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Large savings account but not ready to buy a home yet, options?

This may be the most difficult time for savers looking to buy a home. As interest rates have plummeted making it more affordable to buy your home, it has decreased what you can earn in a savings account to pretty much 0%. 

With that being said, depending on your time frame you have a couple of options. If you’re planning on buying a home within the next 1-2 years the best option you have is buying a US Treasury (.9% as I write this) or an investment-grade corporate bond (1.3%). You cannot afford to start investing and lose 10-30% of your savings for the hope of a small increase in a good investment. So understanding risk vs. reward is key. 

If you’re planning on purchasing a home in more than 2-3 years then you could theoretically invest this money in a more passive way either by investing some money again in a corporate bond or US Treasury and complement it with a total stock market ETF. How much you invest in both depends on your timeframe but the more you invest in equities the more volatility your savings will become. 

Alternatively, you could invest in a bond ladder. For example, buy a 1-year bond, a 2-year bond, and a 3-year bond. As interest rates potentially increase, your bonds will mature and you will have cash available to reinvest in a bond with maybe a higher interest rate that matures when you need it to purchase your home. 

If you’re looking to buy a home in 3-5 years then you can invest a little more aggressively; however, it will be important to reduce your equity exposure as you get about 1 year out.

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