ETFs for Short Term Investing?

LSlicker871 on 08/06/2023 - 11:37

I am new to finances/investing, and at the moment I simply live frugally and save most of my money. My goal is to save for a city apartment deposit (around $100-150k). Since I live at home with low expenses, I'm likely to reach this in 3-5 years; depending on how much my career progresses, how long I can tolerate still living with my parents in the suburbs lol, etc.

In the long term, investing is obviously a must. However I'm wondering if it's a good idea to dump most of my money into ETFs (such as the reputable pre selected ones in the Commsec Pocket app) is a good idea - i.e. treating ETFs like a saving's account. In the short term there will still be decent gains, it might even contribute several $10k to my goal once I reach it. However, I have no idea about the tax implications of this - if I end up paying so much in tax, that I would've been better off not investing at all. Or if there's only taxes for particularly large sums of money.

Should I begin investing most of my money in ETFs, even though at some point I'll withdraw most of it for an apartment deposit? Or are there enough implications, that I should just accumulate my saving's account?

Financial Exchange Traded Fund

Comments

  • Porker on 08/06/2023 - 11:47
    +9

    ETF will fluctuate up and down based on the market, plus when you sell and if at a gain, then you'll need to consider capital gains in addition to tax payments for dividends.

    If the ETF are down at the time you need the money, then you may be in a bit of a pickle.

    Perhaps consider a term deposit?

  • Stopback on 08/06/2023 - 11:48

    Look up money smart gov website

  • Jimothy Wongingtons on 08/06/2023 - 11:55
    +4

    etf isnt exactly known as a get rich quick play …

    • ausdday on 08/06/2023 - 16:14
      +2

      ^ this. Also any investment returns will attract CGT.

      The only short term tax free investment income I found from ATO website, is gambling winnings (unless you are a professional gambler). Just put all on BLACK.

  • Daniel Plainview on 08/06/2023 - 12:01
    +6

    OP, sorry to break it to you - but I suggest you reach an understanding with risk vs reward in this sphere as if you look at any number of investment options a 3-5yr span is very short i.e realistically there's a real chance of significant capital loss in such a short time frame even on relatively capital stable option.

    So you might effectively add 20% total as a return over that period - but you also might end up down 5% (on capital stable products) - if you're ok with that sure. But other than cash ETFs eg AAA there's no sure thing in front ETF on the market - even bond etfs suffer at certain times. And for you a HISA would be better than a cash etf (which I mentioned just to be factually correct).

    Past returns are no indication of future returns so beware folks coming on saying this or that has made them heaps. I'd DYOR on the asset category and then if you are certain come back to find specific equities that suit your risk appetite.

  • m0tyrider on 08/06/2023 - 12:12

    You still pay tax on the interest on your savings account, tax is a mute point in my opinion. If your investment can pull better than 5% P/A, do it.
    Which ETF's are you looking at in particular?

    • Daniel Plainview on 08/06/2023 - 12:42

      FYI it's 'moot' point.

      On what reasonable basis would you say 'if Investment >5%p.a' go ahead? I'd welcome an explanation of this.

      • m0tyrider on 08/06/2023 - 13:18
        +1

        Savings accounts are offering a little over 5% p.a - so if you can't beat a savings account, i am not sure if its worth the risk.

        Cheers for the correction on 'mute' point :)

        • Daniel Plainview on 08/06/2023 - 13:29

          Yes…..HISA returns I am aware of - but saying that a near zero risk investment returns 5% p.a, so if you can get 5%+ 'do it' is leaving an incredible amount of key variables as unimportant.

          The return vs the risk is only part of what should be factored as the 3-5yr timeframe for this is THE critical factor - and should be driving everything else.

          • m0tyrider on 08/06/2023 - 13:37

            @Daniel Plainview: What is a near zero risk investment that returns 5%?

            • Daniel Plainview on 08/06/2023 - 13:57

              @m0tyrider: As I said THIS is exactly where the OP needs to know what their risk tolerance is……so until they do that, anyone giving advice, is just having a laugh.

              I haven't given advice yet pending hearing back from the OP and only saying their 3-5yr timeframe likely makes anything in equities unviable unless they're okay with perhaps a 20% chance of a 5-10% negative return over that period - you have saying take anything thats 5%+.

              • geshc on 08/06/2023 - 15:56

                @Daniel Plainview: What can go up 20%? I put money last time into Celsius crypto due to recommendation from other ozbargainers but obviously that didn't turn out well. Looking for something else now.

