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My wife and I were married about a year ago and, between us, have just over $150,000 (AUD) in our joint bank account. We're both in our late-twenties and work full time, but have fairly average salaries (approx. $80,000 AUD combined per year after tax) -- most of our savings have accrued because we've both worked at least casually since we were 16 and have been fortunate enough to live with our respective parents until our early twenties.

We currently rent, own one 3 year old car and have no other notable assets. We would like to buy our own house in the future when we are financially prepared to undertake a mortgage. We have both completed university degrees and my wife is currently paying her HECS debt back incrementally (deducted from her pay each fortnight), while my salary is not high enough to require me to pay any of it back. My degree cost approx. $16,000, while my wife's cost her around $22,000. We have no other debts and do not use credit cards.

With such a large amount just sitting in our high-interest bank account that we don't immediately need (we earn enough to live off and add a fair bit each month to our savings), we thought it would be wise to invest it. Generally speaking, we'd both prefer low risk options and I had been considering a term deposit (while keeping enough on hand as an emergency fund).

What are some good places to start in low-medium risk investments that could help us better save for our own home?

  • If you are not prepared to take any risk then you won't get much more than 2% to 3% p.a. – Victor Nov 16 '16 at 3:12
  • @Victor As stated in the question, I'm open to "low-medium risk." But would also just like to hear ideas - I'm not knowledgeable in this area. – user50417 Nov 16 '16 at 4:14
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Forgive me as I do not know much about your fine country, but I do know one thing. You can make 5% risk free guaranteed. How, from your link:

If you make a voluntary repayment of $500 or more, you will receive a bonus of 5 per cent. This means your account will be credited with an additional 5 per cent of the value of your payment.

I'd take 20.900 of that amount saved and pay off her loan tomorrow and increase my net worth by 22.000.

I'd also do the same thing for your loan. In fact in someways it is more important to pay off your loan first.

As I understand it, you will eventually have to pay your loan back once your income rises above a threshold. Psychologically you make attempt to retard your future income in order to avoid payback. Those decisions may not be made overtly but it is likely they will be made.

So by the end of the day (or as soon as possible), I'd have a bank balance of 113,900 and no student loan debt. This amounts to a net increase in net worth of 1900.

It is a great, safe, first investment.

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First, keep about six months' expenses in immediately-available form (savings account or similar).

Second, determine how long you expect to hold on to the rest of it. What's your timeframe for buying a house or starting a family? This determines what you should do with the rest of it.

If you're buying a house next year, then a CD (Certificate of Deposit) is a reasonable option; low-ish interest reate, but something, probably roughly inflation level, and quite safe - and you can plan things so it's available when you need it for the down payment.

If you've got 3-5 years before you want to touch this money, then invest it in something reasonably safe. You can find reasonable funds that have a fairly low risk profile - usually a combination of stock and bonds - with a few percent higher rate of return on average. Still could lose money, but won't be all that risky.

If you've got over five years, then you should probably invest them in an ETF that tracks a large market sector - in the US I'd suggest VOO or similar (Vanguard's S&P 500 fund), I'm sure Australia has something similar which tracks the larger market. Risky, but over 5+ years unlikely to lose money, and will likely have a better rate of return than anything else (6% or higher is reasonable to expect). Five years is long enough that it's vanishingly unlikely to lose money over the time period, and fairly likely to make a good return. Accept the higher risk here for the greater return; and don't cringe when the market falls, as it will go up again. Then, when you get close to your target date, start pulling money out of it and into CDs or safer investments during up periods.

  • I recently (accidentally) tried to open a savings account in Australia online when I saw they were offering an attractive 2.9% interest rate. Assuming inflation isn't that high (quick google search suggests it isn't) simply leaving it in the bank account (at 2.9% interest) isn't a terrible idea. Maybe CDs pay more in Australia too? – Chris Nov 16 '16 at 19:20
  • Nope, Term Deposits pay less than online bank accounts – Josh May 9 '17 at 18:40
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I agree with @Pete that you may be well-advised to pay off your loans first and go from there. Even though you may not be "required" to make payments on your own loan based on your income, that debt will play a large factor in your borrowing ability until it is gone, which hinders your ability to move toward home ownership.

If you are in a fortunate enough position to totally pay off both your loan and hers from cash on hand then you should. It would still leave you with more than $112,000 and no debt, which is a big priority and advantage for a young couple.

Mind you, this doesn't keep you from starting an investment plan with some portion of the remaining funds (the advice to keep six months' income in the bank is very wise) through perhaps a mutual fund if you don't want to directly manage the investments yourself. The advantage of mutual funds is the ability to choose the level of risk you're willing to take and let professionals manage how to achieve your goals for you. You can always make adjustments to your funds as your circumstances change.

Again, I'd emphasize ridding yourself of the student loan debt as the first move, then looking at how to invest the remainder.

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