Should I sell my stocks to put a down payment on a house before it becomes a long term investment?
In the United States Short-term capital gains are taxed at rates similar to regular income which is 25% if you make less than $91,000 and 28% if you make more than that but less than $190,000. If you make more than $190,000 then the rate is 33%. If you hold the stock for a year or more than the tax rate is 15%, unless your income is less than $33,000 in which case there is no tax on long-term gains. As a general rule, the way to make money is to stay out of debt, so I cannot advise you to assume a mortgage. Financially you are better off investing your money. Much like you I bought a house with a mortgage using about $30,000 in a down payment about 20 years ago and I paid it off a few years ago. If I had to do it over again, I would have bought a shack (a steel building) for $30,000 and lived in that and invested my income. If I had done that, I would be about $500,000 richer today than I am now.
I would agree with the other answers about it being a bad idea to invest in stocks in the short term. However, do consider also long-term repairs. For example, you should be prepared to a repair happening in 20 years in addition to repairs happening in a couple of months. So, if it is at all possible for you to save a bit more, put 2% of the construction cost of a typical new house (just a house, not the land the house is standing on) aside every year into a long-term repair fund and invest it into stocks. I would recommend a low-cost index fund or passive ETF instead of manually picking stocks. When you have a long-term repair that requires large amounts of money but will be good for decades to come, you will take some money out of the long-term repair fund. Where I live, houses cost about 4000 EUR per square meter, but most of that is the land and building permit cost. The actual construction cost is about 2500 EUR per square meter. So, I would put away 50 EUR per square meter every year. So, for example, for a relatively small 50 square meter apartment, that would mean 2500 EUR per year. There are quite many repairs that are long-term repairs. For example, in apartment buildings, plumbing needs to be redone every 40 years or so. Given such a long time period, it makes sense to invest the money into stocks. So, my recommendation would be to have two repair funds: short-term repairs and long-term repairs. Only the long-term repair fund should be invested into stocks. Before putting any significant money into stocks, I would recommend spending at least a year paper trading.  It is amazing how much money you can lose trading stocks when you don't know what you are doing! "If I buy property when the market is in a downtrend the property loses   value, but I would lose money on rent anyway. So, as long I'm viewing   the property as housing expense I would be ok. This is a bit too rough an analysis.  It all depends on the numbers you plug in.  Let's say you live in the Boston area, and you buy a house during a downtrend at $550k.  Two years later, you need to sell it, and the best you can get is $480k.  You are down $70k and you are also out two years' of property taxes, maintenance, insurance, mortgage interest maybe, etc.  Say that's another $10k a year, so you are down $70k + $20k = $90k.  It's probably more than that, but let's go with it... In those same two years, you could have been living in a fairly nice apartment for $2,000/mo.  In that scenario, you are out $2k * 24 months = $48k--and that's it.  It's a difference of $90k - $48k = $42k in two years.  That's sizable. If I wanted to sell and upgrade to a larger property, the larger   property would also be cheaper in the downtrend. Yes, the general rule is:  if you have to spend your money on a purchase, it's best to buy when things are low, so you maximize your value.   However, if the market is in an uptrend, selling the property would   gain me more than what I paid, but larger houses would also have   increased in price. But it may not scale.  When you jump to a much larger (more expensive) house, you can think of it as buying 1.5 houses.  That extra 0.5 of a house is a new purchase, and if you buy when prices are high (relative to other economic indicators, like salaries and rents), you are not doing as well as when you buy when they are low.   Do both of these scenarios negate the pro/cons of buying in either   market? I don't think so.  I think, in general, buying ""more house"" (either going from an apartment to a house or from a small house to a bigger house) when housing is cheaper is favorable.  Houses are goods like anything else, and when supply is high (after overproduction of them) and demand is low (during bad economic times), deals can be found relative to other times when the opposite applies, or during housing bubbles.   The other point is, as with any trend, you only know the future of the trend...after it passes.  You don't know if you are buying at anything close to the bottom of a trend, though you can certainly see it is lower than it once was.   In terms of practical matters, if you are going to buy when it's up, you hope you sell when it's up, too. This graph of historical inflation-adjusted housing prices is helpful to that point:  let me just say that if I bought in the latest boom, I sure hope I sold during that boom, too!" Don't do it.  I would sell one of my investment houses and use the equity to pay down your primary mortgage.  Then I would refinance my primary mortgage in order to lower the payments. Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains.  There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take. Apples and oranges. The stock market requires a tiny bit of your time. Perhaps a lot if you are interested in individual stocks, and pouring through company annual reports, but close to none if you have a mix of super low cost ETFs or index fund.  The real estate investing you propose is, at some point, a serious time commitment. Unless you use a management company to handle incoming calls and to dispatch repair people. But that's a cost that will eat into your potential profits. If you plan to do this 'for real,' I suggest using the 401(k), but then having the option to take loans from it. The ability to write a check for $50K is pretty valuable when buying real estate. When you run the numbers, this will benefit you long term.  Edit - on re-reading your question Rental Property: What is considered decent cash flow? (with example), I withdraw my answer above. You overestimated the return you will get, the actual return will likely be negative. It doesn't take too many years of your one per year strategy to wipe you out.  Per your comment below, if bought right, rentals can be a great long term investment. Glad you didn't buy the loser. It is a very complex question to answer and it really depends. However, here are some points to consider and verify with your accountant or tax expert.  First, if you exercise now, the downside is that you may be subject to Alternative Minimum Tax (AMT) based on the theoretical gain on the stock (current price minus your strike price) when you file your tax return.  The other obvious downside is that if the company goes nowhere, you are stuck with the stock and potentially lose money.  The benefit is that the clock starts ticking for long-term capital gains so if you sell after 1 year from the exercise date (or your company gets sold) then the gain would be taxed as long-term capital gain which is taxed at a lower rate. If your company were to get sold, the gains are not necessarily taxed as ordinary income.  If it is a cash transaction then most likely (unless you have exercised and held the stock for over a year).  However, if it is a stock sale, then you may end up getting stock of the company that acquires your company.  In that situation, the tax event would be when you sell the new shares vs. the time of company sale. Finally, whether to exercise or not also depends on how you feel about the prospects of the company.  If you think they will be sold or of more value down the road then exercising makes sense.  If you are not sure then you could hedge your bets by only exercising a portion of it. You should definitely consult with a financial advisor or a tax consultant regarding these matters. Capital gains tax is an income tax upon your profit from selling investments. Long-term capital gains (investments you have held for more than a year) are taxed significantly less than short-term gains. It doesn't limit how many shares you can sell; it does discourage selling them too quickly after buying.  You can balance losses against gains to reduce the tax due. You can look for tax-advantaged investments (the obvious one being a 401k plan, IRA, or equivalent, though those generally require leaving the money invested until retirement). But in the US, most investments other than the house you are living in (which some of us argue isn't really an investment) are subject to capital gains tax, period. "Point of order: ""What goes up must come down"" refers to gravity of terrestrial objects below escape velocity and should not be generalized beyond its intent.  It's not true that stocks MUST come down just because they have gone up.  For example, we would not expecting the price of oil to come down to 1999 levels, right?  Prices, including those of stocks, are not necessarily cyclical. Anyway, short selling isn't necessarily a bad idea.  In some sense, it is insurance if you have a lot of assets (like maybe your human capital) that will take a dive when the market goes down.  Short selling would have lost a lot of money in your case as the stock market between 2011 (when you wrote the question) and 2014 (when I wrote this answer) performed very well.  On average the long side stock market should make money over long periods of time as compensation for risk and the short side should lose money, so it's not a good way to make money if you don't have an informational advantage.  Like all insurance, it protects you against certain calamities, but on average it costs you money." First, look at the local housing market, and the price to rent ratios. If you are comfortable that a house can be had for near to the cost of renting, and are not still dropping is price, then focus on the down-payment. I don't imagine housing prices to start picking up any time soon, so you don't be too rushed. If you feel like you have a longer time to save before you want to buy, I would focus as much money as I can into a retirement account while still saving for a down payment. Since you are young, you really want your retirement accounts working for you as soon as possible. You should not be investing in 3% stable funds, but the stock market index funds. Retirement is for 40 years in the future. Using funds for a down-payment from a retirement account should be a last resort. Remember this money is to provide you security later in life, not to get you into a house. When you take out money and put it into a house, it will not be appreciating nearly as fast. It is easy to say you will save later, but the money you save early in life will make up 50% or more of your funds when you retire. That is why it is critical to save for retirement as soon as possible. what other pieces of info should I consider If you don't have liquid case available for unexpected repairs, then you probably don't want to use this money for either option.  