My partner and I have saved $20000 for a deposit on a block of land but have been declined for credit due to having a default each. (the things you do or don’t do when first moving out.) So do we invest or just keep saving for the next couple of years until our saving will get us past our defaults. We don’t know the share market which is why property seemed the best investment.
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Two options for you. First keep on saving to afford the land. Have you calculate how long this will take? Secondly, the stock market has been beaten down badly. For those who feels that the stock market offers them an opportunity to earn some money, then it is quite a good bet. But I must caution you about the risk involved. Also, you must need to find out how risk averse are you. Because the savings are from both you and your partner, it is better to ensure that your partner is aware of the intention on how the money is put to use.
Before you opt to invest in the stock market, you must educate yourself on the ins and outs of the market. Reason is simple, if you are not well informed, there is the danger of losing all your savings. So get an education on how to invest if you are thinking of the stock market.
Personally I view that this is a good time to buy some stocks and hold onto them for at least a year and to await for the economy to rebound. But you must do your homework and due diligence.
Good luck.
There are several options which are relatively safe and offer a better rate of return than the bank account. Speak to an investment advisor or financial planner (your bank may have one on staff) about the options available to you. Do not speak to an investment representative as they are sales people who are looking to make the highest commission off of the product they sell to you. Look at the wording on their business card and ask for a resume or bio of education and experience.
You might choose to put the money into a:
- GIC guaranteed investment certificate which pays a slightly higher rate than the bank savings account.
- The bank may have an internet accessible account which pays slightly more than the regular savings account
- You could purchase a shortterm bond which is essentially a loan made by you to a government or corporation. The government or corporation promises to pay you a certain rate of interest with the full amount due to be paid to you on a specific date. On that date, you will get the money they borrowed and you will have received interest payments during the course of the loan. You can sell this bond at any time during the period of the loan but it may sell for more or less than you actually paid for it. It is only on the designated date that you will receive the exact amount that you lent. These bonds are rated from AAA and lower. I would not invest in anything less than A. Choosing a BBB or lower rated bond could mean that the company could go bankrupt before they had to pay back the money they had borrowed from you
- This is enough money to invest in a mutual fund which has a value that changes every day. A mutual fund is a basket of stocks which are bought and sold by a professional team of money managers. Their mandate is to increase the value of the fund at varying rates of risk. There are some mutual funds which hold a variety of bonds, both government and corporate, and are therefore relatively risk free.
A financial advisor can ask you questions to determine how much risk you are willing to accept. Before handing over your money, you need to ask some questions to make sure that the advisor or planner agrees with your philosophy. If you are risk adverse, you do not want someone who is essentially a gambler to be advising you. Speak to several and ask about their level of education and experience in the financial field. The advisor will give you his idea of which options are best for you. Try to find one that does not charge a FE front end fee or DSC delayed service charge. There are many advisors who want your business for the long term and will no gouge you when you are new investors. After much trial and error, I now invest with DundeeWealth.
Keep saving. Your goal is land. The stock market is for horizions of 5 years or more. Bonds fluctuate if you sell them before maturity. You will not get a good rate on 2 years of maturity. Shop for the best CD available and you can add to it also.
Good Luck to You
Investing and saving are really the same thing. Savings accounts are just a very conservative way to invest since banks are considered “safe”.
So invest your money according to the risk level you’re willing to take. As some prior answer have eluded to; your risk level is tied in with the amount of time til you want to liquidate/use the money.
If you have more than a year I always like to find something with a bit more kick than CDs.
Right now you could use some bond funds to find some higher rates of return.
VMLTX, for example, is a municipal bond fund that can take the kick out of the tax bill. Municiple bonds do come with default risk which is historically low.
VFIIX is a bond fund that consists of Government backed mortgages. In other words there is no default risk but there is credit risk. In reality the fund price itself fluxuates a small bit so the value can go up and down.
Typically, the rate on CDs is around 2-3%. Inflation is around 3% and this can erode the value of your money. However, your objective is to eventually have enough cash to get past your defaults. Therefore, investing the money in stocks may be risky because there is a good potential to loose money. I would recommend shopping for the best possible interest rate on a 2-year CD. You should try to see if it is more than 3%. If this is not possible, I would recommend consulting a professional investment counselor because holding the money in cash or CDs may not be the best thing to do.