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I'm looking to buy a house, but lacking in the capital to make an adequate down payment on said house. My lease expires in a year from now, so I am looking to build up my capital through investment banking - our first real attempt at investments in our lifetime.

Next month I will be able to open up an investment account through my bank with an initial $500 payment and $50 monthly payment into the account, which will build up $1100 from my savings alone.

I'm looking for growth in my investment, but I'm not looking to take such a big risk that I could stand to lose all $1100.

What type of investment should I make for this type of savings goal?

Note: $50 a month would be coming out of our current savings total, leaving $300 aside to build up regular savings (which we need - our current savings are only at $500!)

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    What is your down payment goal? I don't think that that you can turn $1100 into $5000 over the course of a year without some extremely risky and shady investments or you can become a loan shark. You would be better off investing in a $480 leaf blower, a $20 rake, and make money through yard work for the year.
    – MonkeyZeus
    Mar 6, 2019 at 13:45
  • @MonkeyZeus My goal here is to take the $300 I'm setting aside in Savings each month, combined with the $1100 I have to invest, and to make a $5000 down payment out of that. I'm sorry if that wasn't clear. If this is an inadvisable path, I would also accept that as part of an answer to this question.
    – Zibbobz
    Mar 6, 2019 at 14:19
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    My comment still stands. Growing $1100 into a significant investment profit within 1 year is not going to happen unless you get really risky. Managing even a 10% increase would be impressive but that gives you a whopping total of $1210. Also, is the "regular savings" your emergency fund in the event of a car breakdown or big hospital bill? If so then it's quite foolish to use it for buying a house. The financial layering that Quid answered is spot on. If you have a dedicated "house down payment savings account" then build it up as much as you can before the year is over.
    – MonkeyZeus
    Mar 6, 2019 at 16:44

5 Answers 5

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Generally speaking you want to layer your financial life.

First you want to have an emergency fund with enough money set aside to comfortably absorb emergency expenses and give you a financial buffer if you find yourself unemployed. Your emergency fund should be stored in a guaranteed account.

Above that you have some sort of longer term specific goal savings accounts. Depending on your investment horizon you may want to apply some risk here but really, you probably just want to keep it somewhere safe. A 10% market gain in this account might be nice, but a 30% decline would be horrible.

Once you have these layers established you may want to start investing some amount in to more risky assets. This is something you do when time is on your side.

If you have a one year investment horizon, the stock market is really not the place for this money. If I were you I'd keep this money in a safe high-yield savings account. Don't be lured by the high long-term average returns of the stock market, because this is not a long term investment for you.

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    Was going to answer but would be too similar, only thing I'd add is that any of the layers you don't want to expose to market risk are good candidates for a mix of savings accounts and CD's. Based on your projected monthly saving, you'll likely want a longer timeline before you consider buying, a little buffer can go very quickly with a house ($5k hvac, $15k roof, $2k burst pipe, $10k sewer line, etc).
    – Hart CO
    Mar 5, 2019 at 19:40
  • I was going to say "So like a CD" too - though I'm worried about the liquidity of CDs due to my timeframe, especially regarding my lease. My landlord has already made it clear that they wouldn't be willing to budge on a move-out date, and my goal is for this year to be our last year living in our apartment. We don't have any major complaints about it, but we want to start having children soon, and we want to own our own property when we do.
    – Zibbobz
    Mar 5, 2019 at 20:47
  • @Zibbobz CD's often have a penalty of 'x' months interest for early withdrawal, so you can withdraw at any time but at a cost. For example, on my 5-year CD's there's a 6-month's interest early withdrawal penalty, so if I withdrew immediately I'd come out behind my initial deposit, if I withdrew at 6-months I'd get my initial deposit back, etc. With a 1-year timeline CD's aren't worth considering but a CD ladder that comprises a portion of your savings can make a lot of sense.
    – Hart CO
    Mar 5, 2019 at 21:11
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    @Zibbobz CDs are for when you have a chunk of money now that you won't need for a "long" (12+ months) time. For starting small and accumulating, a savings account is the way to go.
    – RonJohn
    Mar 5, 2019 at 23:06
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What type of investment is best suited for a 1-year investment on a down payment?

Do not invest the money you need in 12 months. That is because investments involve risk, and risk is what you should avoid at all costs.

If you are in the US (and probably Canada), open a savings account with an online bank such as (alphabetically) Ally; Capital One 360; Synchrony and many others.

which will build up $1100 from my savings alone.

Note: $50 a month would be coming out of our current savings total, leaving $300 aside to build up regular savings (which we need - our current savings are only at $500!)

Even $1100 is way, way, way short of what you'd need for a decent DP (down payment).

For example, 5% of US$200,000 is $10,000 and just about every regular on this site would recommend a 20% DP

