Mix-n-match strategies to save for your first home

Slash years off the time taken to save for a first home by spreading your deposit across different 'buckets'.
By · 29 Mar 2021
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29 Mar 2021 · 5 min read
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In today’s low rate world, stashing spare cash in a savings account can mean a slow road ahead if you’re a first home buyer.

Domain’s latest First Home Buyer Report shows it can take over six years to save a 20% deposit for a home in Sydney or Melbourne. That’d be fine if property prices stood still. But in February alone, home values nationally rose 2.1%. So you need a strategy that lets your deposit keep up with rising property values.

One way to do this is by using different ‘buckets’ – giving your deposit exposure to investments with the potential for capital growth that can do some of the hard yards for you.

Here’s what a bucket approach could look like.

First, use a high interest, online saver as your ‘defensive’ bucket. You won’t benefit from capital gains or high returns. But on the flipside, the value of your savings won’t be impacted by possible falls in investment markets. 

Your second bucket can be a blend of exchange traded funds (ETFs). This gives your deposit the benefit of diversity plus much-needed capital growth. Of course, ETFs may not be not ideal if you expect to be investing for just a year or two. For a share-based ETF, for example, allow a minimum timeframe of around five years.

You have a couple of options here. You could build a basket of ETFs yourself. But if you want to keep things simple, you could opt for a readymade portfolio. This is where robo advice comes in handy.

InvestSMART’s ‘Growth’ portfolio for example, which combines shares (Aussie and international), property, infrastructure and interest-bearing investments, has delivered average annual returns of 8% over the last five years. That’s far higher than you’ll earn on cash savings though past performance is no indication of future returns. As an added plus, your ETF bucket is regularly rebalanced so it continually reflects how you feel about risk.

The third bucket for your first home deposit can be the First Home Super Saver Scheme (FHSSS). This provides tax savings plus further diversity coupled with more potential for strong returns.

The idea behind the FHSSS is that you make before-tax contributions to super. Setting up salary sacrifice contributions is an easy way to do this. Your personal contributions plus the returns they earn are lightly taxed at 15%. When you’re ready to buy a home, the withdrawals are taxed at your marginal tax rate less a 30% rebate. Long story short, more of your money goes towards buying a home instead of paying the tax man.

Your super also has the potential to generate decent returns. Over the last 12 months, funds with a ‘balanced’ investment strategy have notched up gains of 5.9%[1] – pretty impressive considering the year we’ve been through.

The catch with the FHSSS is that it only lets you save a maximum of $30,000 towards a first home. And if you change your mind, your extra contributions can be locked away until you retire.  You can’t withdraw the money for anything else.

If you’re comfortable with these conditions, the combination of tax savings and potential capital growth can see the FHSSS boost your deposit savings by 30% compared to a regular savings account. Add in your ETF bucket plus the stability of a regular savings bucket, and you could be in your first home sooner than expected.

Effie Zahos is an independent Director of InvestSMART, money commentator at and Channel 9 Today Show.


For more information on saving for your first home click here


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