Saving for Buy to Let Investment - 3-5 years

steampowered

Marcusian said:

Ok so here is what i am trying to get my head around. A previous poster put this link up to essentially say, that at 5 years there is a 10% chance i would be down. Long-term investing: Increasing your chances of positive returns (nutmeg.com)

Now, again I am just working through all this, this is a post from Nutmeg (he would say that), but still - is losing inflation for 5 years (guaranteed) more worthwhile than a 1 in 10 chance I would have to sit it out until investments recovered. 
As you can appreciate - I am canvassing opinion and from lay person, there is conflicting advice here. 

5k a year losing 2% inflation each year vs losing that amount in investment in my vanguard fund in 5 years time?

This is fab though, thanks guys, this is exactly why I put the original post up. 

This is a valid point. The Nutmeg figures do not take inflation into account. I would be interested to see someone do the same analysis Nutmeg did looking at "real term returns" (i.e. with inflation included).

With all of these things, there is a cost and benefit analysis. While with a 100% equity investment there is a 1 in 10 chance that your investments might have dropped in a 5 year period, there is probably more a 1 in 10 chance that your investment will generate substantial returns.

The "average" base case that you would achieve with an "average" performance over the 5 years would be growth of 7.5% per year. That is roughly the growth returned by the major stock markets over the past 10 years and over the past 50 years.

To my mind, the benefit clearly outweighs the risk. The average / most likely outcome is clearly far better than the outcome you will get leaving money in a savings account.

I don't really see the sense in taking a "low risk" approach for your BTL deposit, when the whole concept of taking a mortgaged  BTL is not a low risk investment to begin with. 

The other point to remember is that your analysis does not factor in property prices. If property prices increase ahead of the interest you get in your savings account over the next 5 years, then your £25k will no longer be enough and you will need to save longer. This is known as "shortfall risk". Investing in stocks & shares would help to mitigate that risk, since it is statistically far more likely that the value of a stocks & shares ISA investment would keep up with house prices, than it is that a savings account would do the same.

Marcusian

steampowered said:

Marcusian said:

Ok so here is what i am trying to get my head around. A previous poster put this link up to essentially say, that at 5 years there is a 10% chance i would be down. Long-term investing: Increasing your chances of positive returns (nutmeg.com)

Now, again I am just working through all this, this is a post from Nutmeg (he would say that), but still - is losing inflation for 5 years (guaranteed) more worthwhile than a 1 in 10 chance I would have to sit it out until investments recovered. 
As you can appreciate - I am canvassing opinion and from lay person, there is conflicting advice here. 

5k a year losing 2% inflation each year vs losing that amount in investment in my vanguard fund in 5 years time?

This is fab though, thanks guys, this is exactly why I put the original post up. 

This is a valid point. The Nutmeg figures do not take inflation into account. I would be interested to see someone do the same analysis Nutmeg did looking at "real term returns" (i.e. with inflation included).

With all of these things, there is a cost and benefit analysis. While with a 100% equity investment there is a 1 in 10 chance that your investments might have dropped in a 5 year period, there is probably more a 1 in 10 chance that your investment will generate substantial returns.

The "average" base case that you would achieve with an "average" performance over the 5 years would be growth of 7.5% per year. That is roughly the growth returned by the major stock markets over the past 10 years and over the past 50 years.

To my mind, the benefit clearly outweighs the risk. The average / most likely outcome is clearly far better than the outcome you will get leaving money in a savings account.

I don't really see the sense in taking a "low risk" approach for your BTL deposit, when the whole concept of taking a mortgaged  BTL is not a low risk investment to begin with. 

The other point to remember is that your analysis does not factor in property prices. If property prices increase ahead of the interest you get in your savings account over the next 5 years, then your £25k will no longer be enough and you will need to save longer. This is known as "shortfall risk". Investing in stocks & shares would help to mitigate that risk, since it is statistically far more likely that the value of a stocks & shares ISA investment would keep up with house prices, than it is that a savings account would do the same.

Thank you - I am continuing to invest at a rate of knots and just need to keep letting that happen. The time to really consider (and what will get me to a spot to potentially do BTL) is when that inheritance becomes a reality. In the meantime, I should invest for the long term in most rational way within my risk tolerance.