How to invest down payment funds while timing the property market


Then came COVID and plans changed. I now have an 18 year old and a 14 year old who live and work in a former temporary rental home. It seems like I missed the window to buy during the pandemic and watch my 2019 dollars depreciate in value day by day in the real estate market.

In short, I’ve decided to take a long break from looking for a home and keep the equity from my 2019 sale in a safe place that also earns enough to at least keep up with inflation. What are my options? The short-term GICs and HISA I currently use are heartbreaking with their low returns.

ON. Downsizing is a great opportunity to reduce monthly expenses and speed up or increase a person’s financial independence. However, timing a downsizing can be tricky. There are some potential downsizers sticking to it for investment reasons due to the continued appreciation in property prices. In your case, Liz, you seem concerned that you sold out too early and should be staying in your marital home a little longer. Looking back is of course 20/20.

Timing markets are difficult too. This applies to stock markets, real estate, or other assets. If everyone knew stocks were 10% overvalued, they would all sell until the market fell 10%. If everyone knew stocks were going up, they’d all buy. In practice, there are always buyers and sellers at all times, and the markets are up and down. The same goes for real estate. Supply and demand affect prices, and prices can be too high or too low, with the perfect time to buy or sell only known in retrospect.

Real estate is on the up in many Canadian real estate markets over the past 25 years. There has been an unusually long and steep rise in prices in many cities – and not even a pandemic can stop it. By January 2021 there was a price increase of 9.6% in the EU compared to the previous year National composite house price index of the Teranet National Bank.

I feel like people care too much about what financial advisers, real estate agents, economists, and other people are saying about stocks and real estate. Despite extensive research and the best of intentions, it can be difficult for anyone to predict what will happen next. Nobody has a crystal ball.

Investing a deposit fund is difficult at best, but especially given the low interest rates. Canadian, US, and international stock markets have all historically had annual losses of 30% or more. So if you were to buy all-in stocks with the money you need a year from now, your down payment fund could be reduced by a third. Even a balanced fund can lose money in any given year. In 2008, during the financial crisis, the average Canadian mutual fund with stocks ranging from 50% to 60% lost over 15%.

If you had a three to five year time horizon, Liz, you would be much less likely to lose money in a balanced portfolio. At five years or more, a diversified stock portfolio is also unlikely to lose money, which makes stocks a great long-term investment despite the short-term volatility. I can appreciate your concerns about GICs and savings accounts. Interest rates are currently between 1% and 1.5% and are not even keeping pace with inflation.


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