The 7% return on the stocks is absolutely not guaranteed. There is a good amount of risk involved with any stock investment. Paying down the mortgage, by contrast, has a much lower risk. In the case of the mortgage, you know you'll get a 2.1% annual return until it adjusts, and then you can put some constraints on the return you'll get after it adjusts. In the case of stocks, it's reasonable to guess that it will return more than 2.1% annually if you hold it long enough. But there will be huge swings from month to month and from year to year. The sooner you need it, the more guaranteed you will want the return to be. If you have few or no stock (or bond)-like assets, then (nearly) all of your wealth is in your house, and that is independent of the remaining balance on your mortgage. If you are going to sell the house soon, then you will want to diversify your assets to protect you against a drop in home value. If you are going to stay in the house forever, then you will eventually need non-house assets to consume. Ultimately, neither option is inherently better; it really depends on what you need. "1) Don't buy a house as an investment. Buy a house because you've reached the point in your life where you don't expect to move in the next five years and you'd prefer to own a house (with its advantages/disadvantages) than to rent (with its advantages/disadvantages). Thinking of houses primarily as investments is what caused the housing bubble, crash, and Great Recession. 2) Before buying a house for cash, look at the available mortgage interest rates versus market rate of return. Owning the house outright is slightly lower stress, but using the house as the basis for a ""leveraged investment"" may be financially wiser. (I compromised; I paid 50% down and took a mortgage for the other 50%.) 3) 1 year is short-term. Your money doesn't belong in the market if you're going to need it in the short term. If you really intend to pull it back out that soon, I'd stick with CD/money-market kinds of instruments. 4) Remember that while a house is illiquid, it is possible to take out home equity loans... so money you put into a house isn't completely inaccessible. You just can't move elsewhere as easily." "You've laid out a strategy for deciding that the top of the market has passed and then realizing some gains before the market drops too far.  Regardless of whether this strategy is good at accomplishing its goal, it cannot by itself maximize your long-term profits unless you have a similar strategy for deciding that the bottom of the market has passed.  Even if you sell at the perfect time at the top of the market, you can still lose lots of money by buying at the wrong time at the bottom. People have been trying to time the market like this for centuries, and on average it doesn't work out all that much better than just plopping some money into the market each week and letting it sit there for 40 years. So the real question is: what is your investment time horizon?  If you need your money a year from now, well then you shouldn't be in the stock market in the first place.  But if you have to have it in the market, then your plan sounds like a good one to protect yourself from losses. If you don't need your money until 20 years from now, though, then every time you get in and out of the market you're risking sacrificing all your previous ""smart"" gains with one mistimed trade.  Sure, just leaving your money in the market can be psychologically taxing (cf. 2008-2009), but I guarantee that (a) you'll eventually make it all back (cf. 2010-2014) and (b) you won't ""miss the top"" or ""miss the bottom"", since you're not doing any trading." The standard answer on any long term stock is hold on during the rough times.  You have not lost anything until you sell.  If your concern is just that you are not certain where the stock price is headed, unless you need the money now and can not afford to hold on to the stock then I would hold it. Simply put, the interest you're paying on your loans is eating into any gains you have in the stock market.  So, figure out how much you're paying in interest and consider the feasibility of paying off some of the loan.  Also figure in if you would be selling the stock at a profit or a loss.   Generally speaking, a home loan is typically long-term, with a high principal.  I believe the consensus is that it is typically not worth paying down extra on it.  A car loan, though, is much shorter term, with a lower principal.  It may be worth it to pay that down. I would certainly consider paying down the loan with 10% interest, even without running any numbers. What about doing this without selling stock?  The reason I suggest that is that you should not sell the stock unless you truly need the money or for some material reason(s) related to the company, the market, etc.  (Of course, one other reason would be to cut losses.) Unless I was looking to sell some stock anyway, I would try other ways to come up with the money to pay down the highest interest loan, at least.  If you are thinking of selling stock to pay down debt, definitely run the numbers.