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Ask Paul: Is it worth investing in stocks if it’s only for a year?


Dear Paul,

I am a 35 year old single woman at a stable job. I recently sold my one-bedroom apartment in the capital.

Now I plan to rent for 12 months before buying a two-bedroom apartment in the hope that during this time the housing market will stabilize.

I will have about $ 220,000 in cash after my sale takes place. What should I do with this money while renting?

Interest rates on savings accounts and time deposits are not attractive. I’ve been looking at government or corporate bonds, but I don’t think I can make money on them in 12 months, and they offer less flexibility in terms of how long I have to hold them.

I wouldn’t mind buying stocks, but I’m not sure which ones currently have a good price and will likely maintain or grow their value over the next 12 months.

Last year, after the stock market plummeted, I bought $ 5,000 in the Vanguard Australian Shares High Yield ETF (VHY) and $ 5,000 in the BetaShares Australian Sustainability Leaders ETF (FAIR). I sold the stock 12 months later, earning nearly $ 4,000. This year I was going to invest money to buy a bigger apartment, but due to lack of affordability and prices in the current market I changed my plans.

I would consider buying more VHY as you can expect them to bring decent dividends. But I’m not sure if it’s worth investing just part of the money or the whole lot, and if it’s too risky a move. “Abby.”

I like to talk a little bit about risk and profit.

And here you gave me a lot of items! I have absolutely no idea what the housing market will do next year. The boom of the last two years caught me by surprise.

Obviously, the money had to be very cheap, which contributes to the boom. But COVID was a complete unknown. So I thought the market would be pretty flat. Wrong.

One should think that real estate prices cannot exceed the ability of people to pay for them, both in terms of wages and interest payments. Wages seem to be stuck, and interest rates are rising, so you might think prices are stabilizing.

I understand your opinion about the $ 220,000 you will receive.

But investing it in stocks for a year makes me nervous. When I look at the annual return for the last 100 years, historically, you have four out of five chances to make money and one out of five to lose.

The one-year profit range is over 60% achieved in 1975 to a one-year loss of almost 50% in 2008.

The average annual return for 100 years is more than 10%, including dividends. So I believe this is your mystery. Can you live with an approximately historic 81% “one year” chance of making money on stocks and 19% losing money?

What I will leave you to decide. Maybe you should think about keeping some cash and some in stocks?

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