Q: I plan to upgrade from my condo to a house in about five years. What’s the best way to invest the money I’m setting aside for a down payment? —Heather Wilson, Toronto
A: The word “invest” implies that you want to get this money working for you. But if it were my down payment I would lower my expectations and think about how to simply “save” it. Your time horizon is short, so capital preservation should be your No. 1 goal. If you have TFSA room, I would shop around and see who has the highest rate on a savings account. Sure, you will get a slightly better rate on a one-year GIC, but small amounts will be hard to add and depending on the duration you won’t have the flexibility to cash out when you want to. Buying a TD e-Series mutual fund would give you some exposure to the stock or bond markets and allow you to purchase in small amounts, but I just don’t think the risk would be worth it. The fact is, for savers, interest rates are abysmally low. So rather than try to increase the return on your down payment, I’d focus on how to squirrel more money away.
Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at firstname.lastname@example.org