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How should I invest monthly deposits so I can save for a home purchase?

I'm looking for the best way to invest my money. I want to create savings for a possible home purchase within the next 2-3 years. If I have $700 to start with and $400 in monthly deposits, what are my options for the best outcome in a 2 year span?

Financial Planning, Investing, Real Estate
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August 2017

You can open up a bank account with the initial $700, and then begin a payroll savings plan that will automatically transfer $400 into that account each month. That will be the easiest way, since it will involve no effort on your part, and the transfers will be automatic.

As to where to invest the money, you need to be conservative since you A) have a short time horizon of just two or three years, and B) you have a very specific purpose for the money.

I would just put it into a bank money market account, or even short-term CDs. You should be more concerned with keeping your principal value safe than with growing the account.

The problem with growth investments is that they come with risk. For example, it's possible that while looking to gain 10% in investment earnings, you end up losing 20% in a market downturn. That would hurt your effort to save for the down payment on a house, rather than helping it.

Using the numbers that you have given of $700 upfront, plus $400 per month for two years, will give you a balance of $10,300, plus interest. Given that you can purchase a home with a down payment of as little as 3% of the purchase price, that would enable you to buy a house for over $330,000, if your income can support the mortgage.

If you save for three years, that will give you $15,100, which will enable you to purchase a home for over $500,000.

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