I Have $120,000 In Stocks. Can I Pull Out Money For A Down Payment?

Alright, we’ve got another question from Alexis. It’s a little spicy. She says she’s 28 years old with $120k in stocks, and she’s debating between pulling out around $60k to $70k for a down payment on a house. Then she says, “My dad said this would slow down my compound interest that would pay off in the future. What are your thoughts?” Dad, who’s right? Dad said that if you pull the money out of the stocks, it will prevent you from gaining more interest. So, Dad is advocating for slowing down her compound growth. He’s actually making the case that you won’t get that compounding interest from that $60k to $70k that she takes out. Cool, cool, cool, got this. She has $120k in stocks. Awesome. Alright, I need to know, Alexis, I need to know how much house you’re buying. I need to know the price of the house. I need to know your income, and I need to know your interest rate. Here’s where our line of thinking is going. Does it make sense to pull $60,000 out of investments to buy this house? Well, it depends on the value of the house. Is $60,000 going to be a 20% down payment on this house? Or is it going to be a 5% down payment? The answer to that question will affect the calculus. Is this Alexis’s first home? The answer to that question will affect her ability to do this or not do this. And then, what’s Alexis’s credit look like when we actually see the rates that she can obtain? What are the current mortgage rates? Because then you have to do an opportunity cost analysis to say, “Okay, paying down will save me X in interest, or leaving my money invested will be able to compound.” At age 28, at a wealth multiplier of 29.7, every dollar that I leave invested of that $60,000 could turn into $29.7 by the time that I get to age 65. Unfortunately, this is not going to be like a Q&A question we’re going to answer. This is like a spreadsheet question. You’ve got to answer… Well, let me give some feedback here. First of all, Alexis, to have over $100,000 in your 20s is massive. I mean, we talk about the bowling point is to reach $100,000, it’s so valuable because it’s so much easier to get to the next $200,000, $300,000 just because you’ve reached the point that it gets better and better. So, I’m curious to have $120,000 at 28 years of age. You either have a great income, or you’ve got a financially supportive family that has been encouraging you from a young age to start saving and investing. And that’s what your father’s alluding to. You’ve reached the bowling point of around greater than $100,000. Man, it’d be a shame to now watch that get brought back down to like $60,000, and you’re starting that 7… you know, because it takes like seven years to get to the first $100,000 if you were saving even $10,000 a month. That’s… I think the risk, so there’s a lot of… This might be 12 years in the making or 10 years in the making, depending upon when you started already got your first job and started funding or started doing things like that. $250,000 to $300,000 home. So, she’s shooting for a 20% down payment. That’s where her math for the $60,000 is coming… Did we get anything on how well her income is? Nope, did not get that, because that’s the other thing that I think… If I’m her, like, I think about Avery, my oldest. I don’t know if I should have used her name or not, but um, she… you know, I don’t know if I’ve said that on air before, but anyway, she… since she’s been 15 years of age, we opened that custodial Roth. She’s been on the show. She was literally… she was on the show. I don’t know if I said her name. I didn’t want to dox out all of her personal information. She gets very embarrassed, but anyway, um, I… we’ve been saving since she was 15 years old, you know? I did the whole priming the pump. Where, you know, matching and then even when she bought her first car, you know, whatever she saved up, I matched it. So, I just think that’s probably also some of the heartburn that her parents are sharing as well, is that maybe this is something that built now or maybe Alexis is going to tell us she makes $250,000 a year and then she can build up $120,000 in just another two years. It really depends upon your current situation. The house price doesn’t sound so crazy. So, I’d ask why you’re not looking at that, you know? Look, there’s nothing wrong with 20% down. How valuable it is once you get to $100,000 of assets working for you. So, I’m… I’m… I’d have to know more of your details. I would say that, look at that income. That’s good. Oh, that’s great. Her income is $130,000. Great. So, I don’t… I don’t… I’m not going to do public math, but this is what I would think about. If I were only going to put down 5% down on the house, what would my monthly payment be? And would that monthly payment fall within 25% of my monthly gross income? So, if that’s the case, I have to think, “Okay, I can afford this home with a 5% down payment. And if I can afford it at five, I can certainly afford it at 20% down payment.” What’s the opportunity cost? Would I actually save more in interest by putting that money down? Or if I let those dollars work for me over the long term, from age 28 to 65, is there a chance that I will have been better off letting those dollars grow? Even if my goal is to be debt-free, I might actually be able to become debt-free sooner by putting down a smaller down payment and investing over the long term. Now, again, you have to do the math. You have to make some assumptions there. And if you’re just dead set on 20%, that’s fine. But I think you ought to at least think through, “Man, am I willing at this age to satisfy lower interest debt?” I mean, a 7% mortgage isn’t like super low, but relatively lower interest debt at such a young age. So, early on, also, it doesn’t have to be either or. It doesn’t have to be 3 to 5% or 20%. Maybe do a math calculation here. Figure out what your housing 25% for housing. And maybe that’s a 10% down payment. And then that’s going to allow you to liquidate less of the portfolio. This is why I love personal finances because everything is so specific to your situation.