QUESTION: I have a taxable investment account that is earmarked for purchasing a house within the next 18-30 months. We have been moderate with the investment allocation but my advisor wanted to purchase more equities- what are your thoughts?
ANSWER: Definitely not! Equities will increase your portfolio risk. Moderate is even too much if we’re talking 18-30 months, take all risk off the table! We’re at a market peak, tons of instability, and at the end of the day what would be the opportunity cost- even if there was +7-10% more to climb, is that going to allow you to purchase a larger house? However, if the market crashes by 50%, that will be a significant blow to your savings (and right now, probability says the latter is more likely). Take the funds and invest it into a high yield savings account and earn 2%. You want to keep the strong purchasing power when we’re talking short-term horizons, don’t risk it in the markets.