Where the Paulinos Keep their House Down Payment Fund (So Far)
Dec 15, 2021Hey, hey, hey Amor!
Amor, can you believe this is my last email to you in 2021? It seems like just yesterday when I sent you my first e-mail. I am so grateful to get a spot in your inbox.
In 2022, I am committing to send you weekly emails about dinero because I want to make sure you have access to personal finance information full of cariño.
Starting January 1st, you can expect an email from me every Saturday. If that excites you, yay! If that feels like too much, scroll down and hit the unsubscribe button. May we still see each other on Instagram or LinkedIn. 🙏🏼
Alright, alright, let's start talking dinero...
Who here wants to buy real estate?
Husbae and I are trying to save $200,000 to put close to 20% down on a multi-unit property in Los Angeles. We set an ambitious goal to save our down payment in four years. As of 2021, we are on track to save $50,000 and hope to save another $50K in 2022.
However, since we don't expect to buy property till another three years we have decided to invest our house down payment fund.
As of today, we have contributed $21,000 into our taxable brokerage account. Yet, the value of our account is at $24,187.33. This means our rate of return so far has been about 15%.
Imagine if we had decided to keep that money in our high-yield savings account? Our $21,000 would only be $21,106 since our account has an APY of 0.50%.
Could we have possibly received a higher return on our investments? Probably, but I decided to keep 85% of our dinero in index funds.
- 75% is invested in an index fund that tracks the S&P 500 with an expense ratio of 0.015%.
- 10% is invested in an index fund that tracks the total stock market with an expense ratio of 0%!
- Another 10% is invested in a stock from a company whose products husbae and I use every day.
- 4.5% is invested in a stock from a company where we buy groceries from every Sunday.
- And 0.5% is invested in a stock from a company whose skincare products I love. The value of this stock has decreased dramatically and made me lose $400 so far. 😠
Now when we sell these assets, we will have to pay capital gain taxes. In order to avoid paying short-term capital gain taxes, we are making sure to hold our investments for at least a year. We expect to pay 15% in taxes on these investments when we sell them which means we will have less than a 15% rate of return.
However, it will still be significantly greater than the 0.50% we would have earned by keeping our dinero in our high-yield savings account. Cool, huh?
As for the other $25,000 we have designated for our real estate it's tied up in stock options. (That could be a whole other email.)
Is this something you should try? MAYBE.
Before you start investing in a taxable brokerage account, I would make sure to AT LEAST have a fully-funded emergency fund, no high-interest debt, and sufficient contributions to your tax-advantaged retirement accounts so you can retire at the age that you want to.
If you don't have any of that yet, consider attending my workshop "Create Your Financial Plan to Become Work Optional" on December 29, 2021 at 5pm PST/ 8pm EST or working 1:1 with me through my financial coaching program. In fact, the first five people to reply to the questions I asked in this email can get FREE admission to my workshop. 😘
Todo con tiempo,
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