Which investment and/or saving option will help me generate the most funds to put toward a down payment?

I am 26 and I have no debt. With my current job, I can comfortably put money into my 401(k), ESPP, and HSA. I don’t own a house, and I am not saving enough for a down payment on a house. I wanted to save my ESPP investments for a possible down payment in the future, but I am enjoying the growth in the stocks right now. Should I ease off on contributing to my 401(k) plan, or should I stop participating in the ESPP and save that money for a house? My goal is to save at least $10,000 in my 401(k) every year, in addition to the company match, and eventually max out my 401(k), my HSA contributions and my ESPP contributions.

Investing, 401(k), Real Estate
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One of the biggest mistakes I see people make is not to have a balance between funds in retirement (non-liquid available funds) and after-tax available funds.  They are so worried about the tax deduction, that they cannot do things outside of retirement like buying a home or alternative assets.  A good rule of thumb is to have 30% to 40% on the outside, and then 60% to 70% inside their retirement accounts. 

The other mistake it to get too much stock in the company they work at because their salary & "life" is tied to that company.  Think of your salary as a company bond.  You shouldn't own more than 8% in any one stock, especially including the company you work for unless you are willing and able to take more risk.  So if you participate in the ESPP because of a discounted stock price, I would sell some or all as soon as you vest and diversify away from your own company.  Enron comes to mind and the employees all thought they had knowledge of the company's future not knowing what upper management was really up to.  If you are too young to remember, Google it.

So without knowing all of your details, I would suspect you need to either save more on the outside or sell the ESPP stock as soon as it vest.  The good news is that you are off to a great start early so congratulations.

Hope this helps and best of luck, Dan Stewart CFA®

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