When I started saving for my house down payment, I thought it would take between four and five years. This was before my husband got his new job and before we knew what we could realistically save per month in a new city.
With four or five years in mind as my time horizon for our house down payment fund, I put the money in a relatively low-risk Tangerine Streetwise fund. I wanted it to do a little better than GICs or a savings account, and I felt that if the market took a dive a) the fund would be insulated from the worst shocks because its low risk and b) it would have enough time to recover.
Since I made that decision, our circumstances have changed. My husband’s job turned out to be pretty well paying (and it’s only going to go up from here) and we were able to save triple our original goal of $5,000 this year. This accelerated rate of savings means that we’ll reach our goal of saving $40,000 for a house by fall 2017.
What This Means for The House Down Payment Fund
Since this is a much shorter time horizon than I originally thought, I need to reconfigure my investment strategy for this money. I want the money to be there when I need it in two years, preferably earning more than 0.8% in a savings account. The current Tangerine Streetwise fund the money is invested in is too aggressive for such a short time horizon, so I’m either going to switch funds to the most conversative one they offer (which is 70% bonds) or go straight to Guaranteed Investment Certificates (GICs).
(I know I could use TD eSeries funds to open up my options, but I’m just not quite there yet with my investment knowledge).
Pros and Cons of GICs
I’m a safe and secure kind of person, so I inherently like the idea of GICs. I like that you get a guaranteed rate of return (1.20% for a one-year GIC). I also like that the money is locked in and I can’t access it. Part of me is worried that I’ll jump the gun on this whole home buying thing and we’ll buy a house before we’re ready. If we can’t access the money, the temptation is eliminated.
There are also cons to GICs. For example, you have to choose your maturity date. The only maturity dates I could choose would be one year, 1 1/2 years, or two years. Anything shorter than that and I’m better off just using a Tangerine Savings Account. This means I can’t just deposit money willy-nilly like I can into a savings account or an investment account. I’ll have to plan my deposits.
I could also look at having my money locked away as a con. I’ve come to think of the house down payment fund as our extra emergency fund, and I like the idea that if something really bad happened in my life, we would be ok.
Pros and Cons of Investing
I also like the idea of investing our house down payment fund (albeit in a conservative fund). I like that I can make deposits anytime I have over $100 to invest. I like that I can withdraw the money at any time and for any purpose (for example, if our car dies). I like the potential to earn more than 0.8% – 1.35% in interest. I also think that if the fund loses value due to a correction, we can just wait until it recovers. Buying a house is a luxury, if we need to wait longer than my planned two years, we can do that, and we’ll use that opportunity to pad the account.
At this point, I’m leaning towards a combination of GICs and a tax-free savings account. The time horizon is just too short for anything else. Thoughts?