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Info about my situation.

  • Age: 32
  • Salary: 100k
  • Monthly expenses: +-$1000 (Rent, bills, pets, car, food)
  • Non-Retirement/Non-Emergency Savings to invest: $10k
  • Retirement Savings: 401k (2008-2011)- $20k......403b (2011-present) - $27k (no company match)
  • Yearly Retirement contributions starting 4/1/2016: 14% to 403b.... 10% Roth
  • Net Monthly Income after contributions: ~$3800 (lets call it $2500 after bills)

Is it smart to invest my extra cash or should I just save it for a larger down payment?

Since my goal is to own a house in 3-5 years, would it be smart to save for a down payment, 403b, roth ira and also invest extra cash in the stock market or is this spreading my money too thin?

Thanks for your thoughts!

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I'd keep the risk inside the well-funded retirement accounts. Outside those accounts, I'd save to have a proper emergency fund, not based on today's expenses, but on expenses post house. The rest, I'd save toward the downpayment. 20% down, with a reserve for the spending that comes with a home purchase. It's my opinion that 3-5 years isn't enough to put this money at risk.

  • This is an interesting view. Any suggestions on how I can calculate and prepare for the future in this way? Would it help to know that my range, although broad, is $200-$300k? – theeviininja Mar 9 '16 at 14:58
  • It's a bit of chicken and egg. Save, and save some more. When you have $50,000 ready, it's time to start shopping, and see if the $200K house will make you happy. You won't know for sure until you actually go out and look at houses. A bank will be happy to lend you up to $400K. In my opinion, the $200-$300K range is better. – JTP - Apologise to Monica Mar 9 '16 at 17:22
  • The area I'm looking at is cheap, quiet and near to everything I'd need. 200k buys a HUGE house with land. 400k would buy a mansion. Either way, $50k is doable within a couple of years. – theeviininja Mar 10 '16 at 17:56
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3-5 years is long enough of a timeframe that I'd certainly invest it, assuming you have enough (which $10k is). Even conservatively you can guess at 4-5% annual growth; if you invest reasonably conservatively (60/40 mix of stocks/bonds, with both in large ETFs or similar) you should have a good chance to gain along those lines and still be reasonably safe in case the market tanks.

Of course, the market could tank at any time and wipe out 20-30% of that or even more, even if you invest conservatively - so you need to think about that risk, and decide if it's worth it or not. But, particularly if your 3-5 year time frame is reasonably flexible (i.e., if in 2019 the market tanks, you can wait the 2-3 years it may take to come back up) you should be investing.

And - as usual, the normal warnings apply. Past performance is not a guarantee of future performance, we are not your investment advisors, and you may lose 100% of your investment...

  • I aware that I risk losing the money I invest, which is why I'm trying to limit that risk by asking experts for advise. Theres a lot of info on the internet and its been a tough subject for me to comprehend. I think I may test the waters this year. Maybe, I'll keep $5k of the 10k on the side, invest the 5k and see where that goes. When I'm more comfortable I can invest the rest. Thoughts? Is this dumb? – theeviininja Mar 8 '16 at 17:27
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    Only you can speak to your comfort level. If it were me, and I didn't have any specific use for that money for 3-5 years, and it's beyond my emergency fund, I'd invest it as above. But my comfort level is not yours - hence the caveats. – Joe Mar 8 '16 at 17:30
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A lot of people on here will likely disagree with me and this opinion.

In my opinion the answer lies in your own motives and intentions.

If you'd like to be more cognizant of the market, I'd just dive in and buy a few companies you like. Many people will say you shouldn't pick your own stocks, you should buy an index fund, or this ETF or this much bonds, etc. You already have retirement savings, capital allocation is important there. You're talking about an account total around 10% of your annual salary, and assuming you have sufficient liquid emergency funds; there's a lot of non-monetary benefit to being more aware of the economy and the stock market. But if you find the house you're going to buy, you may have to liquidate this account at a time that's not ideal, possibly at a loss.

If all you're after is a greater return on your savings than the paltry 0.05% (or whatever) the big deposit banks are paying, then a high yield savings account is the way I'd go, or a CD ladder. Yes, the market generally goes up but it doesn't ALWAYS go up. Get your money somewhere that it's inured and you can be certain how much you'll have tomorrow.

Assuming a gain, the gain you'll see will PALE in comparison to the deposits you'll make. Deposits grow accounts. Consider these scenarios if you allocate $1,000 per month to this account.

1) Assuming an investment return of 5% you're talking about $330 return in the first year (not counting commissions or possible losses).
2) Assuming a high yield savings account at 1.25% you're talking about $80 in the first year.

Also remember, both of these amounts would be taxable.

I'll admit in the event of 5% return you'll have about four times the gain but you're talking about a difference of ~$250 on $12,000. Over three to five years the most significant contributor to the account, by far, will be your deposits.

Anyway, as I'm sure you know this is not investment advice and you may lose money etc.

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I'm normally not a fan of partitioning investment money into buckets but your case may be the clearest case for it I've seen in awhile. Your income and saving is good and you have two clearly defined goals of retirement saving and saving for a house each with very different time frames ~30 years and 3-5 years respectively.

For medium term money, like saving for a house, just building up cash is not actually a bad idea. This minimizes the chance that a market crash will happen at the same time you need to withdraw the money. However, given you have the means to take more risk a generally smarter scheme would be to invest much of the money in a broad liquid bond funds with a somewhat lower percentage in stocks and then reduce the amount of stock each year as you get closer even moving some into cash. This gives reasonable positive expected return while lowering the risk of having to sell during a crisis as the time to purchase gets shorter and shorter.

The retirement money should be invested for the long term as usual. A majority in low-fee index stock funds/etfs is the standard advice for good reason.

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