I’m in my 30s. Should I invest my savings or save for a property?

7 hours ago 4

I’m in my 30s and have some savings that I’m trying to figure out what to do with. I do want to buy a property at some stage, but I don’t have quite enough. I could keep saving, or I could start investing, which I also wanted to do. I have researched ETFs, but I’m still quite nervous especially given all the ups and downs in the market recently. Property seems more secure, but the idea of taking on a mortgage also feels scary. I don’t have a partner or children at present. What’s the best way to move forward?

This is a pretty common area of indecision – should I start investing, or buy a property? Let’s unpack this a bit more, and hopefully, it’ll give you some clarity on how to move forward.

Opting for an ETF means all your eggs won’t be in one basket. But that doesn’t mean there isn’t any risk involved.

Is it really about risk – or fear?

Part of your decision paralysis is being driven by fear – not so much what’s the best move to make, but rather, what feels like the less risky move? Notice I said what feels like, not what is the less risky move – just because it feels more risky, doesn’t mean it is.

Here’s what I mean – many people forget that taking out a multiple-six-figure mortgage is a form of financial risk. It’s so normalised that somehow people are now less scared of taking out a half-a-million-dollar loan than they are of putting a few thousand dollars in an index fund.

People also forget that while the risk of an ETF or index fund is diversified by default (since you get exposure to a broader section of the market), it’s harder to diversify risk in property. Buying a single property concentrates your risk in a way that buying an ETF doesn’t.

If you are lacking the confidence and skills to invest $5000 – do you think you’re ready for a $500,000 investment?

There are many reasons why the sharemarket has a scarier reputation than property. It’s easier to panic-sell shares during a downturn, but you can’t do that as easily with property. You can watch the ups and downs of your portfolio daily in a way that you can’t quite do with property.

There’s also an emotional attachment to property that makes people want to justify and validate property more than shares. Historically, it was also much harder to diversify your risk in the sharemarket, before ETFs and index funds, which are relatively recent innovations.

I could go on – but I’m basically trying to explain why people have an irrationally higher fear of shares than property that is not directly tied to the actual risk.

In short, it’s not totally accurate to assume that all property is “safer” than ETFs or index funds. So, if that’s your primary hesitation for not moving forward with ETFs, let me take that off the table.

It’s not about the investment – it’s about the investor

If you are lacking the confidence and skills to invest $5000, do you think you’re ready for a $500,000 investment? Isn’t it weird that we encourage people to just skip over the basics?

Ultimately, it’s not the investment that makes you wealthy. It’s you – your skills, confidence, capability, decision-making etc. You can buy a great investment, and totally fumble it because you didn’t have the right financial or emotional skills to see it through.

So, it’s not about the investment – it’s about you, the investor. Instead of “should I buy a property or ETFs”, a better question is: “What will strengthen my skills and confidence as an investor?”

If you’re only buying property because you’re scared to invest – will buying property help you overcome your fear? Will you strengthen your resilience against market volatility?

Will it teach you about asset allocation and diversification? Will you feel more confident in your ability to select investments that offer a good potential return long-term?

Or will you just get the psychological relief that “at least your money is invested in something”, and hope that it works out for you long-term if you hang onto the property for long enough?

Jumping into property – without an educated understanding of how to invest in property – is not an effective way to bypass the fear and risks associated with investing in ETFs. You’re just jumping into one risk that feels less scary than the other – largely because of societal conditioning.

If you spend the next three to six months actively building the skills and confidence to build an ETF portfolio, you’ll come out the other side having strengthened your financial and emotional investing muscles.

You’ll also have an ETF portfolio that, longer term, can fast-track your ability to save up for a deposit for a property. Then, when you do buy, you’ll not only have the money to afford it but also the skills and know-how to back your property purchase with confidence.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.

Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.