Unit 2 · Level 2 · Money that must never go in
The house deposit problem
This is the most common version of the mistake. You have €40,000 saved for a house deposit, three or four years away. Leaving it in cash feels wasteful, so it goes into a broad equity fund for the upside. Two good years pass. In year three the market falls 30%. The €40,000 is now €28,000, the flat still needs €40,000, and the purchase moves out by years rather than months.
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What you get asked
A €40,000 house deposit is invested and the fund falls 30%. What is the deposit worth after the fall?
€28,000. The €12,000 gap is not abstract. It is the difference between signing this year and saving for several more.
Starting from €28,000, what percentage gain is needed just to get back to €40,000?
About 43%. A 30% fall needs a 43% rise to undo it, and a market delivers that on its own timetable. Your completion date does not wait for it.
Put the house deposit failure in the order it unfolds
Nothing here needs a crash or unusual bad luck. A 30% fall is a normal event in a stock market. It is only a disaster because a fixed date was attached to the money.
What was the actual error in the house deposit story?
Holding on does not help when the deadline arrives first. The damage was done years earlier, on the day short dated money went into a long dated container.
Money with a purchase date inside about five years belongs somewhere ___, even though the return will look boring.
Boring is the feature. The deposit has one job, which is to be the full amount on the day you sign. A savings account paying very little has never once cancelled a house purchase. 🐜
The rest of this unit
Some money has a date attached, and a market cannot be told about the date.