One of the questions many people have is whether they should invest the money which they will be using for their down-payment for a home while waiting to buy one. There is no right answer to this, it actually depends on individual circumstances.
The first question is the time horizon, how soon do you need the buy the house? A good rule of thumb is whether if you need to purchase your house within 5 years time. If you can’t stay invested for 5 years minimum, don’t invest as stocks become risky.
In my opinion, its best not to invest the money which you want to spend on your first home in stocks. The reason being, if you need the money to buy a home, you will be very emotionally attached to the money. You may not be able to withstand downturns psychologically since you know you need the money. I know this as I have experienced it first hand. Set aside the sum of money for the down payment, set aside an emergency fund of 6 months, then feel free to invest the rest.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
If you must invest your down payment fund, its best to invest in money market or rolling fixed deposits. Another alternative is to invest in short term government bonds or corporate bonds which mature about the time when you intend to buy your home. That way, you will receive your money in full by the time you need it and will not be affected by fluctuations in interest rates.
However, if you feel that you can be objective and will not be needing to buy your home in the next 5 years, then investing in stocks is a possibility to increase the returns and accumulate your capital at a quicker rate. Do take note that as your goal to buy your home gets nearer, be prepared to take them out of the market so they are not subject to market volatility.
About the Author
Calvin Yeo is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is an online financial planning platform. He is also a Chartered Financial Analyst (CFA) as well as Certified Financial Planner (CFP).