Should you invest in stocks if you want to buy a house?

Whether you are planning for retirement, saving for a college fund, or saving toward a down payment on a house, every investor needs an investment strategy that fits their budget and needs. With real estate prices climbing, saving up a 20% down payment on a house is often no easy feat. For big, long-term goals like this, investing might seem like a great way to make money grow quickly. However, unlike for other long-term goals like retirement, investing your house down payment in longer term assets is not always the right move. Whether or not investing your down payment savings is right for you mainly depends on when you want to buy. Here are some tips to help you determine if you should invest your down payment savings, and how to do it.

Unlike other long term goals such as retirement savings, your home down payment savings will not have decades to recover from any short-term market losses and any market downturn poses a bigger threat. With that said, your buying time frame generally determines where you should put your down payment funds.

If your goal is to buy a home within two years, saving your money in something that is liquid and low risk is ideal. For instance, you could put your down payment savings into a high-yield savings account, perhaps at a different institution than your main account, to deter you from tapping into these funds for living expenses or emergencies. A high-yield savings account is a good place to store money for short-term needs and many banks offer high-yield savings accounts with varying interest rates for different balances.

You could also consider a money market account – a cash account similar to high yield savings which keeps money easily accessible and earns interest, to save for the down payment. These low risk investments will not provide the highest returns available but it is more prudent to be cautious with down payment savings. Avoid holding your money in an instrument that may not be available when you want to buy your house or where your money may have declined in value. You do not want to risk missing out on a prospective deal because you invested too aggressively, or your money cannot be converted into cash when you are ready.

If you are planning to buy in the next two to five years, low-risk instruments such as a certificates of deposits or CDs, may be best, as that could make your savings grow faster than a typical high-yield savings account. With CDs, money is in an account for a pre-determined term, and generally earns a slightly higher interest rate than it would in a high-yield savings or money market account. Terms often range from one month up to one year. Typically, the longer your money is committed, the higher interest rate you will earn. Even though you will incur a penalty if you take money out before the CD matures, the interest rate will not change, regardless of what happens to the prime rate.

For persons wishing to accumulate their funds faster, short term money market investments such as short term bonds or short term secured notes may offer another alternative to savings instruments. However, these investment come with more risks and may not be suitable for every investor since the market prices of these investments can fluctuate and your downpayment money may decline in value when you wish to dispose of these assets. You may also not be able to sell them when you wish to make your house purchase.

If you are waiting 5 to 10 years before you buy, investing in stocks and bonds may be a good option to grow your down payment savings. You might want to grow your money faster, and the stock market has the potential to earn you the highest returns on your money over the longer term. Thus, if you are thinking of purchasing your house in more than five years, your money has a longer time to recover from any declines in the market and stocks and bond investment may be more beneficial to accumulating more down payment savings.

However, stock market investing carries more risks, as the return on stocks is never guaranteed. Bonds prices may also suffer a decline when you need to access your money or you may be unable to sell the bond at that particular point in time. Therefore, any investment in stocks and bonds should only be a portion of your down payment savings and lower risk savings should be used to mitigate some of your risks. You could use lower-risk options such as a CD or a high-yield savings account to keep the remainder of your savings safe and growing steadily.

As usual, we recommend that you discuss your goals with a licensed financial advisor who is knowledgeable and qualified to help you in creating your financial plan.

If you need advice in building a diversified stock portfolio, FHC Investments Limited can guide you in achieving your financial goals. Feel free to give us a call today.

The following are the current Government of Jamaica bond prices as at September 17, 2021:

*All rates quoted are opening indicative levels in the international capital markets and are subject to change based on market conditions.

The Jamaican dollar appreciated by $1.15 relative to the US dollar week-over-week, moving from a selling rate of $150.26 on Friday, September 10th to $149.10 on Friday, September 17th.The closing BOJ weighted average selling rates are as follows:

The following are the average Treasury bill rates:

Jamaica Stock Market

Movement of the JSE Indices

This week’s Market activity resulted from trading in 108 stocks, of which 41 advanced, 54 declined and 13 traded firm. Market volume amounted 77,469,517 units valued at over J$1,541,670,414,96.

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This information should not be relied upon by the reader as Research or investment advice. If you need advice in building a diversified stock portfolio, FHC Investments Limited can guide you in achieving your financial goals. Feel free to give us a call today.