Is a massive down payment on a house smart?
Posted 05-26-2014 at 12:35 PM by Nelju
Put the money into a new house, the stock market, or keep it at a bank: Any way you go you are investing the money. The question is: Which is the best way to invest it?
Pros/cons:
Keep it at the bank:
Pro-Money is VERY secure (You don't have it all in one account exceeding the FDIC limit do you?)
Con-You are actually losing money by the time you account for inflation.
Stock Market:
Pro-You could make a lot more money.
Con-Risk is above your tolerance level.
Buy new house:
Pro-You have a new house to live in (duh!)
Con-Most of your assets are tied up in one VERY illiquid investment. What if something happens to the house? Or, just as likely, you need to access the money quickly? Big problem.
My two cents? Learn about investing. Since your risk tolerance is low, look into look into low cost index investing. Indexing, also known as Boglehead investing, is fairly simple to understand. The goal is to mimic the stock market at the lowest possible cost. You do this by investing in funds that mimic the stock market-thus giving you a small amount of ownership of every company in the stock market. Studies have consistently shown those seeking to beat the market consistently lose. Conversely, those that match the market gain more frequently trhan losing (afterall, the market goes up a lot more than it goes down). The Bogleheads Guide to Investing is an excellent primer, as is the Bogeleheads forum.
Pros/cons:
Keep it at the bank:
Pro-Money is VERY secure (You don't have it all in one account exceeding the FDIC limit do you?)
Con-You are actually losing money by the time you account for inflation.
Stock Market:
Pro-You could make a lot more money.
Con-Risk is above your tolerance level.
Buy new house:
Pro-You have a new house to live in (duh!)
Con-Most of your assets are tied up in one VERY illiquid investment. What if something happens to the house? Or, just as likely, you need to access the money quickly? Big problem.
My two cents? Learn about investing. Since your risk tolerance is low, look into look into low cost index investing. Indexing, also known as Boglehead investing, is fairly simple to understand. The goal is to mimic the stock market at the lowest possible cost. You do this by investing in funds that mimic the stock market-thus giving you a small amount of ownership of every company in the stock market. Studies have consistently shown those seeking to beat the market consistently lose. Conversely, those that match the market gain more frequently trhan losing (afterall, the market goes up a lot more than it goes down). The Bogleheads Guide to Investing is an excellent primer, as is the Bogeleheads forum.
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