Investing $$ to buy a house: 10 year time horizon

I am trying to advise my family on the best strategy to invest saved
money to buy a house. They are currently in the military, with about 10
years to go in the service. They move a lot now, so home buying is not
in the immediate future.

They entered into a contract with an investment company that requires
them to stay with that company until about 2011. They will transfer
their money out when they can do so penalty-free. They want to use the
money in this account (currenty containing about $14K) for a down
payment on a home when they may leave the military in about 2015. They
continue to contribute monthly.

>From what I can tell, their only investment options under the contract
are actively managed mutual funds, no index funds. Some asset
allocation funds are available, aimed at various years to retirement.
For example, FFVTX is targeted for investors retiring around the year
2015. This fund is currently about 60% in stocks, 40% fixed income, and
becomes increasingly conservative as it gets closer to 2015.

Do you think this is a good option for them, or should they be even
more conservative? Perhaps you have some general words of advice for me
to send them regarding investing savings for a time horizon of ten
years. Your thoughts on this will be most appreciated.
Thanks! Tom

Re: Investing $$ to buy a house: 10 year time horizon

wrote:
> I am trying to advise my family on the best strategy to invest saved
> money to buy a house. They are currently in the military, with about 10
> years to go in the service. They move a lot now, so home buying is not
> in the immediate future.
>
> They entered into a contract with an investment company that requires
> them to stay with that company until about 2011.

<snip>

> Perhaps you have some general words of advice for me
> to send them regarding investing savings for a time horizon of ten
> years.

There's been a lot of news recently about some of these investment
companies are taking advantage of military families. The bad ones have
extremely high expenses (particularly in the form of up front loads) and
crappy investment choices. I hope that your family has not gotten
involved with one of these disreputable firms, but if so, don't let them
put in more money than they have to by contract. And they should try to
get out of the contract as soon as possible. There may be legal
remedies through the military as well.

Good luck,
-Will

Re: Investing $$ to buy a house: 10 year time horizon

Well, yes, they are tied up with such a company, but have no choice but
to continue until the contract expires. I do hope that some folks here
will be able to give particular advice on the question of
saving/investing for a home purchase. Thanks for the concern.

Re: Investing $$ to buy a house: 10 year time horizon

T.P. Bernhardt:

Can you give the name of the company and the mutual fund
(and other) alternatives to FFVTX that this company offers?
How much, if any, is this couple obliged to contribute each
year to this savings plan managed by this company?

One thing that bothers me is the huge front load (3.5%) on
FFVTX. My general reading indicates that, for loaded funds
vs. non-loaded funds, the better bet is no-load funds, even
if they're actively managed.

Apart from the load, and at first blush and based on my
experience, the 60-40 asset allocation (shifting more to
fixed income with each year) looks okay for a ten-year
horizon. Not fabulous; just okay, because it's targeted not
really for a cash-in at 2015 but five-ten years later.
Still, I'd experiment with some of the free online asset
allocation tools at
to
reinforce the thinking here. Set the time horizon to ten
years or so; compute what allocation is most likely to
succeed for these folks' risk tolerance; etc. Look for
no-load, low expense ratio mutual funds to fill their needs.

It seems to me giving this company's name is only going to
help other folks in the military, as Will implied, if you
get my drift. Will is right that there has been serious
gouging of military personnel in recent years; some legal;
some at least questionable. It's very serious.

Elle
20+ year plain vanilla stock, bond, and mutual fund
individual investor