recovering_homeowner_IHB
New member
There are some smart cookies on this forum, so I thought I throw this out there for some advice on my situation.
Background:
A. My wife and I are in our mid-30s with a 2 year old and 1 month infant, and we're moving into a nice little private rental house in Westpark in 2 weeks (give me a shout if you live nearby and are interested in a playdate
.
B. We had previously sold our condo in Tustin Ranch in July, 2007 that we bought at the peak in 2005, a subsequent transaction which we absorbed a total 10% loss of almost our entire equity. After selling our house in 2007 and paying off our car loan, we have no debt but also nothing in savings or down payment.
C. We now have about 4 months of expenses saved up in our cash emergency fund, and 2 more months saved up in longer term mutual funds.
C. Our combined income is over 200k/year and our jobs are very stable.
Current savings plan:
1. Wife's company (CVS-the pharamcy) offers an employee stock purchase plan (ESPP) that gives her a 15% discount off the lower of the price of the stock at either the beginning or end of the offer period (every 6 months). Basically, this is a look-back feature. We plan to max out this plan at 15% of my wife's salary. The plan does not allow you to sell the shares right away and requires a 2 year holding period. However, you can apply for an emergency withdrawal for which the purchase of a house will qualify. You'll pay the regular income tax on the capital gains if the IRS holding period is not met.
2. Wife maxes out 401k, which matches her contributions up to 5% of her annual income.
3. I max out my 401k, which offers NO MATCH. My company offers a 401k loan up to 50k with a repayment period of 5 years only.
4. I'm able to save about 10k towards my cash/emergency fund/etc. stash per year. Only the amount above 3 months emergency fund will be used for house down payment.
5. I'm able to contribute another 10k per year towards my medium and long-term investment goals via mutual funds. this will not be used for house down payment unless not enough money.
6. I have 529s for both my 2 kids that I contribute automatically every month.
Allocation strategy advice:
Question 1: Given the volatility as of late in the stock market, I wonder if it is wise to consider my wife's ESPP stock purchases as a major part of my house down payment fund. I don't expect to buy a house for at least 2-3 years, since we just entered into a contract for 18 months on the rental), but I wonder if 2-3 years is enough for the market to recover. I am figuring that since my wife gets 15% discount off the lowest price of the 6 month offer period, that we can absorb a large decline in the CVS stock price since it's dollar cost averaged for each 6 month offer period.
Question 2: Should I reduce my 401k contributions and put more into cash down payment fund, since my company offers no match ? I'd hate to reduce my contributions now though, since stocks are much cheaper now relative to where they were last year. Also, it'll also increase my taxes since we have no interest or other big deductions to offset our income. I can always borrow up to 50k from my 401k.
Question 3: Given the nature of the ESPP and the market, would extending my home purchase horizon up to 4 years change the nature of which medium I should allocate my funds to?
Background:
A. My wife and I are in our mid-30s with a 2 year old and 1 month infant, and we're moving into a nice little private rental house in Westpark in 2 weeks (give me a shout if you live nearby and are interested in a playdate
. B. We had previously sold our condo in Tustin Ranch in July, 2007 that we bought at the peak in 2005, a subsequent transaction which we absorbed a total 10% loss of almost our entire equity. After selling our house in 2007 and paying off our car loan, we have no debt but also nothing in savings or down payment.
C. We now have about 4 months of expenses saved up in our cash emergency fund, and 2 more months saved up in longer term mutual funds.
C. Our combined income is over 200k/year and our jobs are very stable.
Current savings plan:
1. Wife's company (CVS-the pharamcy) offers an employee stock purchase plan (ESPP) that gives her a 15% discount off the lower of the price of the stock at either the beginning or end of the offer period (every 6 months). Basically, this is a look-back feature. We plan to max out this plan at 15% of my wife's salary. The plan does not allow you to sell the shares right away and requires a 2 year holding period. However, you can apply for an emergency withdrawal for which the purchase of a house will qualify. You'll pay the regular income tax on the capital gains if the IRS holding period is not met.
2. Wife maxes out 401k, which matches her contributions up to 5% of her annual income.
3. I max out my 401k, which offers NO MATCH. My company offers a 401k loan up to 50k with a repayment period of 5 years only.
4. I'm able to save about 10k towards my cash/emergency fund/etc. stash per year. Only the amount above 3 months emergency fund will be used for house down payment.
5. I'm able to contribute another 10k per year towards my medium and long-term investment goals via mutual funds. this will not be used for house down payment unless not enough money.
6. I have 529s for both my 2 kids that I contribute automatically every month.
Allocation strategy advice:
Question 1: Given the volatility as of late in the stock market, I wonder if it is wise to consider my wife's ESPP stock purchases as a major part of my house down payment fund. I don't expect to buy a house for at least 2-3 years, since we just entered into a contract for 18 months on the rental), but I wonder if 2-3 years is enough for the market to recover. I am figuring that since my wife gets 15% discount off the lowest price of the 6 month offer period, that we can absorb a large decline in the CVS stock price since it's dollar cost averaged for each 6 month offer period.
Question 2: Should I reduce my 401k contributions and put more into cash down payment fund, since my company offers no match ? I'd hate to reduce my contributions now though, since stocks are much cheaper now relative to where they were last year. Also, it'll also increase my taxes since we have no interest or other big deductions to offset our income. I can always borrow up to 50k from my 401k.
Question 3: Given the nature of the ESPP and the market, would extending my home purchase horizon up to 4 years change the nature of which medium I should allocate my funds to?
