Managed funds may unlock the deposit door for first-home buyers
Younger Australians are struggling to get a foot in the property door but a managed fund offers an ideal starting point to building a deposit.
Younger Australians are struggling to get a foot in the property door. A median apartment in Sydney now fetches nearly $600,000, which means first-home buyers probably need to come up with $120,000 for a 20 per cent deposit, and that’s before the myriad costs associated with buying property. A titanic ask, even for the best savers.
There's no substitute for sticking to a well-crafted savings plan but there are several ways you can put your money to work by investing it as you continue to save. A managed fund is an ideal starting point.
Look for one that takes the needs, time horizon and risk tolerance of first-home buyers into account. You might want to look for one that is:
Diversified: meaning the fund holds different asset classes, including shares, bonds, property, diminishing risk if one asset class nose dives.
Balanced: meaning the portfolio will split its holding 50/50 with higher-risk growth assets such as shares with lower-risk growth assets, typically cash and bonds.
Using the Morningstar Fund-Screener, we identified three funds that meet these criteria and assess their merits. All the funds mentioned are members of the 'Morningstar Multisector Balanced' category meaning that they invest in several sectors have 41 per cent to 60 per cent of their assets in growth sectors.
Remember: if your savings are on track to allow you to buy a home within the next five years, then investing your cash is probably too risky. The market could crash, and your investments would have too little time to recover. Most balanced – moderately risky – investment strategies have at least a five to 10-year time horizon.
Vanguard LifeStrategy Balanced Fund
The Vanguard LifeStrategy Balanced Fund is worth considering if you're a first-home saver because it gives investors access to a range of sectors, at minimal cost, and strikes a balance between income assets like fixed interest and growth assets such as shares. This means your investments will be less exposed to market fluctuations. The fees are competitive and total returns compare well to similar funds.
Morningstar has given this fund a Gold Rating, which means analysts are confident in the fund’s ability to distinguish itself across the five Ps: process, performance, people, parent and price.
FirstChoice WS Multi-Index Diversified
The FirstChoice WS Multi-Index diversified option is enticing for first-home buyers because of its straightforward approach and low cost. Compared to its peers in the multisector balanced category, the fund has outperformed on average five-year total returns and charges below-average fees.
Morningstar has given this fund a Bronze Rating, meaning that analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years.
Pendal Balanced Returns
The Pendal Balanced Returns fund, formerly BT Investment Management, is a fine choice for first-home buyers looking to supercharge their savings. The fund is actively managed and has a diversified portfolio of assets, slightly higher weighted to growth assets than defensive assets. The fund has returned above-average total returns for the past five years. It does, however, have a higher minimum investment amount, so only consider it once you've saved more than $25,000.
Comparison
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Emma Rapaport is a reporter with Morningstar, based in Sydney.
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