Saving for a home deposit

Question

Hi all,

My husband and I are wanting to save 100K for a home deposit. We are not sure if the best way to go about this would be by investing what we can each fortnight (approximately $700, more if we undertake OT and side hustles) into a mutual fund here on Pearler or if we save in a high yield savings account. 
Ideally, we would love to have achieved that within 3-5 years.

Any advice is much appreciated.

Thanks :)

Answer

Hello!

Saving for a home deposit is an exciting goal, and it’s great to see you’re considering different options to achieve this. Both investing in shares through mutual funds and saving in a high-yield savings account have their merits, and the best choice can depend on your risk tolerance, time horizon, and financial situation.

Investing in Mutual Funds:
Investing in mutual funds can potentially offer higher returns compared to traditional savings accounts. For example, if you were to invest $700 fortnightly in a mutual fund with an average annual return of 7%, you could reach your goal of $100,000 in about 5 years. Mutual funds invest in a variety of stocks and other securities, which generally offer the potential for higher growth over the long term compared to savings accounts. However, it’s important to note that investing in the stock market involves risks, and returns can be variable and not guaranteed.

High-Yield Savings Account:
A high-yield savings account offers more stability and less risk compared to investing in the stock market. The returns are typically lower, but the risk of losing your principal is minimal. If you prefer a more conservative approach and want to ensure that your capital is not subject to market fluctuations, this might be the better option. However, the growth of your savings might not be as fast as it could be through investing in mutual funds.

Given your time frame of 3-5 years, it’s a relatively short period for investing in the stock market, where volatility can be more pronounced. If you are comfortable with some level of risk and are okay with the possibility that the value of your investments could fluctuate, investing in mutual funds might be suitable. However, if you prefer a guaranteed amount by the end of your saving period, a high-yield savings account could be the safer choice.

Combination Approach:
Another strategy could be a combination of both – allocating a portion of your savings to a high-yield account for safety and the rest into mutual funds for growth potential. This way, you can potentially benefit from higher returns on part of your money while still having a safety net.

Pearler offers a platform that can facilitate either approach. You can choose to invest in mutual funds directly through the platform, which can be a convenient way to manage your investments and track your progress towards your goal. Pearler’s focus on long-term investing and its features that support goal setting and tracking can be particularly useful as you work towards saving for your home deposit.

Ultimately, the best approach depends on your personal comfort with risk and your specific financial goals. It might also be beneficial to consult with a financial advisor to tailor a strategy that best suits your needs.

You can find out more about this topic here: Renting Is Not Dead Money

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hi Rafael,

With a timeframe of 3-5 years, typically a high interest savings account is the wisest place to build a home deposit.

The share market, as powerful as it is for long term wealth, is simply too volatile for short term savings.  There’s a risk that when you want to buy your house the market declines, undoing all your hard work at saving.

Ideally you want to invest where you can leave the money untouched for the long term.

All the best.

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HOMES AND MORTGAGES

RAFAEL GUANAIS FORTES ARAUJO.

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