06 Nov Simple savings strategies
The experience of entering the property market for the first time, either as a home buyer or an investor, often makes you well aware of the costs that can be involved even before you get to sign a contract. Legal fees, building inspections and loan application fees all add up and having a lump sum to cover the deposit and stamp duty requires a medium-term savings plan.
Fortunately, there are investment vehicles available that don’t require an initial large deposit. For example, you can start investing into a managed fund personally and many are accessible with an initial investment of just $1,000.
A low initial investment provides you with a great deal of flexibility and encouragement to start saving as early as possible. A few key strategies that you may wish to consider in this respect are:
1. Making regular savings into your portfolio (eg. monthly) gives you the benefit of dollar cost averaging. Your regular investments will enter the market at different times over the year, therefore in effect you pay an “average” price for the period during which you invest. This can be compared to investing a significant lump sum on a particular day that introduces a risk that the price is not ideal on that day.
2. The best time to start a regular savings plan is when your net income is about to increase, as you are less likely to feel the pain of that money going straight into your investment. Net income can often increase due to a pay rise or tax cut at the start of the financial year.
3. For gearing strategies (ie. borrowing money to invest in your own name) it is not always necessary to invest a lump sum of your own funds plus the borrowed funds all at once. Many facilities will allow a regular drawdown whereby you set a loan limit and then add further money to your investment at regular intervals.
4. If you have considered a salary sacrifice strategy into your superannuation, the regular savings plan comes into play because your employer will transfer your contributions on a regular basis (eg. monthly or quarterly).
The best time to start a new plan is today, so sit down to work out your goals now and get started!