# How I’m Investing For Our Dream Home

As I’ve mentioned frequently on here, my wife and I have defined a very specific long term goal for ourselves – we intend to buy a piece of land in the country and build a house on it before our oldest child’s sixteenth birthday. In order to have the financial resources in place to do this, we had to develop for ourselves a plan to make it happen. Here’s that exact plan, from scratch – I thought it might be worthwhile to paint a real picture of an investment plan, from scratch to plan in execution.

Step 1: Clearly Specify The Goal

We started off by getting a large number of samples of the cost of the land and house we desired. What do these cost today? We took an average of all of the values we found, then figured that they would increase in value 5% a year for the next fifteen years. This is our target number – a rough estimate of how much our dream will cost us.

Using that number as a starting point, we figured that we would like to be able to finance 50% of it out of pocket, move there, then sell our current home, paying off most of what we owe.

Our target dollar amount is \$450,000. We have fifteen years to get there.

Step 2: Devise The Plan

Once we had our target number, we started doing some math. We assumed we can get an 8.5% annual return on our overall portfolio – maybe a slightly conservative number, but hopefully realistic.

With an 8% annual return, we wanted to see how much we would need to invest each week to get that amount. Our math showed that if we invest \$300 a week into a portfolio that returns at 8% annually, we will have \$440,783 at the end of fifteen years.

So, we defined our commitment: we will invest \$300 a week into an investment portfolio.

Step 3: Coming Up With The Money

The next problem was finding this money. Over the last couple years, we’ve committed ourselves to a lot of financially responsible moves and we live a lifestyle that has a large separation between what we bring in and what we spend. We ran the numbers and found that we could commit ourselves to this once we had an emergency fund in place.

Why not just put that money into prepaying your home loan? There are two reasons. First, our home mortgage has a very low fixed interest rate – below 6%. Second, an investment gives us some flexibility – if we choose to go in a different direction, that investment will always be there for us, growing over time. Our assets aren’t tied up in our house.

Step 4: Defining The Portfolio

So how are we going to invest? I’m not a speculative investor by any means and our target return is well within a reasonable goal, so we made the decision to invest in an array of low-cost index funds through Vanguard. We want to diversify pretty widely, so here’s our tentative split:

20% large-cap domestic stocks
20% medium-cap domestic stocks
20% small-cap domestic stocks
30% international stocks
10% bonds

We will likely own ten distinct funds: 2 large cap funds, 2 medium cap funds, 2 small cap funds, 3 international funds, and 1 bond fund. We plan on investing directly with Vanguard, which was successful for us in the past as we invested a bit during the run-up to buying our current home.

Step 5: Our Specific Plan

Each week, we move \$300 from the primary checking account into a savings account specifically set aside for investments. At first, we just let this amount build to \$3,000 – the minimum amount required to buy most Vanguard funds – and when we reach that number in the account, we buy the minimum \$3,000 worth of a fund. Here are the funds in the order we plan to buy them:

Vanguard 500 (VFINX; large-cap domestic)
Vanguard Emerging Markets Index Fund (VEIEX; international)
Vanguard Mid-Cap Growth Index Fund (VMGIX; mid-cap domestic)
Vanguard Small-Cap Growth Index Fund (VISGX; small-cap domestic)
Vanguard Total International Index Fund (VGTSX; international)
Vanguard Small-Cap Index Fund (NAESX; small-cap domestic)
Vanguard Mid-Cap Index Fund (VIMSX; mid-cap domestic)
Vanguard Large-Cap Index Fund (VLACX; large-cap domestic)
Vanguard European Stock Index Fund (VEURX; international)
Vanguard Total Bond Market Index (VBMFX; bond)

Currently, we’ve made our initial purchase in the Vanguard 500 and are now saving up for our second fund.

When this purchasing is done, which will take 100 weeks, I’ll then switch into rebalancing mode. I’ll continue to put away the \$300 each week, then at the end of each month, I’ll deposit the monthly total into whichever of these funds has the lowest total balance. This is effectively an ongoing rebalancing, ensuring that I stay somewhat close to my original plan of having 10% of my investment in each fund. I do not plan to chase individual funds that are doing spectacularly well – my only tinkering will be with additional investments.

I plan on sticking with this arrangement until we approach our overall goal, then move the entire thing to something very solid – like a savings account – when we begin to make moves towards buying the land and the house. Since this investment is not a requirement to maintain my standard of living, I don’t feel a strong need to move into more conservative investments in the years approaching the goal – I’ll stick with this until we’re about to buy, then I’ll liquidate the entire thing.

That, in a nutshell, is our plan. Obviously, there are many life changes that could disrupt this, and when they occur we’ll re-evaluate where we are at. For now, though, this plan guides us directly towards our greater goals.