Saving for a home deposit

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 – allocatin

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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.