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31-year-old Anita Garcia put $10,000 of her down payment savings in I bonds.
Courtesy of Anita Garcia
Millennial Anita Garcia had $40,500 saved up for her down payment.
After two failed offers on properties, she decided to do three things with her savings instead.
Garcia split her savings into index funds, I bonds, and a high-yield savings account.
Anita Garcia has a six-figure net worth from saving and investing more than half of her paycheck in the last two years.
The 31-year-old began saving for the down payment of her first house when she was 18, working at a local pizzeria. In March 2020, right before the COVID-19 lockdown, Garcia made an offer on a condo with $40,500 of down-payment savings at the ready.
The home appraised $29,000 less than her $404,000 offer, and Garcia asked if the seller would meet her in the middle. “There was a lot of back and forth between myself and the seller, and, long story short, it didn’t work out,” Garcia says.
She put in another offer on a single-family home in December 2021, but, in the end, she was outbid by another buyer. Instead of saving for a single-family home, Garcia is now holding out for a duplex that can help her earn passive income.
In the meantime, here are three investment moves she’s making with her down-payment savings.
1. She put $10,000 into I bonds
Knowing it would be a while until she would be ready to find and manage her future duplex, Garcia decided to put $10,000 into a type of inflation-protected savings bonds issued by the US Treasury Department. Known as I bonds, they have composite interest rates that include a fixed rate and adjustable rate designed to hedge against inflation.
Each year, you can purchase up to $10,000 in electronic I bonds and up to $5,000 in paper I bonds. I bonds issued between November 1, 2022 and April 30, 2023 will earn 6.89%. You can cash in I bonds after 12 months. However, if you cash in the bonds in less than 5 years, you lose the last three months of interest.
By putting her down payment savings in an I bond, Garcia’s initial $10,000 investment will be worth even more in a few years when she’s ready to try her hand at the real estate market again.
2. Garcia gradually invested $22,000 in index funds
Instead of holding onto her cash down payment savings, Garcia decided to invest $22,000 — more than half of what she had — in index funds.
Index funds are passively-managed investment vehicles that track a particular market index. One of the most popular indexes, for example, is the S&P 500, which tracks the performance of the top 500 companies in the stock market. If you put $100 into a fund that tracks the S&P 500, you’re effectively spreading out that investment among the 500 companies.
Financial advisers recommend index funds because they’re an easy way to diversify your investment portfolio. Index funds are also relatively low-risk, which means you won’t have to stomach some of the extreme ups and downs that can come with investing in individual stocks. That said, index funds tend to grow slower than other investment vehicles, too.
But Garcia didn’t just put $22,000 in index funds in one fell swoop. She used a strategy called dollar-cost averaging, where you invest the same amount consistently at regular intervals, regardless of whether the stock market is up or down during that time.
Many economists are predicting a recession in 2023, which means the stock market may be volatile. Garcia says, “I’m continuing to dollar cost average because, basically, I’m getting more stocks for less money.”
3. She put the remaining $8,500 in a high-yield savings account
Garcia put the remainder of her savings in a high-yield savings account that was earning a 3.20% APY as of late November 2022. A high-yield savings account is a savings account with interest rates up to 3.8%, which is higher than a regular savings account’s average interest rate of 0.16%. It’s the best place to keep an emergency savings fund or cash that you might need on hand because it’s easy to access, yet still accrues interest on a regular basis.
However, Garcia still plans to use cash from this account to invest even more. “I’ve been doing this all year, just putting some money away in the stock market. I have about $8,500 in my savings account right now, and I do plan on deploying another $5,000 of that.”