I am posing this question on behalf of my brother. I've been following and participating in this forum (regarding property) for some months now and have learned heaps! Hoping to get some tips/direction regarding the following circumstances. Savings in question: $60k The Savings will be used for a small property purchase in 2021. Predicament: Due to some commitments, he is unable to use this cash for the intended purpose until mid-2021. With the ETF market doing well (and savings account interest rates being low), we think the best option would be to place the funds in an ETF till he is prepared to use it. Our challenge: This is an area neither of us have invested in before. We've researched what has performed well over the last year but would like to know what else we should be considering. What would you do? Much thanks in advance
So you think etfs will perform well in the next 18 months because they have performed well in the last 18 months?
No. Just considering it as a suitable product for the circumstances. Flexibility required to pull the money out when needed so fixed term deposits aren't a good option.
AAA is also good. Make sure you buy on the 2nd of month (ex div) then you can sell anytime and capture the return.
Something else to consider is the possibility (not that unlikely) that when he wants his cash, his ETF shares will be worth less than when he bought them.
Based on the information given, return of capital is more important than return on capital. For such a short time frame, some type of deposit account is probably the most prudent.
In a similar situation recently (but higher amount) I went for QPON. Given the amount though, a few points aren’t going to make a massive difference.
You just said mid 2021 A term deposit maturing Q2 2021, covered by Govt guarantee. Do not put the funds into the market.
If you invest in a capital stable etf you will generate very low returns. Make sure you factor in the broker buy and sell fees on the etf total return on what you eventually get back. For $60k over 15 months the ultimate net answer might result in a difference of $256 and a lot of paperwork so the accountant bills you $300 to consider the transaction and return it properly.
It's not generally regarded as prudent to put money in the market for a short time frame like that. As was said - return of capital, not return on capital is the aim if the money is needed in a years' time. Pick the wrong thing and you lose 10%, 15%, 20% of it and how's your brother going to feel about that? It can happen. You can still get >2% in a high interest online bank account. Take it.
+1 May be able to do better with a high interest online savings account including BONUS offers but the TD gives a guaranteed rate until maturity.
Thanks all, this was very informative With our limited experience it's sounding like a high interest rate account is a better, safer path.
