You’ve saved. Scrimped. Worked hard. Missed overseas trips, delicious and expensive breakfasts and music festivals … all in the pursuit of saving a deposit for your first home. But, unfortunately, you’re still barely halfway to where you want to be. How, then, can a hopeful first home buyer put their existing savings to work for them while they continue to save? It’s always best to speak with a financial adviser or planner before embarking on an investment strategy, and remember that, in all forms of investing, past performance is not a good indicator of the future.
1. Term deposit – As far as risk goes, there’s pretty much zero. The bank will tell you in advance what your return will be, and you know exactly when you’ll be able to re-evaluate your investment. The cost of that peace of mind, however, is large. Thanks to a global plunge in official interest rates, one-year term deposit rates in Australia have dropped to a record low of 2.25 per cent on average. It’s an easy-to-understand and safe way to store your savings but, unless official interest rates start rising fast, will provide almost no income.
2. Shares (S&P/ASX 200) – Shares are inherently volatile. A 10 per cent drop in the value of an equity or sector is not that uncommon, according to market experts. That’s why a couple of things are widely agreed on – diversity is a good idea, short-term or leveraged trading comes with heightened risk, and emotions are best left out of it. That said, the ASX 200 is heading for 6500 points by the end of next year, according to one market strategist – Credit Suisse’s Hasan Tevfik – which marks an almost 10 per cent gain from current levels and 15 per cent total return.
3. Exchange Traded Funds (ETFs) – Rather than picking a handful of shares yourself and crossing your fingers, ETFs allow investors to track the performance of an entire index or asset class at once. An ETF manager packages tradeable funds, which follow an index or commodity, or bundle stocks aimed at following a certain sector, like healthcare or even cyber security. And, as with all investing, the focus is usually slanted either towards growth or income.
4. Superannuation – The proposed first home Super Scheme offers the chance to temporarily tack your savings onto your super and be taxed at a lower rate than usual. Announced in the May budget but still to be fully legislated, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their super account, according to the federal government plan. These contributions and earnings would then be taxed at 15 per cent and can be withdrawn only for a first-house deposit. Withdrawals will be taxed at marginal tax rates minus a 30 per cent offset.