Advice on saving arrangements

Tailored Financial Advice:

1. Clarify Your Timeframe for a Home Purchase

Short-Term (1–3 Years): If you plan to buy a home soon, keeping your funds in a money market fund (or similar low-risk investment) is prudent. The market's volatility could reduce your purchasing power if your money is in stocks when you need it.
Long-Term (3+ Years): If you’re delaying a home purchase due to high interest rates or housing prices, you could explore low-cost, diversified index funds like the S&P 500 (e.g., VFIAX). Historically, these offer strong returns over a 5–10+ year horizon but carry short-term risks.

2. Balance Home Purchase Goals with Investment Growth

Set Aside a Down Payment Fund: Consider earmarking at least 20% of your intended home purchase price ($260K for a $1.3M home) in a high-yield savings account, CD ladder, or short-duration bond fund. These options offer safety and liquidity while earning slightly higher yields than a money market fund.
Invest the Rest Strategically:
- For funds not needed within the next few years, allocate them to a mix of equities (e.g., S&P 500 or VTI) and bonds (e.g., BND or VGIT) based on your risk tolerance. A 70/30 or 60/40 split can provide growth with some stability.

3. Evaluate the Housing Market Carefully

Affordability: Revisit your budget. A $1.3M home with a 6–7% mortgage rate could mean a monthly payment exceeding $7,000, depending on your down payment. Make sure this aligns with your income and other expenses.
Timing: If rates or home prices seem unsustainable, waiting while investing your savings can be wise. Use this time to continue building your down payment and improving your financial position.

4. Consider Retirement and Long-Term Goals

If you haven’t maxed out retirement contributions (401(k), Roth IRA, etc.), now is a great time to leverage tax-advantaged accounts. For example:
- Max out a Roth IRA for each of you ($6,500 per person in 2024, $7,500 if 50+).
- Add to your 401(k)s to reduce taxable income if you have room to contribute.
Use remaining funds to grow your taxable brokerage account for flexibility.

5. Additional Recommendations

Educate Yourself: Read books like The Simple Path to Wealth by JL Collins or consult a fee-only financial advisor to deepen your investment knowledge.
Avoid Timing the Market: Don’t wait for the “perfect” moment to invest. Use a dollar-cost averaging approach if you’re hesitant to invest a lump sum.
Prepare for Taxes: If your investments generate capital gains or interest, set aside money for potential tax obligations.

Actionable Steps:

Decide on Home Timeline: Determine if you’ll buy within 1–3 years or later, which will dictate your investment strategy.
Allocate Savings:
- Short-Term: Keep 20%+ for a down payment in a safe, liquid option.
- Long-Term: Invest the remainder in a diversified portfolio aligned with your goals and risk tolerance.
Explore Tax-Advantaged Accounts: Max out retirement contributions where possible.
Consult a Professional: Work with a fee-only financial planner for tailored advice.

By balancing your short-term housing needs with long-term growth opportunities, you can ensure your savings work harder for you while preserving flexibility.