Wanting to buy a house: invest or save?

Shankers

Please could you suggest a way forward.

Here's my situation: I have a house which I'm letting out in another part of the country as I live in work accommodation. However, I'd like to move out of work accommodation in a couple of year's time as I've had a good stint in it. I reckon I'll be in a position to buy in 2023. I'm now living in a more expensive area than the house I'd need to sell is in. 

To get the house I would like, I'd need to add to the equity I have in my house. I thought the received wisdom was if you need the money within 5 years, save rather than invest. As such, I'm using Premium Bonds, mostly. However, all the talk at the moment is of inflation; Premium Bonds are unlikely to keep pace, particularly with rising house prices. If I'm looking to buy in 2023, do I carry on using Premium Bonds or do I sink the money in a S&S ISA in something like a global tracker fund? 

El_Torro

 You can invest if you want to, though if you're buying in 2 or 3 years you're taking a pretty big gamble on whether your investments will be worth more then than if you had left it in cash.

You're right that if inflation gets to 4% by the end of this year (as predicted) there's no way Premium Bonds or other cash saving alternatives will keep up. Doesn't necessarily mean that stocks & shares are a better bet for you though.

Thrugelmir

In 2007 the global markets fell. Took until 2013 to recover to the previous high level. Markets are not the place to put your money if you cannot afford to stomach a capital loss. 

MX5huggy

Just stick to PB’s investing is not an 18 month game. 

pip895

Investing would be OK if you are prepared to take the risk that you might need to delay your house purchase, potentially for years if the markets turn against you.  If you find that risk acceptable then do make sure you move to cash before you start looking at properties in earnest.  

Albermarle

Long-term investing: Increasing your chances of positive returns (nutmeg.com)

If you look at the graph in this article, you can see historically on average you are more likely to make a profit than a loss over any time period. After two years you have a 75% chance of a positive result and 25% negative.
After four to five years it is 90% and 10%.
However this is average data from a long historical period, so if the next few years are one of the less good periods, then the above % will skew more to the negative. Even if it is a reasonable period there could still be a big dip in there and it might be in the first year if you were unlucky.

You could maybe consider having it mostly in cash but with a % in stocks and shares.

Grenage

Thrugelmir said:

In 2007 the global markets fell. Took until 2013 to recover to the previous high level. Markets are not the place to put your money if you cannot afford to stomach a capital loss. 

Although in that instance house prices crumpled, so it's not always an issue.

Two years is really too short a time to invest, so I'd also save.  If you aren't set on 2023 you could invest and just wait if the market is in a poor state.  How long you'd be waiting is anyone's guess.

daveharruk

There are some trusts which focus on wealth preservation and they can be very successful at that - Capital Gearing is one of the few which hardly ever lose money in any given year (once in 39 years) and so the chances of it significantly outperforming premium bonds are pretty high. Nobody can tell you if/when markets might crash so it isn't worth dwelling too much on that possibility but if you do invest i would suggest setting a stop loss at break even (0.5% with investment trusts as unfortunately they attract stamp duty) and then moving it up periodically thereby locking in profits. Historic market crashes have lasted up to eight years so anything you can do to protect yourself given your short time frame is very important. Certain ETFs might also fit your criteria.

sevenhills

Albermarle said:

If you look at the graph in this article, you can see historically on average you are more likely to make a profit than a loss over any time period. After two years you have a 75% chance of a positive result and 25% negative.
However this is average data from a long historical period, so if the next few years are one of the less good periods, then the above % will skew more to the negative. Even if it is a reasonable period there could still be a big dip in there and it might be in the first year if you were unlucky.

You could maybe consider having it mostly in cash but with a % in stocks and shares.

I find investing in shares more interesting and rewarding, so I am investing more than I would if I was putting my money into a boring 0.5% savings account; have said that, if markets went negative I would not be putting money in so willingly.

ColdIron

I do the opposite, buy when it's cheap and stop when they rise

Stubod

..with a short time frame I would go with savings...IMHO