Wanting to buy a house: invest or save?

Thrugelmir

Grenage said:

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.

If humans were born with hindsight then you'd be right. In the midsts of a correction there's no certainty what tomorrow might bring.  Would global equity markets have even recovered without QE and emergency levels of interest rates.  Easy to analyse and digest now. 

Grenage

Thrugelmir said:

Grenage said:

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.

If humans were born with hindsight then you'd be right. In the midsts of a correction there's no certainty what tomorrow might bring.  Would global equity markets have even recovered without QE and emergency levels of interest rates.  Easy to analyse and digest now. 

Fair point.

steampowered

pip895 said:

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.  

Keeping your money in cash would be OK if you are prepared to take the risk that you might need to delay your house purchase, potentially for years if house prices increase faster than the return you receive on cash savings. 

steampowered

Over a 5 year period, personally I would put my money into a lower risk investment fund.

5 years of inflation at 2.5% per year would reduce the value of your savings by 13.3%.  This is significant. 

Inflation would also be expected to increase house prices, so you could be faced with a "double whammy" of needing a higher deposit, while the deposit you do have devalues.

When you consider that lower risk funds tend to keep pace with inflation, doing this can be viewed lower risk than holding cash savings. Those sorts of funds will still fall in value during a market downturn, but not by as much as higher risk funds.