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Highlights
- Down payment for a house is around 20 per cent of the total purchase price
- A house must be bought as early as possible, so money should be earned as soon as possible
- Choosing the right stocks can help get best returns with least exposure to market related risks
Saving for the down payment of a new house is unlike most other investments. Other big-ticket savings, for example, retirement and higher studies of a child, are comparatively longer-term. Saving for a house is a near-to-medium saving but the quantum is almost as high.
This means that yield must be more even in a shorter span of investment. For this to happen, the investor must look beyond traditional investment options such as certificates of deposit with a bank.
Where to invest to earn best returns?
If prudent investment could turn Warren Buffett into one of the world’s wealthiest persons, timely and wise stock market investment can help you acquire a new home with relative ease. The Buffett reference has two elements. One, invest the maximum amount you can. For example, any bonus you receive in your office has to be diverted into savings, not impulsive spending.
The second is picking stocks prudently.
You may have a different risk portfolio where you may try to invest in penny or meme stocks or even crypto assets. But when saving for a house, the best is to bet on stable stocks. Here too, some companies can command a high market cap but their scope for further growth may be very thin, for example, stocks of fossil fuels-related companies.
By contrast, new and emerging products like lithium battery car maker Tesla or subscription-based streaming platforms like Netflix can produce better-than-expected profits without exposing your portfolio to meme stock-like vulnerability.
Also read: How to buy shares for your grandchildren?
The rise of TSX Composite Index
For the first time ever, the benchmark index of the Canadian stock market crossed 20,000 in June 2021. This was a moment of surprise considering the bears entering the global stock market after the outbreak of the pandemic.
The year-to-date (YTD) return of TSX Composite Index is over 20 per cent, and 1-year return is over 30 per cent.
Also read: Top 3 Canadian energy stocks to buy under $60
Bottom line
As stated earlier, saving for a house would mean earning more with the same amount of money but in a shorter duration. The down payment can be as high as 20 per cent of the purchase price. Let retirement savings go into traditional 401(k) plans, but for a house, choose the higher yields of stable stocks.
