Well, I tossed and turned for weeks, not sure what to do with my down payment fund. I've finally made up my mind.
I won't be buying a place for at least 6 months no matter my choice. Where should I put the money in the mean time?
1) Hoard it away in a low-interest savings account that pays no more then 1.25% interest?
Bear in mind that with the announced low interest rates, that savings account isn't going to be increasing it's rate any times soon (next year or two).
With the savings account, my money will be safe, with no risk of 'loss', but very little gain - in-fact, less gain then the inflation rate.
Interest (1.25%) + Inflation (~3.00%) = -1.75% Annual Profit
So if I leave it in there, I will, in-essence, be losing money. To be fair, this loss is 'controlled', in that I can watch, every month, and see the exact loss, and count on it being exactly the same, unlike in a stock, which can (and will) shoot up and down in value constantly.
2) Place the vast majority of my free-flow 'down-payment funds' into stocks?
If I invested in decent quality dividend stocks, I would enjoy the slow trickle of dividends. I'd have to reinvest and re-balance the portfolio every month or so, and watch to see which stocks were the most 'under-valued' for my monthly investment.
The stock market is one of the most volatile investments a person with money can make. It rocks up and down constantly, and no-one knows where or what it will do next. Will the company you invest with have a good year, a bad year, or will it simply close it's doors, and disappear? No one knows for sure with stocks.
But the gains can be great, and if an investor takes his time, and invests is strong companies, with good track records, the risks can be reduced by a margin.
I believe that I have the capacity, and the situation, that would benefit from careful investment in the market. I'm young, and, even though I loathe the idea of working for a long time, I know that in reality, I will be. I have the capacity to 'bounce-back' from some losses. I don't have children, so no-one depends directly on me for their survival.
Plus, if I can invest decently, I just might get a little further ahead then if I didn't.
I have already spoke with my land-lord about reducing my rent, and she seemed relatively receptive to the idea, considering I'm the best tenant she's ever had (I pay rent 2 months ahead, and am as quiet as a church-mouse).
Plus, I am comfortable where I am renting, and frankly, I will end up spending quite a bit more on gas when I move out as the places in my price range are 20 minutes further from my work then my current rental residence.
For me, it just makes more sense to invest then to make a down-payment.