# Savings for Home - 3 year horizon - Invest in Market?



## gocanada (Jan 3, 2014)

Hey all,

I'm planning to buy a house in approximately 3 years. Would you invest the down payment in the markets (Canadian Couch Potato Portfolio) or keep in a GIC/HISA? Or something else?

Thanks!


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## My Own Advisor (Sep 24, 2012)

Congrats on the saving goal gocanada 

Well, for FWIW, we saved for our home downpayment using in cash, mostly used HISA. We saved for just under 3 years for our downpayment. Didn't use our RRSP, kept that for retirement savings.


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## OnlyMyOpinion (Sep 1, 2013)

^+ 3yr horizon = fixed income, and TSFA first then unsheltered savings as necessary.


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## Ag Driver (Dec 13, 2012)

I did both. I "practiced" mortgage payments for a couple years and paid myself into a HISA inside a TFSA (30% of income towards mortgage) -- while at the same time I invested (10% towards savings). Only my "mortgage account" was used towards the down payment, and it was a good exercise in seeing if I could actually afford a house. I still use these allocation numbers to date.

Anything going towards a down payment should be fixed income, in my opinion.


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## houska (Feb 6, 2010)

Ag Driver said:


> Anything going towards a down payment should be fixed income, in my opinion.


Let me challenge this conventional wisdom (with an open mind to being persuaded conventional wisdom is right...)

I'll grant that fixed income (baring exceptionalities) runs a lower risk of losing principal, e.g. that your (for illustration) $50k saved will be worth less than $50k in 3 years due to investment losses. However, fixed income also tends to bring lower returns than equity markets. So e.g. if your goal is to somehow turn your $50k saved into a (e.g.) $60k+ downpayment, you are *less* likely to meet that goal with fixed income rather than with a balanced investment portfolio including equities.

So I'd ask yourself how ambitious your goal is and what will be the consequences *for you* of not meeting that goal. If you've figured out you need $x to afford your dream house, are reasonably well on track to save that much, and really want to buy in 3 years, I'd go "safe" fixed income. If you'd sorta like to buy a decent house in 3 years, the amount you'll spend depends on how much you'll be able to afford, and if you don't quite have enough you're OK holding off another 18 mos to save up more, then maybe you should take a bit more risk with the money to increase the likely returns you'll make...


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## Michel (Mar 7, 2014)

It's anyone guess what the performance of markets will be over the next 3 years. You run a very real risk of losing a significant part of that money and not being able to achieve your financial goals. Markets only sort of guarantee good returns over 10+ year periods, and even then some 10 year periods were not particularly good (i.e. someone investing at the peak in 2000).

If you have a short term goal, keep the money safe, don't get greedy.


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## Ag Driver (Dec 13, 2012)

houska said:


> Let me challenge this conventional wisdom (with an open mind to being persuaded conventional wisdom is right..


It's not conventional wisdom -- it is purely your choice/risk tolerance and will depend on your goals, as Michel points out. How defined are your goals? Do you want to ensure your savings/capitol will be there at the end of 3 years? Or do you want to risk the chance that it may diminish and you will either a) sell at a loss or b) postpone the purchase. A crystal ball will help when investing short term in equities ... and please tell me what model to get when you find one that works! 

There will always be one on either side of the fence .... it depends how bad you want a house in "x" years. Personally, I had no desire to risk my short term goal. I wanted to guarantee that my savings towards a down payment remained in tact, such that I could buy my house at the exact time that I planed to. I did not lose any money by socking it away in a HISA TFSA and it was 100% safe. To each his/her own.


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## banjopete (Feb 4, 2014)

FWIW I'm in the same boat and have chosen to use a broad market etf for my funds. I know it flies in the face of most advice I've read including the information here but I don't really want to buy a house so if it delays the timing no biggie. My sweet lady might think otherwise but since we're splitting the downpayment savings task, until she catches up to my half I'll keep risking it. Plus despite the wild ride equities seemingly represent in the time I've been "saving" for a DP, US markets continue to roar which in my opinion doesn't show many signs of slowing any time soon. So I guess it's a little of this a little of that, and as long as I don't "need" the money at any point in time I'm very comfortable with the risk.


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## My Own Advisor (Sep 24, 2012)

Michel said:


> It's anyone guess what the performance of markets will be over the next 3 years.
> 
> If you have a short term goal, keep the money safe, don't get greedy.


+1


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## houska (Feb 6, 2010)

Michel said:


> If you have a short term goal, keep the money safe, don't get greedy.


If you have a short-term goal which you are well on track to meet, the consequences of not meeting it are dire, and the benefits of beating the goal are slim, then I agree.

My point is I think for lots of people, it isn't that clear cut. It's not "I need exactly (e.g.) $60,000 for a downpayment in 3 years, if I don't have it I'm screwed." (In which case I would 100% agree with a HISA strategy). It's sometimes much more "In 3 years or so I'd sorta like to buy a house, and if I were buying today I would need a $60k downpayment for the kind of house I'd like. So I'm saving up my money, and if it works out in 3 years I'll buy. If I have more saved up, I'll get a nicer house (or go on vacation, or do ...). If I have less than I need, then I may have to compromise or wait another year or two". 

In that case, you're hobbling yourself if your investment strategy minimizes the risk of loss of principal but has an expected return that is below the expected return of the asset you want to buy (real estate).

Of course the housing bubble may burst and this won't apply. Or, even worse, the stock market may crash while housing prices just stagnate. In those cases the "conservative" investor will look much wiser. but equally well the stock market and housing may continue ticking along with low interest rates, and your purchasing power will be eroding as you save up.


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## Fraser19 (Aug 23, 2013)

I have my down payment money invested.

As much as we hate mutual funds on this board, I have an RRSP through work where I contribute 5% and they contribute 8%. I have about half my down payment money in a pretty nicely built fund. 20 Canadian 20 us 20 international and 20 bonds. I have been surprised to see that it has not ever had a negative month the entire time I have held it.

While it may not be the conservative approach I am comfortable with it.


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## banjopete (Feb 4, 2014)

Fraser19 said:


> I have my down payment money invested...
> 
> While it may not be the conservative approach I am comfortable with it.


I think that's the key.


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