If saving money for a down payment on a new home, a new automobile, your child’s educational journey or saving or a major renovation project is one of your financial goals, you’re not alone. We’ve got some ideas to help you achieve your homeownership goals without disrupting the rest of your financial plan.
Step up your savings
Most potential homebuyers need several years to build up the money needed for a down payment. Mutual funds offer potentially higher rates of return than bank accounts over longer periods, and every bit of growth brings your home goals closer.
Select an account
There are many types of investment accounts. For most people, saving for a home means opening an individual or jointly owned taxable account. But it is possible to use funds in a retirement IRA for a first-time home purchase without incurring any penalties. This can be a good strategy for some people, but there are restrictions, so you should discuss the option with a tax advisor.
Choose your funds
You might want to consider choosing funds with low volatility, such as Homestead’s Daily Income Fund or Short-Term Bond Fund. But depending on how long you plan to save up, you might look into a blended portfolio that includes a small amount of a conservative stock fund, such as Homestead’s Value Fund. Equities carry higher risk and aren’t right for everyone, but historically they have delivered higher long-term returns. Regardless, when you’re just a year or two away, it will be time to move to a money market fund to reduce your risk exposure.
Saving for a new home or major renovation project is typically one component of a broader financial plan. Once you’ve met your goal, you’ll want to continue to focus on your longer-term objectives, such as retirement.
Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated, securities involve greater risk than higher-rated securities.
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