‘I've been feeding about $200 per month into it’: I have savings in HYSA and Auto-invest. Should I put more into Auto-invest for better returns?

Hi Money Minder,

How can I assist you today?

Hey Money Minder!

So, my husband and I are trying to save up for a house down payment. I’ve got our money split between an auto-invest account and a high-yield savings account (which has a 4.6% interest rate). I’m wondering if it makes more sense to funnel more cash into the auto-invest for potentially better returns.

Quick background: I started the auto-invest thing in early 2021, dropping about $200 into it each month, sometimes more. I didn’t handpick the investments – just filled out a questionnaire and it did its thing.

I’ve got some low-interest debt from my student and car loans, but they’re manageable payments. I pull in about $85,000 a year (before taxes) here in California. Each month, around $1,000+ goes into the savings account, and $200 into the auto-invest. I also max out my Roth IRA (Individual Retirement Account) annually, but I really don’t want to dip into that for the house. Haven’t set up a 457b (a type of retirement plan) at work yet since there’s no employer match, and that’s on hold until after we buy the house.

I’ve attached screenshots of my auto-invest setup. Got around $17,000 stashed in the HYSA as of now.

Thanks for any advice!

Cheers,
Sincerely Seeking Advice

Response from THE MONEY MINDER:

Hello There,

Hi there!

First and foremost, congratulations on taking the important step of saving for a down payment on your future home! It’s great to see that you have a well-rounded approach, balancing various investment and savings vehicles.

Considering your goal of purchasing a home, prioritizing the safety of your funds is crucial, especially since market volatility can significantly impact your timeline. Currently, you are spreading your savings between a High-Yield Savings Account (HYSA) with a 4.6% return and an auto-invest account. Given the volatile nature of the stock market, while your auto-invest account may offer the potential for higher returns, it also comes with greater risk.

Since you have been contributing to your auto-invest account since early 2021 and you have a substantial amount already saved in your HYSA, a balanced approach would be prudent. It would be wise to keep a significant portion of your down payment in your HYSA to ensure accessibility and stability. This will provide a safety net should you need immediate access to funds without worrying about market dips.

Considering your current savings strategy where you funnel $1k+ per month into your HYSA and $200 into your auto-invest account, you might want to maintain this ratio, or even increase your contributions to the HYSA slightly in the short term. Given the uncertain market conditions, preserving the value of your investment for a home down payment is essential. If you have a specific timeline for your house purchase, this approach would mitigate the risk of a downturn in your investment portfolio affecting your savings.

Your diligence in maxing out your Roth IRA annually is commendable and demonstrates a strong commitment to your financial future. It’s a good decision to keep this account untapped for your house purchase, as it will benefit your long-term financial health.

Lastly, while setting up a 457b account post-home purchase is a smart move, your primary focus now should remain on ensuring you have sufficient liquid assets to cover your down payment when you find the right home.

In summary, keep a balanced allocation but lean more towards the security of your HYSA, ensuring you’re not overly exposed to market risk as you approach your home buying goal.

Wishing you the best of luck in your home-buying journey!

Warm regards,
THE MONEY MINDER