If you’re planning to buy a house for the first time, one of your major dilemmas is going to be choosing between keeping more cash on hand to stay agile in case buying opportunities come up, and building a bigger initial home deposit by going ‘all in’ on your investment portfolio. While the latter might make it easier to borrow money, it keeps your hands tied if a great investment opportunity comes up.
A strategy many are turning to is to find short-term investment opportunities to boost their home deposit. This allows you to grow your money while simultaneously remaining agile in the market.
In this article, we’ll take a look at 5 short-term investments that can help you grow your deposit for your first home.
1. Microfinance Loans
Of all the short-term investments there are to choose from, microfinance loans may perhaps be amongst the most altruistic – even if they do provide a quick return on your investment. Today, there’s also no shortage of people seeking microfinance loans, which shouldn’t come as a surprise given the rising costs of living globally. This means that there are actually plenty of opportunities for microfinance investors to select a loan candidate or a cause that best aligns with their own politics.
What are microfinance loans exactly? When individuals in lower income brackets want to start their own businesses, they typically won’t have the capital to get going or the credit score to borrow significant amounts of money from traditional financial institutions. Often, these small-scale entrepreneurs will turn to microfinance platforms to borrow smaller amounts of money at low or no interest rates.
As an investor, you can fund these microfinance loans via one of these platforms and make a healthy return on your investment. Besides making your money work for you, you’ll gain the satisfaction of knowing that your money is going towards a good cause.
2. High-Yield Savings Account
Savings accounts are some of the safest investment vehicles out there and are a great way to save for a house deposit. A high-yield savings account can earn you upwards of 5% interest on your principal per annum, which is much more than what you get with a traditional savings account.
High-yield savings accounts are typically offered online. To open an account, you’ll need to submit some identification documents and ensure you meet several requirements. Before deciding on a provider, you need to make sure you have enough money to meet minimum deposit requirements and that you’re fully aware of any account opening/management fees that might be involved.
3. Cash Management Account
Cash management accounts are simple, easy-to-understand investment opportunities for those looking to grow their house deposits without the fuss. They have lots of similarities to opening an account at your local bank, including offering you the ability to make and receive payments. Your money won’t be locked in, and you’ll be able to use it anytime you want.
What sets a cash management account apart from a traditional bank account, however, is that a CMA is entirely online. Rather than using a debit card to make payments or withdraw money from an ATM, you’ll be making payments online.
A cash management account isn’t a replacement for traditional bank accounts, but it’s a great way to make convenient online payments while earning interest on the money you put in.
4. Short-Term ETFs
Exchange traded funds (ETFs) are baskets of stocks that are handpicked according to certain criteria. They’re similar to managed funds, except that they are in themselves commodities that can be bought and sold on the stock market. Just like individual stocks, the price of an ETF can fluctuate due to supply and demand.
One major advantage of ETFs is that they’re safer than buying individual stocks yourself. Since you’ll be buying a selection of various securities, you won’t be too vulnerable to one or two suddenly redlining. Trading commissions are also significantly lower with ETFs than individual stocks.
A short-term ETF is one with a quick maturity date. These are perfect if you’re looking to speed up saving for a home deposit while keeping your cash relatively flexible.
5. Use Your Super Contributions
This next one may be a little controversial, but there’s no denying that the recent development of the First Home Super Saver (FHSS) Scheme has provided some first-time home buyers with the flexibility they needed when tossing up between putting their savings into a home deposit or in separate investments.
If you’re not in the loop, superannuation, or super, contributions are payments made by your employer into your super account. Your super is worth 11% of your regular income, and it’s possible to add to your super out of your own payslip.
Certain super funds will also allow you to make more granular investment choices with your super. If you’re looking to grow your house deposit and are willing to take on some risk, you can consider investing your super in more growth-oriented investments.
However, many consumers are naturally hesitant to touch their super on the basis that those funds are there to provide Aussies with retirement savings. So it’s up to you and your household to decide whether you’d want to invest some of your super into your first home purchase and make those funds back in your property investment or perhaps by making other investments down the line, or to simply swap out this investment option with one of the others mentioned in this guide.
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As a first-time home buyer, you’ll be pleased to know that there are many short-term investment opportunities out there that can help you boost your initial house deposit while allowing your cash to remain relatively liquid. As with any investment, you want to weigh the potential risks and rewards into account and think your decisions through thoroughly.
In this article, we’ve gone through some reliable short-term investments to help grow your house deposit. Look deeper into each of these and make some smart investment decisions today.