Portfolio \ Saving for Down Payment Advice

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Topic Author
octeach
Posts: 3
Joined: Mon May 17, 2021 7:47 pm

Portfolio \ Saving for Down Payment Advice

Post by octeach »

Yes, I have emergency funds.

No Debt.

Single

24% Federal, 9.3% State

California

43

Roth IRA at Vanguard $90K
80% VTSAX Vanguard Total Stock Market Index
20% VTIAX Vanguard Total International Stock

Roth 403b $4,800
100% VFIAX Vanguard 500 Index Fund Admiral Shares through Nationwide who is partnered with my Credit Union.

Defined pension plan. CalSTRS for California teachers. Let’s assume $80K per year at retirement.

~$200,000 savings/down payment/invest

QUESTION

My primary goal is to save for a down payment on my first house while still saving/investing for retirement. Unfortunately, housing prices in Orange County, CA. are crazy high so I need a large down payment to afford the mortgage and not be house poor. I had ~$100,000 in stocks and ~$100,000 in CDs prior to the pandemic. When the pandemic hit I pulled the $100K out of stocks into short term CDs. I anticipated a drop in the market and a housing correction due to a prolonged pandemic. I guessed wrong. Market took a dip, soared, and housing is more expensive than ever. I wanted to be ready to purchase thinking a worldwide pandemic might lead to a 2008 situation (aka the last time homes in Orange County were affordable).

Long story short, my CDs all just matured and I am trying to plan what to do next. Housing inventory in my area is ridiculously low and almost everything is being purchased all cash and bid up, so I have to wait for the housing market to cool. I want to have enough cash available to pounce when an opportunity arises.

I spend around $3,500 to $4,000 per month while saving roughly 50% of my income.
I max out my Roth IRA each year. Plus, I have a defined pension plan which throws off the usual retirement allocation suggestions and calculations.
I put the maximum $2,000 each month into a credit union account “summer savers” that has a 2.5% interest. It matures at the end of the summer

What should I do with the $200K that I currently have sitting in savings? Back into CDs? Invest some in traditional IRA? 403b?
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio \ Saving for Down Payment Advice

Post by lakpr »

You are age 43, but only $4800 in Roth 403(b). It suggests that you either haven't been contributing frequently to your 403(b), or that you started only recently.

In your marginal tax bracket (33.3% combined for Fed + State), I would maximize the Traditional 403(b) contributions, and continue to rent. Maximize the Roth IRA as you do always, of course.

If this creates a shortfall in your paycheck inadequate to meet your living expenses, draw down those living expenses from this $100k cash.

As for investments, you seem to be a 100% stocks guy (you have the $85k pension to look forward to in the future that you can consider to be a bond fund, so you don't really need bonds in your portfolio).
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio \ Saving for Down Payment Advice

Post by tashnewbie »

octeach wrote: Mon May 17, 2021 7:57 pm What should I do with the $200K that I currently have sitting in savings? Back into CDs? Invest some in traditional IRA? 403b?
FYI, if you're maxing a Roth IRA annually, you can't also contribute to a Traditional IRA. The annual IRA contribution limit for people <50 is $6k into Roth, Traditional, or some combination of the two.

You guessed wrong last year about the stock and housing markets. What makes you think things will cool down in the foreseeable future? I don't know what will happen. Some people assume the housing market will "cool off" soon. Who knows?

If you think you'll need the DP money in the short-term, it probably shouldn't be invested at all.

I agree with user above that you should probably be putting more into traditional 403b. Even maxing that account, you'd probably still have enough to live on (instead of the money just piling up in savings accounts).
Topic Author
octeach
Posts: 3
Joined: Mon May 17, 2021 7:47 pm

Re: Portfolio \ Saving for Down Payment Advice

Post by octeach »

lakpr wrote: Tue May 18, 2021 8:12 am You are age 43, but only $4800 in Roth 403(b). It suggests that you either haven't been contributing frequently to your 403(b), or that you started only recently.

In your marginal tax bracket (33.3% combined for Fed + State), I would maximize the Traditional 403(b) contributions, and continue to rent. Maximize the Roth IRA as you do always, of course.

If this creates a shortfall in your paycheck inadequate to meet your living expenses, draw down those living expenses from this $100k cash.

As for investments, you seem to be a 100% stocks guy (you have the $85k pension to look forward to in the future that you can consider to be a bond fund, so you don't really need bonds in your portfolio).
No, I haven't contributed in over a dozen years. I opened it when I first started teaching. I soon learned the options available (mostly annuities and some other higher cost managed funds) were no bueno, so I instead opened a Roth IRA through Vanguard and have been maxing that every year since. I learned that I couldn't move the 403b unless I quit jobs, so I just kind of ignored it. Recently I checked and now we have a lot more options so I exchanged my crappy fund for the Vanguard fund. Now that there are several Vanguard options offered through the Nationwide 403b for my district I thought maybe I should start investing in there instead o, or in addition to, my Roth IRA.

I have been struggling between saving for retirement, general investing, and saving for a down payment. I have been going dow the "save for a down payment" route, but housing in Orange County is crazy. Fixer upper small homes in my area jumped from $650,000 to $800,000 in the past 12-18 months. I can't save fast enough to keep up. Even with me saving 50% of my income. I have spent the past 5+ years living conservatively to save for a down payment, but the housing market appreciates faster than my income and savings. In hindsight I would have been better off investing in three fund portfolio. I'd have enough for a down payment, but you never know how things are going to go in the market.

I can't decide if I keep going down the same path to save for a house or switch to stocks. Or mix of stocks and CDs, half and half. I wanted to be liquid in case their was a correction in the housing market, but there hasn't been.
Topic Author
octeach
Posts: 3
Joined: Mon May 17, 2021 7:47 pm

Re: Portfolio \ Saving for Down Payment Advice

Post by octeach »

tashnewbie wrote: Tue May 18, 2021 10:24 am
octeach wrote: Mon May 17, 2021 7:57 pm What should I do with the $200K that I currently have sitting in savings? Back into CDs? Invest some in traditional IRA? 403b?
I agree with user above that you should probably be putting more into traditional 403b. Even maxing that account, you'd probably still have enough to live on (instead of the money just piling up in savings accounts).
Yeah that is what I started thinking about and spurred me to post in the forum. I have been able to save ~$40-50k per year the past couple of years. I just can't save fast enough the way housing keeps going up. So, maybe I should max the traditional 403b.
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