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  • Do not invest the money? I think that is perhaps giving it too much sensitivity to risk. It is clear that the 12 month is an approximate number, and thus the OP will not lose a finger to the local mob if the money isn't there. Which means some risk is recommended. Setting up an 80/20 bond/stock scheme is appropriate IMO. This will with incremental additions every month of 50$ likely be worth 1200$ earlier than just stacking it in the bank, and at worst it will take a month or two extra.
    – Stian
    Mar 6, 2019 at 11:58
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    @StianYttervik if you need the money in one year then you can't invest it. If you want to spend the money in a year or so, but you're not 100% sure, and if it went down then you just wouldn't spend it, but if it went up it would help you reach your goal sooner, then fine, go ahead and invest it. But it's basically a 50/50 coin flip whether it will go up or down in any given year. So if you need the money to be there (even if your life and thumbs are not on the line) you can't invest it.
    – stannius
    Mar 6, 2019 at 16:38
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    @StianYttervik, no it's not. These are not investment dollars these are specific use savings dollars. Stocks are obviously volatile and bonds are not impervious to value declines, AND we're in a raising interest rate environment which means principle erosion as yields increase. Even taking the most favorable possible outcome of a compounded linear 20% increase for 2019, you have an ending account balance of $1,268 versus $1,120 in a 2.5% savings account. You think it's wise to apply market volatility to this money over MAYBE $148? And it could just as easily be minus $148.
    – quid
    Mar 6, 2019 at 18:30
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    This has nothing to do with liquidity, you are guaranteeing that your money will be there. The stock market is a lot more risky than a savings account. This is not a long enough time frame to apply risk to this money, and it's not enough money to buy treasuries directly.
    – quid
    Mar 6, 2019 at 22:37
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    @StianYttervik bond prices go down when interest rates go up.
    – RonJohn
    Mar 7, 2019 at 15:29
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There are internet bank accounts that link to a local checking account that pay about the same rate as a three-month Treasury Bill.

There are 6-month duration corporate bond ETF's that pay more than the three-month Treasury rate.

And there are Treasury Direct accounts that allow Treasury security investments with no fees or expenses. Non-hedge-fund investors are presently going as long as two-year durations but shorter durations are available.

But buying a house in the future might involve a worry about interest rates going up while waiting. An interest rate rise can be hedged with a sell-side 10-year Treasury future. The contract size is $100,000 and the minimum margin deposit is about $1300 per contract.

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First of all congratulations on starting to save!

If you are not willing to lose the money and you want to withdraw it a certain amount of time, then I would recommend a high interest savings account. If you commit to one year you can get a better rate, but you lose the flexibility to withdraw it early. Best 1 Year offers

If you want to take more risk I would go with one of the free investment brokers such as Robinhood. There you can start investing in stocks and ETF's commission free. But there is a certain risk to lose all you money. I you choose to invest e.g. in the S&P500 which represents the biggest 500 companies listed on the stock marked in the US, the chances that you lose all your money are pretty low, but the chances that your money will be worth less than today are rather high.

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At the risk of being off topic, have you considered non direct financial investments?

Physical investments, like the comment about the leaf blower and rake, require time but produce a semi-stable option if you are willing to accept the full scope of what you're doing.

I personally have invested in various pieces of equipment that allow me to generate a relatively healthy passive income that easily meets and far exceeds the goals you have outlined here. Obviously I won't disclose what they are because I don't want to create competition for myself, but the basic idea is enabling yourself to provide a good or service that other people would gladly pay you for.

Not all of this has to be intensely time consuming or costly. If you have $1100, and you were willing to risk $500, plus invest some time setting things up, you could easily generate a few hundred a week off of simple nightly tasks like pushing a few buttons, stuffing a few envelopes, and stashing away all the funds so you can adequately and accurately calculate and pay the necessary taxes on the venture. In the US, that's whatever your tax bracket is, plus the self employment tax.

This answer is meaningless without some kind of guidance, so here's the nutshell that is not what I am doing, but I have proved this concept for others who thus far have never taken on the challenge.

I can sew. Goody, right? I also have kids. I found that I needed some things for the kids when they were babies that were either not commercially available, or they were absurd in price, or bland in design. So I made them myself. I made many. I gave them out at baby showers and people loved them. I sold them on ebay for a while and they sold without flaw. Little baby blankets, pillow covers, crib liners, etc. Each one taking some 15 minutes to make, cost about $7 to produce, sell for $30. All said, $15 profit on each item. Taxes slaughter that number down to about $10. 20 units a week I didn't need. Set it aside and invest in the next thing to waste my time with and eventually retire the more complicated things.

You may not sew, but the example is still valid. You can invest your funds into a passive hobby based on observed needs or trends. I did this exact one myself and it made money, but I don't feel like sewing pillow covers and blankets. I moved to other products and most of them now require almost no attention and costs are down to pennies per unit. Some cost zero and are just pure profit.

I put all this money aside and put a down payment on a house, same as your goal. It may not be the investing you were looking for, or what this site is trying to help people with, but it is what I did and it worked for me. It is still working for me now.

Good luck.

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  • So basically your suggestion is to have a few side-jobs and do a few chores to help raise some money to pay for a future down payment? That's...actually not terrible advice, though it's not really relevant to my question of learning how to invest and save - it's more an additional way to earn money.
    – Zibbobz
    Mar 7, 2019 at 14:25
  • It's more of a segue into what you're looking to do. Consider that you have an immediate short term goal. You need a down payment in 1 year. This will get you to that goal and then from there, it will provide you with a constant and reliable stream to fund your investment strategy. You use this supplement to fuel how aggressive you want your investing interests to grow while also massively reducing the risk (from a certain point of view). If you make an extra $300 from passive income, it is not as personally concerning to risk it in investments as say 1/3 of your core income, for example.
    – Kai Qing
    Mar 7, 2019 at 15:16
  • And while I realize at the core of the answer is basically "get another job" - it is not suggesting employment, but something along the lines of "sell crap on ebay" - and I'd like to emphasize the idea that by "passive" I mean with as little actual time invested by you as possible. Like making beaded necklaces (which sell) - 5 minutes of your time = $30 sale. Much better than a side job at a car lot or something. There are infinite little things people will pay you for that will allow insane investing tactics. Find some, diversify, and have a little fun doing it.
    – Kai Qing
    Mar 7, 2019 at 15:19

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