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I have no credit, no loans, and am a contractor for $40/hr at a company and I expect to work here for quite a while (job security should be above average).

Every week, I allocate $300 to my Mortgage Preparation Fund. I keep it in a high-interest savings account (3.73% p.a., but goes down to 2.73% if I withdraw anything from that account in that month, but I do not have plans to withdraw any time soon).

I was wondering if there are better places to put my money in. Also consider that I put in $300 every week, so it keeps growing weekly, so investments that allow partial additions every interval or so would be good.

Additional details :

  • Concurrently, I'm also setting aside some of my salary to my Emergency fund, luxuries, and some other small things that I plan to spend on soon (car, wedding in the next 5-10 years maybe, etc).
  • I don't have a target house yet, or a target price range. All I am focusing on now is to grow my mortgage preparation fund as much as I can, so that when the time comes, I'm ready.
  • I live in Australia, if that matters.
  • I expect to use the funds for a downpayment 7-10 years from now. So, I have 7-10 years to try and save up as much as I can with the help of investments.
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Zaenille
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4 Answers4

5

Good job. Assuming that you are also contributing to retirement, you are bound to be a wealthy person. I'm not really sure how Australia works as far as retirement, but I am pretty sure you are taking care of that too.

Given your time frame (more than 5 years) I would consider investing at least a portion of the money. If I was you, I would tend to make that amount significant, say 75% in mutual funds, 25% in your high interest savings. The ratio you choose is up to you, but I would be heavier in the investment than savings side. As the time for home purchase approaches, you may want more in savings and less in investments.

You may want to look at a mutual fund with a low beta. Beta is a measure of the price volatility. I did a google search on low beta funds, and came up with a number of good articles that explains this further. Having a fund with a low beta insulates you, a bit, from radical swings in the market allowing you to count more on the money being there when needed.

One way to get to the proper ratio, is to contribute all new money to the mutual fund until it is in proper balance. This way you don't lower your interest rate for a month.

Given your time frame, salary, and sense of responsibility you may be able to do the 100% down plan. Again, good work!

Pete B.
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The big question is whether you will be flexible about when you'll get that house.

The overall best investment (in terms of yielding a good risk/return ratio and requiring little effort) is a broad index fund (mutual or ETF), especially if you're contributing continuously and thereby take advantage of cost averaging.

But the downside is that you have some volatility: during an economic downturn, your investment may be worth only half of what it's worth when the economy is booming. And of course it's very bad to have that happening just when you want to get your house. Then again, chances are that house prices will also go down in such times.

If you want to avoid ever having to see the value of your investment go down, then you're pretty much stuck with things like your high-interest savings account (which sounds like a very good fit for your requirements.

Michael Borgwardt
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You should never take advice from someone else in relation to a question like this. Who would you blame if things go wrong and you lose money or make less than your savings account. For this reason I will give you the same answer I gave to one of your previous similar questions:

If you want higher returns you may have to take on more risk.

From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets.

If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed.

What ever you decide to do, get yourself educated first. Don't put any money down unless you know what your potential risks are and have a risk management strategy in place, especially if it is from advice provided by someone else. The first rule before starting any new investment is to understand what your potential risks are and have a plane to manage and reduce those risks.

Victor
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The highest growth for an investment has historically been in stocks. Investing in mature companies that offer dividends is great for you since it is compound growth. Many oil and gas companies provide dividends.

FreshTendrils
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