A few years ago I decided to start saving for a down payment. I’m in a HCOL area so 20% is 100-150k for a condo or townhome. I’ve invested in ETFs and stocks and the number has since grown to 115k. But now that I’m 1-2 years away or maybe even closer to actually looking for a house, I’m wondering if it’s a good time to sell those investments. Most posts online recommend a HYSA (currently at 3%) or a CD. My question is does anyone recommend a TDF instead? A 50/50 stock/bond TDF can protect from severe downturns but also likely give me more than 3%. A 50% market loss would bring me down to 50k which wouldn’t be the end of the world either as renting doesn’t bother me. Am I missing anything?
Is a Target date fund a smart but uncommon way to invest for a down payment?
byu/Traditional_Yam1598 inpersonalfinance
Posted by Traditional_Yam1598
6 Comments
I strongly recommend against investing money you’ll be using in <5 years. A crash can happen at any time and while a 2030 TDF may be relatively safe, I don’t think the possibility that it can gain 5-10% in the next year is worth the risk that it could lose a lot more than that in the same period.
At this point your primary goal should be retaining the money you have.
You’re not missing anything.
Generally the advice to keep funds more liquid in advance of purchase are for people who are closer to the actual purchase. Like, have an actual house in mind, maybe are starting to make offers, have a hard date to purchase by, etc. If you just vaguely want to buy a house but dont care when it happens and are not super seriously looking, you dont need that level of prep.
You’re talking about target date funds and funds with a specific asset mix (50/50 stock/bond).
Those are not the same thing, as the asset mix of a TDF changes as the target date gets closer.
For a target date of “now” (basically what you’re talking about) like VTTVX, current asset mix is more like 30/70 (stock/bond).
Regardless, even that carries some risk of capital loss, even at 30% stocks. So is that risk acceptable to you or not? For me personally, I think it would be. If you assume a worst case correction to be 30%, then losing 30% of 30% is a 9% portfolio hit. Unpleasant, but not the end of the world.
You should not invest money that you need in 1-2 years. You don’t know what will happen. You could be forced to sell on the lowest day of the year when you need the money. Start pulling your money out of the market now, and put it in a HYSA. We are at all time highs right now, so it’s a good time to sell most investment funds right now.
>Is a Target date fund a smart but uncommon way to invest for a down payment?
[](/r/personalfinance/?f=flair_name%3A%22Retirement%22)
No, not even close.
>But now that I’m 1-2 years away or maybe even closer to actually looking for a house, I’m wondering if it’s a good time to sell those investments.
Yes, any money you need in 0-3 years should absolutely never be in the stock market. What happens if we enter a recession soon and your funds fall by +30-40%?
>A 50/50 stock/bond TDF can protect from severe downturns
Define protect. VTINX the vanguard TDF for retirees (30/70) dropped +10% in 2008.
A TDF is not meant to be 100% liquidated on the target date or year. It’s only the *start* of a calculated withdrawal (e.g. 4% withdrawal rate) over the next 30-50 years. Using a TDF for immediate 100% liquidation on the target date is not its intended purpose.