Ask Paul: My home was repossessed eight years ago
Dear Paul,
I'm 47 and I lost my house when it was repossessed eight years ago.
I'm trying to save to get myself a house again. I recently saw a financial adviser and mortgage broker and have worked out that I need a minimum of $60,000 to get a loan.
I earn about $80,000 a year before tax, plus overtime.
Should I just keep the money I'm saving in my bank account at 5% or would I be better in a Vanguard managed fund, as it will take me at least two years to save up the money?
I'm saving $250 a week towards getting the house plus paying rent. Any help would be good. Thank you. - Nicholas
Good on you, Nicholas. As we move through our lives, all of us will face tough times. That is pretty much a certainty.
It may be our health, or the health of those we love, work or business problems, divorce or, in your case, losing your home. But it is how we dust ourselves off and move on that is the key.
So, I am delighted you are doing exactly that and have set a goal to own a home and taken advice to help you achieve this. The critical part is the $250 a week you are saving - nothing happens without saving.
Unfortunately, neither I nor anyone else has the first clue where the sharemarket will be in two years.
Over seven-plus years, history shows us that shares are likely to outperform term deposits. But in a couple of years, you could earn 50% or lose 50% in shares. This is at the extreme end of returns, but over a few years they are a pretty risky choice.
Maybe one option is to put a decent chunk of your savings in safe term deposits or a high-interest bank account and part in a low-cost share fund, such as Vanguard.
This depends a lot on your appetite for risk.
Personally, with a shorter timeframe for such an important goal, I'd remove market risk and stick with one of my money rules, which is to match investments with the timeframe.
This would steer you towards conservative but predictable bank-interest-type investments.
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