£10,000 to invest for house deposit

Kua

Hi,

I've been fortunate enough to come across the above. I'd like to keep half in cash in an ISA. But the rates are so lame, I'm thinking more like £3,000.

I'd like to have a reasonably mixed portofolio with the rest. I was thinking a mix of the following:

- Some of the larger players on the FTSE 100 particularly those with high dividends.
- Funding Circle --- Just £1/2k... All with A-rated companies and in small increments of not more than £100 per company.
- Investment Trust - This is new to me. But I know I don't have the time or inclination to actively watch/manage my investments. Again I'd like to mix things up here. Some in Asia. Some in UK. Different sectors. etc.

I'd have like to invest in corporate bonds. But I've found it harder to get my head round those.

I'm thinking 5-year plan. Save up enough for a mortgage in that time. But I'm reluctant to tie my money up for a full five years (but I know this can have benefits).

Unfortunately my saving plan is complicated by the fact that I can't decide whether to go back and finish off uni (just a year to go) or stay in the job I have and enjoy... Otherwise I could make a good saving plan.

Thoughts and advice appreciated. Lay it down - I won't take offence

Thanks!

gozomark

how much of your money are you prepared to lose ?

Thrugelmir

If saving for a deposit is your aim. Then little point in risking your money by investing. As any additional gain isn't going to make a significant difference.

Better to invest for the longer term in terms of pension/retirement provision. Where you can afford to ride out the ups and downs of the markets.

marathon_man_3

I agree with Thrugelmir.
If saving for a property, why risk any of it at all?

bowlhead99

Let's say you have 10,000 and want to add to it over the 5 years to allow buying of a 100k house with say a 20k deposit and 2k of fees: total needed 22k. Here's some figures to explain why you're getting the advice you're getting from Thrugelmir and co, which might not have been what you were expecting/hoping for.

Assume there's inflation, so you'll really need more than 22k but a bank account can just about keep up with a couple of percent inflation, so we'll pretend the basic bank/ISA interest broadly cancels out with inflation.

Base case, you have 10,000 now and add 200 a month for 60 months. If you don't try and improve your returns through investing in the markets (and yes FundingCircle is a market), you will hit your target of 22k in 60 months (5 years).

If you decide instead to risk the markets, you might be lucky enough to get a return of 5% a year (about 0.4% a month) above inflation on the initial 10,000, and also on the new money coming in. At that rate, you would only need to make your monthly £200 payments for 46 months - slightly under 4 years. Sounds great.

But what might happen is that the investment world does not perform at 5% above inflation for five years, it makes losses and goes 5% below inflation/bank savings each year instead. This means your 10k initial contribution drops to 7700 by the end of the fifth year and all the £200 contributions you've been making are losing value too. You have to keep putting those £200 contributions away for many more months, and if markets keep losing 5% it would take you 92 months (7.7 years) to finally hit the 22k target.

If we change the market rates to be +7% or -7% p.a. instead of just +5%,-5%, the time period to buy your house will move out from 46-92 months to 42-120 months. Basically you're able to knock a year and a half off if you're lucky, or add five years on if you're unlucky.

This is not to say you shouldn't look around to find safe-ish investments which return a bit more than bank accounts. But when you have a fixed goal in mind which you need to achieve in a short period (5 years is not long term), be cautious. If a FTSE share drops from 1000 to 600 in a year or two (-40%) it needs to go from 600 to 1000 (+67%) to get back again. Funds and investment trusts are a lot safer than individual shares but both massively riskier than cash for a short term savings plan.