                • Daniel Plainview on 08/06/2023 - 17:15

                  @geshc: Unlike others I don't furnish financial advice to others, when I know I'm not aware of countless variables I'd need before doing such a thing. Alas you will find total strangers are often very good at telling you how you should spend your money, but have little liability if their advice goes sub-optimally.

                  The way you furnished the question, as 20% in a month, a year, etc - indicates to me that perhaps the best advice I could give is to read up on the many different approaches to investing, asset classes and the tax implications - the latter makes a huge difference and one I wish I'd looked into sooner e.g SMSF's. Best of luck.

        • adam149 on 27/03/2024 - 20:50

          How the hell do you know if an ETF will return 5% pa before the fact. The obsession with ETFs being this guaranteed investment blows my mind.

  • jetblack on 08/06/2023 - 12:14
    +4

    Considering signs are pointing towards a recession/bear market, trying to invest for the short term doesn't seem like a great idea tbh.

    Worrying about tax implications on investment gains as a young / new / smallish portfolio investor is totally overrated imo. The main consideration is the "capital gains tax discount": When selling you pay your marginal tax rate on the amount of profit you made… unless you hold the investment for more than 12 months, then they only tax 50% of the profit. In other words, you want to try and hold your investment for more than 12 months to receive that benefit.

    If it were me, I'd stick it in a high interest savings account and just plug away at building that if you're reasonably certain of a 3-ish year time frame. Research the First Home Super Saver Scheme, that's a good vehicle for "investing" in your scenario, but even that is still subject to market fluctuations that I wouldn't be totally comfortable with in the current climate.

    Read through /r/AusFinance, plenty of great information in there from people just like you trying to figure out how to invest/save.

    • Trying2SaveABuck on 08/06/2023 - 12:15
      -3

      Read through /r/AusFinance, plenty of great information in there from people just like you trying to figure out how to invest/save.

      LMAOOOOOOOOOOOOOOOO maybe 5 years ago it has become a socialist orgy of anti investors and hating on anyone who successful

      • jetblack on 08/06/2023 - 12:19

        socialist orgy of anti investors and hating on anyone who successful

        You're a property investor, huh?

        The sub is literally dedicated to investing and saving, with OPs exact question getting posted and discussed multiple times a week.

      • dtc on 08/06/2023 - 12:21
        +1

        agree; there are a handful of knowledgeable comments within the threads but 98% is garbage and failure to understand basic economics. Plus all comments are through the lens of (a) I cant afford a house and (b) its all the fault of the boomers (but (c) once I do buy a house, how dare anyone increase rates or do anything that affects my chance of also being a wealthy property owner)

        read through r/fiaustralia for better financial education

        • Trying2SaveABuck on 08/06/2023 - 12:48
          -2

          r/AusHENRY is a small but better community for financial question but it i find it some what difficult to relate too as so many people are on >400k pa on there

        • adam149 on 27/03/2024 - 20:50

          98% of the advice is 'invest in an ETF' rinse and repeat

  • Seraphin7 on 08/06/2023 - 12:14
    +2

    In the short term there will still be decent gains, it might even contribute several $10k to my goal once I reach it.

    On what basis are you making this assertion?

  • onetwothreefour on 08/06/2023 - 12:32

    All these talks of recession means there could be a significant drop in the near future and it may take years for the market to recover so stocks are not the best place for a short term.

    Also this may never happen and the market perform well over the next few years, we just don't know what will happen.

    Just put your money in a HISA of around 5% and take it out without penalty when you need it.

  • Cave Fire on 08/06/2023 - 12:33
    -1

    ledn on here for a btc or USDC (us dollar coin) deposit for 9% pa. Insured for loss etc. May want to consider govt programs for first home grants or saving programs. New one just opened up, need a partner, sibling or friend though. Unsure if it's QLD only though…

  • Oofy Doofy on 08/06/2023 - 12:41
    +3

    Please don't concern yourself with tax implications… when you make more money, you pay more tax, it's as simple as that.

    Here's a decent guide on how to invest your money the way the government is doing right now…

    Can you replicate the Future Fund via the ASX?

    • Daniel Plainview on 08/06/2023 - 12:44
      +1

      when you make more money, you pay more tax,

      Unless you're a smart multinational company operating in Australia e.g all the reports of the incredibly low company tax levels paid by foreign companies operating within Australia Google, Amazon etc.

      • Oofy Doofy on 02/07/2023 - 12:29

        Corps should never pay tax.

    • Oofy Doofy on 08/06/2023 - 12:54

      And this is how the government altered the % of the Fund, for 2023

      Australia's Future Fund posts 3.7% loss for 2022

  • Daniel Plainview on 08/06/2023 - 12:56

    There's some good advice in here but a lot of other thoughts I'd sum up by the quote,"Often wrong, but NEVER in doubt."

