Am I crazy to keep putting all my money into index funds the next few years even if I have enough for a downpayment?

[caljreich]

27, no debt, car, mortgage. My net worth is around 165k

• 137k in Nasdaq and S&P 500 ETFs. TFSA and FHSA contributions maxed out
• 12k in bonds
• The rest in cash, haven’t checked my RRSP amount but company matches upto 4%

I expect to save 90-100k after expenses this year, which should give me enough for a downpayment. However, my current plan is to just aggressively invest in index funds for the next 6-8 years and hope I can buy a house in cash by liquidating my portfolio when I’m 35 or so.

I understand that the market could have a really bad year in the middle and wipe away half my savings, but I’m also worried about getting a high interest mortgage and then getting laid off(I work in tech)

The biggest concern with this strategy is I rent a 1+1 condo for $3k in DT Toronto. I like living downtown and don’t need to own a car, and the condo is rent controlled. But if I need a bigger space when I have kids(I’m engaged) I’m concerned about a market crash/layoff when I really need more housing space. Similar condos now go for $3.6k so I can’t move to a cheaper one easily either.

Getting on the property ladder in Toronto seems extraordinarily difficult without taking a lot of risk(in terms of debt and high interest rates) or moving to a distant suburb unfortunately

 

[eternityondemand]

@caljreich I would personally invest my future house money in stocks, BUT you have to be okay with the fact that when you want to buy they have crashed and are not worth as much as you expected. That's not the end of the world. You can either wait for them to recover and buy the house later or sell them for a lower value and buy the house now if you had enough value at that time.

This ^^ works for some people and others would freak out by the volatility and it would make them uncomfortable. You have to determine which camp you are in.

 

[johnnyhouse]

@eternityondemand But there aren't a lot of times when stocks go up and housing doesn't, especially in the GTA. Will they go up enough to cover the appreciation plus the rent expense minus the interest savings? Maybe. But I wouldn't bet on that.

On the other hand, OP is making sooooo much money, that it doesn't really matters so much, and can afford the risk.

 

[caljreich]

@johnnyhouse I’m making money now, but I’m in an industry prone to layoffs and there aren’t too many other companies paying more in Canada.

I don’t think housing in the GTA can go up exponentially unless there’s a big median salary increase. I’m sure it will go up, but not the exponential rise we’ve seen the last decade - though the Nasdaq still beats the GTA house market returns 2011-present

 

[resjudicata]

@caljreich If this is the case for your job are roots here the correct solution?

Is there any situation where you would need to move to another market after buying.

Ignore if the answer is no- something to consider if it’s a maybe.

 

[caljreich]

@resjudicata I want to stay in Canada and Toronto’s the standout option for a number of reasons, certainly in terms of job opportunities

 

[kuurt]

@caljreich If you were buying in 1 year, I'd say HISA is a good bet. If you are waiting until you're 35 like you hinted at, I'd invest it.

 

[johnnyhouse]

@caljreich People said "it can't go up like that" 10 years ago (and 20 years ago) as well... So I wouldn't bet against it. Yes, S&P\NASDAQ beats the returns, but not if you deduct your rent out of the equation (and add the interest). Also, no one will lend you 800K on your 200K to invest in the NASDAQ, so your returns aren't leveraged as they are with a house. House value after 7 years= $1M X appreciation factor (let's say 30%), minus interest, plus the rent you saved 7 years (about 240K). That means about 540K minus 125K (if you pay it off in 7 years) interest... Equals 315K profit. ETFs returns= 200K X 200%... 400K. Initial investment was 200K, profit is 200K. So even if we go by a conservative housing appreciation factor, house still wins.

 

[divanir]

@johnnyhouse Stock markets have traditionally beat the housing market. If you aren’t ready to buy yet and keep your down payment fund in safer investments, they will lose value compared to housing.

I’ve gone this route but I always had a flexible timeline when it comes to buy. Without investing I would have significantly less for housing today and would be handcuffing myself to a mortgage at a high rate.

As the other person said, this approach isn’t for everyone but it’s feasible if you are flexible.

 

[jjp297]

@caljreich You haven't listed your income so we don't know if home ownership is even possible.

You could invest now, just be aware, when you are about 5 years out, transition to a HISA product (ETF or account) so your money is safe as you can end up with less (and since your portfolio is a concentrated one (VFV and Nasdaq - top holdings ar the same), a drawdown in the markets can be significant.

 

[inohio]

@jjp297 He is saving "90-100k after expenses".

His income must be astronomical if he's able to do that. And he doesn't even need a mortgage, apparently. He's going to buy a house in cash.

 

[jjp297]

@inohio Yeah, that's when I did my eye roll lol But yeah must be making quite a bit!

But storey doesn't make a lot of sense. If they make a lot and have enough for an apparent downpayment, why would they be focusing on saving that for 6-8 year, they don't need th money oin short or medium term and should just invest for the long term.

 

[caljreich]

@jjp297 I don’t want a mortgage at 6%! Might have considered it at 2% but that’s never coming back anytime soon I think

 

[inohio]

@caljreich What do you do, Mr. High Roller?

 

[caljreich]

@inohio I’m a software dev in big tech. To be clear, I don’t think I can buy a house in cash unless there’s another historic bull run in the market, but minimising the mortgage amount is what I’m hoping for.

 

[inohio]

@caljreich Yeah. I wouldn't wanna commit to a mortgage either if I were you, with all the layoffs in big tech recently. Would suck to get a mortgage then be laid off.

 

[caljreich]

@inohio Yes, and there’s little chance I get another job paying nearly as high in Canada if I do get laid off. That risk factors into my choice

 

[theuniversetomorrow]

@caljreich Reduce your risk by joining the cyber security sector(no pun intended), we need more top software talent and it's a cat and mouse industry. There are always bad people trying to abuse stuff.

 

[elmarie111]

@theuniversetomorrow What do I need to make that transition? And what do the figures look like?