I live in San Diego,CA and as most people know, housing prices are no t very cheap in here. Now, I hold some thoughts when it comes to money:

  1. You should always invest in 401k
  2. If you have leftover money, it should always be invested too.

Following this rule, I have been investing all 18k between my self and my wife for last two years + I have been having my long term stock investments for last 3 years. I initially thought that I can always get my money from investments If/when i decide to buy a house. However, I just realized that it would not be the best of ideas because

  1. From 401k, I can only borrow up to 50k
  2. with regular investments, I have already paid some taxes(as in income taxes) and when I sell it prematurely then I will end up paying long term investment taxes on top of it. That to me is a bad idea.

Say we talk numbers. I need 140k minimum for my house down payment an I think it may take me 3 years to save it if I need to.

  1. Which means if I do not invest during these three years then I lose all the potential investment returns on un-invested money
  2. If I do invest then I pay taxes twice (Income tax when I go tmy pay check + long term investment gains)

I am really confused on should I invest or not invest when I am saving for my house downpayment. Any ideas?

  • Save for your house down payment by investing outside your 401k. You should be investing more than just the 401k maximum anyway; this is just part of that overflow.
    – keshlam
    Commented Dec 3, 2016 at 17:21
  • 3
    Depending on your tax bracket, your long-term capital gains tax may not be that much. Also, you are only taxed on the gains from the investment. So if you have say $10K (which you've already paid income tax on) and stick it under the mattress, in 4 years you will have $10K (less inflation) and pay no tax. If instead you invest it, in 4 years you might have $14K, and will (if you are in a high enough bracket) pay a MAXIMUM of 20% tax on the $4K profit, leaving you with a $3200 gain. Which is better?
    – jamesqf
    Commented Dec 3, 2016 at 18:23
  • What percentage down payment do you hope to make? For example, 20% of $ 700,000 ? 10% of $ 1,400,000 ?
    – Jasper
    Commented Dec 4, 2016 at 7:08
  • How soon do you hope to have children? What is the minimum house budget that will allow you to have a home suitable for raising children? (In terms of size, location, neighbors, school options, and commute.)
    – Jasper
    Commented Dec 4, 2016 at 7:12
  • 1
    If you are considering very expensive houses, are you willing to put up with the inconvenience and risk of buying a house on a "layaway" plan? For example, buy a small house (suitable for your family as it is now) with a good location, neighbors, school options, and commute. Later on, rent a neighboring house for about a year. Move out of the house you own. Have a contractor mostly tear it down, and replace it with the size house you will need later. (This might cost about $ 200 per square foot of the finished house size.)
    – Jasper
    Commented Dec 4, 2016 at 14:05

1 Answer 1


Yes you should invest; and yes you should save for the house down payment.

These should be two separate pools of money and the goals and time frames for them are different.

With a 3 year time frame for the down payment on the house, the risk you should accept should be essentially zero. That means it is less of an investment and more plain vanilla savings account, or maybe a higher interest account, or a CD. The worst thing to have happen would be to try and save for the house while the value of your investment keeps dropping.

You have to decide how to allocate your income between retirement accounts and saving for the house, while still meeting all your other obligations. The exact balance depends on how much you need to save for retirement, and things such as rules for the company match.

  • Valid point; if we're looking at that short a time period and it's s hard target, preserving value takes precedence. If it's "I might start thinking about it in 3 years, and if it takes 5 years that's OK", I'd be inclined to be less conservative than that. Then again, I didn't start thinking about buying a house until I was sure where I wanted to settle for decades st least, and by that time I had the value of a house in my investments.
    – keshlam
    Commented Dec 4, 2016 at 5:04

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