Investment plan for the big-ticket item

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By Warren Ingram | 21 January 2019

We often hear financial experts discussing how you need to save for the long term and the importance of proper retirement planning. These are very relevant issues but people don’t often talk about how you should save for big-ticket items such as a car or for a deposit on a home. Typically, you would need to save for a few years for such items but we don’t want to invest the money for a really long period, say five to 10 years, and this is what makes life slightly complicated for investors.

If you are planning to invest for a period of one to three years you can set up a monthly debit order into a unit trust which would be easy to increase, stop or change at your convenience. I would consider a category of unit trusts called income funds as these tend to offer a better rate of interest than money market funds, although they do have a bit more risk. I would not suggest unit trusts such as balanced or equity funds because although these offer potentially better returns, they are much riskier.

This could really affect you if you needed to access the money during a stock market crash when your savings are suddenly worth 30% less! If you are planning to invest for three to five years, you can consider unit trusts called conservative or moderate funds as these have some exposure to shares, bonds, property and cash but they are less risky than balanced or equity funds.

If you are worried about investing in a unit trust, you might consider a fixed deposit or RSA Retail Savings Bond. Both investments have fixed periods where your money    will be locked away but your returns will be guaranteed.

It’s important to be clear about how long you plan to save before choosing where to keep your savings. If you have more time to save you can take more risk, which means you can aim for a higher return. If you have a very short time to save, eg, anything less than 12 months, rather take no risk and keep your money in a money market account at a bank.

• Ingram is executive director of asset management company Galileo Capital