5 years is a bit of a cutoff point. Less than that you typically want a CD and more than that you want an intermediate term bond index. You could put 20k in CDs and 10k in bonds which would have the nice side effect of giving you experience.
I'd be tempted to put it into REITs. The main thing you want to avoid is having your investment move in the opposite direction to house prices. If the REIT goes down then it's likely that the house you were going to buy has also gone down in price.
What's bad about my suggestion? REITs are risky for a 5 year investment. Most are highly leveraged and have volatility similar to equities.
Go ahead and compare charts of VTSAX (Total Stock) vs VBILX (Intermediate Bond) vs VGSLX (REITs) from 2000 through today. If you need the money in 5 years you don't want that much risk.
Also it's entirely possible that average real estate values will decline while the housing market in the area the poster is looking to buy goes up.
Actually the duration is a bit high on VBILX. I use Vanguard's muni/tax exempt version VWIUX, but the point is you want a bond index with a duration of around 4-5 years. Maybe I'm more conservative than most, but you don't want to risk a large drop on money you need that soon (look at the REIT losses in '08).
To defend REITs, yes REITs lost money in 2008 but but you could also buy property cheaper in 2008/2009.
If you're going to cherry pick data then take the case where property prices double in 2016. You would expect REITs to double too (not taking into account the rent that you'd be receiving in the mean time), and you'd still be able to buy your property in five years time.
The same can't be said for uncorrelated assets like bonds/CDs/etc. They suck in highly-inflationary environments.
Also thanks for assuming I was talking about leveraged products. I wasn't.
Curious why you say that? Equities and intermediate term bonds are pretty low risk, equities are a huge amount of risk. Someone with a 5 year investment horizon should not be putting money into equities.
Shouldn't put all their money into equities. I would go 50/50 equities / bond fund and use $/£ cost averaging to buy in increments over say the next 12 months.