  • IIGnomeII on 08/06/2023 - 13:14
    +1

    Based on your info - no.

    An ETF provider will often mention how long they believe you should stay in the fund, e.g. Vanguard VAS ETF says 7 years (https://www.vanguard.com.au/personal/invest-with-us/etf?prod…)

    If you are looking at a 3-5 year timeframe then park your money in a high interest savings account from ubank or ING (if you can meet the criteria). There are higher interest options out there but you just need to do the leg work to find the one that works for you.
    The primary reason is the money is accessible on demand if you want to jump at an opportunity in 3 years and you remove the risk of the volatility of the stock market.

  • JiGaXD on 08/06/2023 - 13:21
    +1

    Given you're saving up to buy a property, and you want to limit your downside risk, I'd suggest a term deposit or savings account would be more suitable (there's a lot on OzBargain that are offering 4.5%-5% pa). Savings account would be more liquid (ie you can withdraw money anytime instead of waiting for a term deposit to mature).

    As many have said, ETFs themselves have different risk profiles. If you do choose an ETF, given your short-term goal, I'd suggest picking a more defensive one (the ETF investor pdfs should have a suggested time-frame on them). The growth oriented ETFs can have significant fluctuations over a shorter time period given they're linked to market performance (ie ASX/S&P). For peace of mind, many would prefer the 5%, 5%, 5% return than say 8%, 0%, 10% return.

    • Oofy Doofy on 02/07/2023 - 12:33

      Interest rates are going up because inflation is high.

      You're not even stevens with inflation what the current interest rates.

      You're effectively getting 0 in return.

      It's an okay place to put money while you decide where you're going to deploy your savings.

  • dust on 08/06/2023 - 13:27
    +2

    ETFs and short term don't go together.

  • dcep on 08/06/2023 - 13:54

    ARKK etf , or SARK hehehe!

  • Dorge on 08/06/2023 - 14:13

    Not financial advise, but.
    Sounds like you should use a high interest savings account for the majority of your savings. Place a percentage of that 10-40% in pocket app EFT.

    Test how comfortable you are with the up/down fluctuations. When it goes down you only lock in loses when you withdraw.

    There's no rush, best to dip your toe in first instead of going 100% EFT.

    • Daniel Plainview on 08/06/2023 - 14:24

      @Dorge

      Place a percentage of that 10-40% in pocket app EFT. Test how comfortable you are with the up/down fluctuations.

      No, you have to KNOW this before you put it into any investment, not after you put it in - as the saying goes,"Can't stand the heat, keep out of the kitchen."

      If an investor knows they will freak out and sell out or down if their asset decreases 10% over a month or so, they should not be in that asset in the first place (baring extenuating extreme circumstances). This is why ANY decent financial advice, will always start with a test/tool to assess what the investors risk profile is and it's critical the investor is completely honest in completing it.

      Understand your risk appetite/profile and if it's a MUST to have out in 3-5yrs or if investment is down a significant % are you fine with riding it out for another year to 18mths.

      • Dorge on 08/06/2023 - 14:40

        I completely agree.

        Never heard of the test/tool, sounds like a great assessment rather than placing a few k in an EFT to test your resolve.

        • Daniel Plainview on 08/06/2023 - 14:49

          I believe you can 'dry test' portfolios via a number of sites (the ASX might have one) - obviously it's in real time so maybe hard to learn much from and it's so short term it might ingrain bad practices e.g you invest against good practice, it goes great for the month you dry test - you think you're a genius and invest for real and your investments revert to the mean and you lose a bunch.

          There are many risk assessment quizes out there - but being brutally honest and not giving the responses you know will give the outcome you want is critical.

          Massive, massive part of investing is the emotional rollercoaster and not self sabotaging through being able to stay the course with a lot of mixed messages. It's a very interesting aspect of it.

  • Cluster on 08/06/2023 - 17:45
    +1

    I'm a Commsec Pocket user, and one of the first things Pocket does is warn you that investments are volatile and can go down at any time. An ETF is completely unsuitable as a savings account. One of the selected ETFs exposes you to NASDAQ. Are you sure you want to ride 25% losses or gains within a few months? Its happened before, and may happen again.

    OP: "In the short term there will still be decent gains"

    That is not assured.

  • Gelato on 02/07/2023 - 13:47

    I feel right now high interest saving acc is a better option than etf

    The shares market is not doing that great atm and saving interest acc is risk free (until bank lower interest rate)

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