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For those starting to save for a deposit, the reality of buying a property often seems far off. The First Home Buyers Australia surveys show many Australians consider accumulating enough funds for a home loan deposit as their biggest challenge. Making sacrifices to put your money away for the future takes discipline, so it’s important that your money is working just as hard as you are.

The natural option to save for a house deposit is to set-up regular transfers into a ‘high’ interest savings account. Despite your good intentions, savings accounts can be a false friend. At best you will only get a return of between 1% and 3% a year from savings accounts these days. Whilst low interest rates make paying off a home loan easier, the downside for savers is they won’t bring you the same benefits.

To help you save for a house deposit faster another option to consider is investing in shares. They give you partial ownership of a company, so that you can earn more as the company’s value rises.

graphThe Russell Investments/ASX 2017 Long-term Investing Report shows that in the last 10 years, the average cash return (i.e. the interest rates your bank gives you) has only been 2.8%. However people who have been investing in the Australian share market over the same period made returns of 4.3%.


How to get there faster:

If you’re saving for a house deposit, to get you there faster, the most important thing is to get started as early as possible. Making a habit of regularly adding more funds to your investment is is essential.

The sooner you start saving and investing the sooner you can take advantage of compound returns. Compounding can make a huge difference to your final balance over a longer period.
If you invest $10,000 and make regular monthly $1,000 contributions over five years at an interest rate of 5%, your final balance could be $80,840. Compare this with an interest rate of 2% (about what you’d get from a bank) and your final balance is $74,098. You can have some fun here seeing how compounding works on Money Smart’s excellent website.


With higher returns comes with higher risk

Shares have provided higher returns over the long-run, there is also more risk involved with investing than a simple savings account. A random selection of shares has no guaranteed returns, unlike savings accounts and term deposits.

There are many different strategies and investment selection ideas people use to protect themselves against falls in the sharemarket, however, this can be time consuming trying to workout how to do it yourself.


ETFs solve the stock picking problem

There are many options available for those wanting to invest, including ETFs (Exchange Traded Funds). ETFs hold all the companies on an index, instead of buying one or two companies on the ASX (Australian Stock Exchange) like Myer or Telstra, an ETF buys a small amount of each company on the ASX index. ETFs let you access lots of different investments such as global shares, emerging markets, bonds and gold. ETFs solve the problem of trying to guess which companies to invest in, so you don’t need to worry about the time and effort it takes to pick stocks.


Technology solves the advice problem

Most people are busy working hard in their own fields, so there’s a big demand for personalised investment advice and having someone else maintain a balanced basket of investments for you.

Technology has enabled companies to provide professional and personalised investment services for much lower costs. Known as robo-advisers, these online investment companies have established themselves in Australia and are changing how people invest. The oldest, Stockspot has a track record of 4 years, it gives people access to professional investment advice and managed portfolios that only a few years ago they wouldn’t have been able to afford.

Robo-advisers do the work for you by investing on your behalf in a portfolio of ETFs that matches your financial goals (like saving for a house deposit), attitude to risk and how long you want to invest for.


The tortoise wins the race

Saving for a house deposit can seem like a long slog but your efforts will be worth it.
There is no guaranteed way of immediately growing your savings, but smart investing could help you reach your deposit milestone faster.

 

 

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