Short-term savings

I am 26 years old and employed. It is my intention to buy a property in one to two years' time and fund this mainly by way of a home loan. By way of savings, I have funds on deposit with a local bank, plus a life assurance savings plan, which does not mature until I am 50 years old. I am looking to maximise my savings potential over the next one to two years. What should I do as an alternative to the cash deposits and should I surrender the life assurance policy and do something else instead?

The key here is the short-term nature of your savings needs, i.e. only one to two years. You currently have the bulk of your funds on deposit and that really is the best place for them. If your investment timescale were 10 years, i.e. that you could safely lock them away in an investment scheme for that period, then you could start to take some risk with your capital.

Unfortunately, one to two years is far too short a timescale to be risking your capital as you have a clear need for this money, i.e. to buy a property.

This may disappoint you, especially as investors are enjoying tremendous returns on their capital - whether invested on the local stock market or abroad. But investing involves risk.

Another view may be to start taking risk and a lot of risk by investing in a manner mentioned above and it is true that you may indeed make a profit of, for example, 40 per cent on your capital over the next two years by investing into stocks and shares.

If you do so, and bearing in mind it may be very difficult to recoup any potential losses over such a short period, then any stock market investing should have very clear and disciplined rules attached to it.

Firstly, I would not suggest investing directly into any individual shares as the risks are too great and you should instead follow the pooled or fund route. Secondly, you must set parameters of when you will sell if making a loss and when to sell when a certain profit has been made. If you do not apply such a discipline then it could be a recipe for disaster as you must stick to it. For example, you should discipline yourself to sell if the price of the fund falls five per cent at any point or after you have made a 15 per cent profit.

As regards the life policy, generally I would say to keep it as while you may not 'need' the life cover now, you will need some form of life assurance once you buy the property so as to cover the home loan, should you die before the loan is repaid.

In summary, why sell something now when you will need to buy it back again in one to two years' time?

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.