bankrate has local searchesyou can do. Your local paper probably has aweekly listing of rates. Check the print ads too. Then go talk to a banker about what you want todo. Figure out roughly how much you'll put asidemonthly, and you and your banker can figure outthe best way to put that money to work, looking atwhat tiers you'll hit for getting higher yields,when to combine balances, when to buy a 3-month CDto have it mature when your others do. All thatgood stuff. If rates are rising, keep the moneyin shorter-term CDs. If rates are dropping, putit out as long as you can to protect your highyields...
- answered by Yanswersmonitorsarenazis
Answer #5
It depends on your market. How much is propertyappreciation in your area? You may be better offbuying now with little to no down payment unlessyour investments will be making more than thelocal appreciation.There are tons of first-timebuyer programs that will allow you to purchasewith little to no money down. Some will allow youto roll in closing costs or the Seller can paythem.Good Luck!
- answered by mycornerofbrickheaven
Answer #6
You have to remember something, the only thingcertain in life is taxes and death. Any way isgood when you can make a profit. Normally thehigher the profit capability, the higher the risk.There could be another 9/11 next week (GOD forbid)but it would wipe out most mutual funds. You couldtake your savings and go to Las Vegas and bet allof it on black. Your odds are almost 50/50. If youspread your money around you will also lower yourrisk. If there was a sure way, there would be alot more millionaires, and don't listen to theinfomercials either.
- answered by ttpawpaw
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