You’re probably quite conflicted when you’re thinking about saving your money. You hear people making vast quantities of money whilst investing – great for if you’re saving for a house! But also there’s the risk you could lose everything… So if you’re trying to save for a house, is it wise to invest your money to try and get there quicker?
Investing the money you’re saving for a house is only a good idea if you’ve got the risk appetite for it, are looking to buy the house in the long-term future (5+ years), have some investing experience and have a backup plan in case things go wrong.
As you can see, there are so many factors to consider when thinking about whether or not to invest money that you simply can’t afford to lose. So let’s take a closer look at these factors so you can answer this question for yourself.
When are you looking to buy the house?
The first of the factors we should think about is the timeline that you want to buy this house. Are you 95% of the way there and just need that last 5% to get you across that line?
Investing this money may not be a great idea – the stock markets can be a very unforgiving place for those who aren’t experienced with the volatility that it comes with. If you’re only a few months of saving away from slapping down that deposit and moving in – for the sake of a couple more months saving, my advice is to steer clear.
However, this is a different story if you’ve just made the decision to start saving for a house and you’re thinking about the best place to store your money whilst saving. Sure, a Cash ISA is super low risk but with a gloomy return of 0.01% interest – who could blame you for looking elsewhere?
Investing intelligently will never guarantee you super quick, super high gains but it will almost guarantee that you won’t lose money over the long-term. The importance cannot be stressed enough on ‘LONG-TERM’.
Long-term investing means you will be able to ride out the short term market volatility and allow your house fund to grow much quicker than if it were sitting idle in a generic savings account.
How risk averse are you?
Another factor to consider is simply – have you got the balls? After all, you’re playing with your future right?
There are three types of risk profiles people fall into:
- Risk averse;
- Risk neutral; and
- Risk seeking.
Risk averse
A risk averse person is someone who doesn’t like the prospect of taking risks. They try to minimise risks at every turn.
They could be doing this for a number of reasons – they don’t want to jeopardise what they’ve worked for; don’t feel like the risk warrants the reward, you get the point.
You can usually tell someone is risk averse by the way that they answer certain questions.
Say they’re trying to get to work – you can try the motorway but it’s usually quite congested or go the back way. The motorway would get you there quicker but the risk is that the congestion might actually take you longer!
The back way is usually a safe bet. Although there is a risk that other people have had the same idea to go this way, it’s relatively low risk but is a little longer than the motorway route.
In the pursuit of risk avoidance, the risk averse person would see the back way as the lowest risk of congestion and automatically chooses this route to take – the motorway is completely out of the question!
Risk Neutral
Someone who is risk neutral weighs up all of the facts and takes quite a balanced approach to their decisions.
Similar to the risk averse person, they don’t seek the thrills or highs of potential high risk/high reward scenarios. However, they do weigh these options up when making a decision.
If we use our motorway/backway example – unlike the risk averse person who completely discounted the motorway and jumped straight to the lowest risk option, the risk neutral person takes all routes into account.
They may do a little research – maybe Google Maps the route, see what Google says – checks websites to see if they can find a live route status that suggests areas that are currently congested.
Although the risk averse and risk neutral people may end up choosing the same option, the mindset is completely different.
Risk Seeking
As you’ve probably guessed – a risk seeker is in it to win it. They’re happy to risk it all to win it all.
Back to our motorway/backway example – a risk seeker would choose the motorway because it’s the fastest way. They know there is a risk of congestion but they push forward as the reward of getting to work faster outweighs the risk of potentially being majorly delayed!
How educated are you in the world of investing?
This is going to play a huge role in your decision to invest your house savings or keep it safe in a bank account.
If you’re well versed in accounting and financials – you can take one look at a set of financial statements and determine if the business looks good as an investment.
If you’re not that experienced, I’m sure if you type in ‘financial statements’ into Udemy or SkillShare, you’ll be able to find a course that could bring you up to speed pretty quickly.
As well as being able to read financial statements, you’ll need to have a general understanding of the financial landscape – not just in your own stock market but also globally (certain economies can impact other economies).
Wielding yourself with the knowledge to ensure you’re investing into a company that has a great outlook is vital to mitigating the risk of losing everything!
Ultimately, if you don’t know much about investing or how to research stocks – you’re probably not best suited to investing this money as it is more likely to go down than up!
Do you have a backup plan if you lose your money?
So you accidentally lose everything – you bet on a single stocks and your investments go up in smoke… now what?
Well – hopefully you haven’t invested EVERYTHING. If you did… well, now you know for next time!
Depending on how confident you are, you’re going to want to keep some cash spare so that your saving efforts aren’t completely ruined if things take a bad turn.
Having a financial backup plan can not only give you the feeling of ‘safety’ whilst investing – it also gives you a cushion so that you’ll never have to start saving from square 1!
Summary
To bring this article full circle – when considering investing your money that you’re saving for a house, you should always weigh up the following:
- Purchase timeframe – if you’re super close to your goal amount, why risk it?;
- Risk appetite – if you can’t stomach the risk, don’t do it!;
- Investing education – if you don’t know the first thing about investing… learn first, invest later!; and
- Backup Plan – if you lose everything, will it ruin your chances of owning a house for good? If it will, don’t take the risk.