Investing for Homebuying

A Fool reader asked, "If I'm saving money to buy my first home within three years, how should I invest my money so that I get decent returns on my investments?" Here's the answer:

To ensure that you can afford more than a corrugated aluminum shack when the time comes to buy a home, any money that you expect to need within five years or so should not be invested in the stock market. You should take great comfort and encouragement from the fact that the stock market has averaged an annual 10% return for most of this century. But that rate of return is an average over the long haul. From year to year, anything can happen. In one 10- or 20-year stretch, the market can behave very differently than in a different 10- or 20-year stretch. You can't necessarily count on achieving average results -- you'll likely do better or worse than average.

Short-term scratch should be kept in a safe place, such as certificates of deposit or money market funds, to protect your principal.

If you're interested in home-buying and home-owning issues, visit our Home Center, which features lots of money-saving tips and even some special mortgage rates.