Real Self Sufficiency - Living Better for Less
Saving for a mortgage down payment
When you take out a mortgage to purchase a new home, you usually have to pay a certain percentage of the price of the property, typically 20% or 30%, upfront.
If you do not already have this money put aside, then the most cost effective way to raise it is to put money away in a high interest savings account or an investment vehicle such as corporate bonds.
While a savings account may be marginally safer, in that there is no risk of your investment actually losing value, you will usually be able to get the money together more quickly if you take the investment vehicle route.
Most investment vehicles take the form of pooled investments called funds, in which a large number of stocks, shares, or other equities are invested in on behalf of the investors in the fund, and any profits or losses are shared out among the investors.
Actively managed stock market funds, in which a fund manager will buy and sell individual shares on a regular basis in an attempt to maximise profits, tend to produce the highest profit yields. However, they are also the riskiest type of investment, and it is not unknown for these types of funds to dramatically fall in value, especially during times of economic turmoil.
A safer approach, especially if you are investing in the relatively short term, is to put your money into corporate bond funds. Corporate bonds are fixed-term, fixed-interest IOU notes issued by corporations looking to raise money to fund growth.
They have a nominal value that has to be paid upon the maturation of the loan. However, they can be bought and sold on the open market, and their value within this market can fluctuate based on a number of factors.
However, they do not tend to fluctuate nearly as much as shares, due to the fact that their nominal value is guaranteed, and the only real risk with them is that the company that issued them could go out of business and renege on their debts.
Corporate bond funds are similar to any other type of investment fund, in that a fund manager will be responsible for buying and selling bonds on behalf of the investors in the fund.
Saving Money by Taking a Break!
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