Investing for your first home is both an exciting and frightening time in your life. More than any time in history, Americans are taking this step by the masses. Troy Bank & Trust has done its part by helping families all across Alabama oversee the steady growth and total safety of their home investments.
Just this past May, we saw a record housing market. All signs point toward a continued buying frenzy as people take advantage of record low interest rates. Chances are you represent one of the millions of Americans doing the same. The mortgage experts here at Troy Bank & Trust want to ensure that you understand the most effective ways to invest for your first home.
Investing For Your First Home: Risk Vs. Reward
It’s All About Your Time Horizon
Investing for your first home requires a different strategy than other forms of investing. When saving for retirement, you want to take more risks. You have a much longer time horizon, so any downturns in the market can be weathered or even taken advantage of through cheaper purchases of stocks and bonds.
Investing during retirement has its own strategy as well. You don’t want to take too many risks because downturns in the market will leave you vulnerable without much time to recover.
Savings Accounts: The Best Investment Vehicle For First Homes
The same goes when investing for your first home. Experts say that people should invest in the stock market only with the money they don’t plan on using for the next 5-10 years, perhaps even more. Bonds can be a good choice, but they require an investment until maturity to guarantee receiving all your money back, plus interest.
Troy Bank & Trust savings accounts offer precisely what you need to invest for your first home. Your money grows at a steady rate of interest, without any risk of losses due to market downturns. Your money is also backed by the Federal Deposit Insurance Corporation (FDIC). As an FDIC bank, Troy Bank & Trust’s savings are backed by the full faith and credit of the United States of America—the strongest and most powerful economy in history.
Alternative Investment Vehicles: The Good, The Bad, The Ugly
There are many funds that work in a similar fashion as compared to savings accounts. Troy Bank & Trust partners connect customers to these investment vehicles.
Examples are Certificates of Deposit (CD) and money market funds. CDs are similar to bonds, in that they must be held through to maturity. Money market funds, on the other hand, are entirely liquid, meaning you can retrieve your money practically whenever you want it. However, they have vast differences in interest rates and fine print regulations.
Either of these can be an acceptable alternative to a savings account should they fit your personal schedule toward purchasing your first home. On the flip side of the coin you have your risky and speculative investments. These are the types of gambles that should be avoided at all costs when investing for your first home:
- Penny stocks: Smaller public companies that are unestablished or show a poor history of debt servicing and growth. These stocks are also very volatile, moving up and down quickly.
- Financial derivatives: Also called options, financial derivatives should be used as a form of protection, or hedging, against larger investments, by sophisticated institutional investors. Many people have begun using them as gambling tools, however, to their terrible detriment. In options, you are liable to lose your entire investment in just a few weeks.
- Overweight investments: Being overweight means having too much or all of your money in one stock. If you are going to invest in the stock market, it’s best to use an index fund so that your money is diversified throughout the entire equities market.
The truth is, investing for your first home should be one of the simplest things you do in life. The hard part should remain finding the right home at the right price. Troy Bank & Trust savings accounts offer you the simple, safe, and steady growth needed when investing for your first home.
Find out more about Troy Bank & Trust’s Mortgage Deals
Troy Bank & Trust is a local independent bank geared toward helping our communities grow and prosper. One of our biggest concerns right now is ensuring that homebuyers and homeowners take advantage of record-low mortgage rates while they last. After all, we are “the only bank you’ll ever need.” For more information on our mortgage department, visit Troy Bank & Trust here, or reach out to us by phone at 334-566-4000 or 888-258-8769.