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Question for the Money Doctors

Question submitted on Nov 5, 2014.



I'm 26 years old and looking to buy a home in the next 1.5-2 years. The homes in my area are getting pretty pricey, about $350,000 for a starter home. I make about $60,000 per year before taxes, and have saved up $60,000 in savings which is my emergency fund and house savings fund.

My question is whether I should leave the $60,000 in savings or move part of it to my brokerage account? I currently have about $30,000 in brokerage and another $25,000 in my Roth IRA.

I've worked really hard to save money all the way from high school jobs to my career in financial services now. I want the money to grow but am not sure if my time frame is long enough. Are there some conservative investments you could suggest?

Thank you very much!


First, congratulations you on your diligent savings habits! 

You mention that you are looking at homes in the $350,000 price range.  Ideally, you will want at least 20% down, or approximately $70,000 to avoid Private Mortgage Insurance (PMI).  Should you wish to, it appears you could purchase a home now if you moved at least $10,000 into savings from the brokerage account, and your credit ratings are good.  That would leave approximately $45,000 for longer term objectives of retirement (Roth IRA) and the emergency fund.

Because you appear to have set this short-term goal to buy a house, moving your savings to a brokerage account would not be advisable.  If the timing happened to cause you to suffer a loss, there may not be ample time to recover by the time you would require the funds.  Instead, look for a high-yield savings or money market account.  A certificate of deposit (CD) may return a higher interest rate, but if you need the money before it matures, you’ll incur a penalty.

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