March 2018 NCF Update: Could Bond Fund Losses Derail Our House Purchase Plans?
After being ahead on our house savings goal, bond fund losses in the thousands set us back by a few months. Would we still be able to reach our goal by August?
Welcome to the monthly update of our house fund goal, Nuestra Casa Fund (NCF). Our NCF goal is to save enough to fully fund our home purchase before we retire. We measure our progress by providing a monthly update against our benchmark.
Our target amount for this year dropped below our benchmark for the first time in seven months for several reasons. One, we redirected our savings towards other goals, as expected. Two, the bond market had losses, which is beyond our control and we don’t worry about. The question that lingers is: Are we going to meet our goal as projected?
The returns were in the thousands, but how would we fare if we had the money in stocks and suffered bigger losses? I wouldn’t be able to sleep well at night if the house funds were to lose 10-20% of value within a month. So, in the grand scheme of things, these are small short-term losses that we should recover from as new fund money gets invested in funds with higher yields.
Now let’s see how we did over the past two months on our house savings goal.
February-March NCF Update
We expect to meet our goal by August 2018. The allocation for our goal is 80% bonds and 20% cash. We decided on this allocation, so that our goal can keep up with inflation, without risk of major losses during a downturn. Our goal is not to seek huge returns, but to manage risk.
Below are our results since we started tracking this goal.
|NCF Monthly Progress Since 2017|
|Month||Percent of Goal Met||Benchmark||Percent Increase Towards 100%|
|September (new target)||78%||77.2%||28.9%|
During the past two months we saw a decrease of -.6% towards funding 100% of our goal.
Progress this year
In January we saw a huge value decrease in our funds for the first time ever, due to the bonds getting slammed for the month. This is predicted due to the higher yields and increasing interest rates. Our bonds have been on a downward trend since we moved some money from stocks and cash to bonds back in September. We’re not worried since we have a few years before we decide on a property to buy.
We’ve contributed about $1,000 to the NCF so far this year. These contributions are smaller than usual because we were busy front-loading the Roth accounts during the first two months. Now that we’ve accomplished that goal, we can continue directing all after-tax income to our house fund. Hopefully we’ll catch up soon and can keep the goal on target.
We maxed out our Roth accounts for 2018! It feels so good to be able to check that one off our list.
The total return for January and February was -$2,306.38. The bond funds were down by $3,101.89 and we had income returns of $795.51.
(-$3,101.89 + $795.51 = -$2,306.38)
If we had this money in stocks we have the potential to lose a lot more on paper, so I’m not complaining. February’s volatility in the equities market was a reminder of how important it is to keep money for short-term goals out of the stock market.
The losses in our funds present some tax-loss harvesting opportunities for us. Should we pursue it? More on that next month…
We’re not thinking of buying a home at least until 2020 so we have some time to recoup losses. Also, we can postpone buying or we can sell some stock funds in our other brokerage account instead, if the stocks are beating the bonds then. There’s potential for a win/win situation when you diversify. 😉