Ask the expert: Should I invest instead of buying a home?
Fidelity personal financial specialist Marianna Hunt is back on hand to answer your burning questions, and today a reader wants to know whether to take the plunge and buy a property or invest.
Q. I’m in my late 20s and have managed to save around £20,000, which I initially thought I’d
use as a deposit to buy a first home. But that money wouldn’t go far in London and, even if I
saved more, I’d still be looking at one-bed flats. A lot of my friends have started investing
recently and say the returns are much better than you get for property.
Should I invest my £20,000 instead and hope that it grows fast enough that I could buy a
bigger home in maybe four or five years’ time? I don’t mind renting a bit longer and having the
flexibility to move around.
A: Saving £20,000 while living in London in your 20s is no mean feat, well done. It’s also great that
you are asking this question rather than rather than automatically following the path many previous generations took.
Your friends are right that, in recent times, the returns from investing have, on average, been better than those gained by buying property.
Last year, I looked at the performance of different kinds of assets up to the end of July 2025. I found that, once inflation has been factored in, the average UK home had actually fallen in value over the previous three and five years.
Compare that with global stocks, which delivered positive returns after inflation of 25 per cent after three years and 45 per cent after five years.
Of course, there’s no guarantee that past performance will continue and the returns you make will be very dependent on what exactly you buy. What’s more, few people buy a property to live in based purely on potential financial gains.
The benefits of owning your own home go way beyond that: from being able to decorate as you like to knowing that no one is going to sell the property without you knowing and ask you to leave.
But, if you don’t mind renting a little longer and are comfortable with the idea of investing, it could
certainly be something to consider.
As you say, it gives you flexibility in the meantime to move around and it would mean you could make better use of your first-time buyer stamp duty discount when you do come to buy a more expensive home later.
In it for the long term
My only concern is the “four or five years’ time” part. One of the golden rules of investing is not to put money into the stock market if you think you may need it in the short term. Ideally, you should be comfortable leaving the money invested for at least five years, and often longer.
That’s because, while the value of stocks goes up and down in the short-term, history shows us that, the longer you hold onto them, the more chance you have of making money.
Let’s assume you were happy to leave your £20,000 invested for, say, seven years.
If you invested it all as a lump sum in a medium risk portfolio, you might reasonably target returns of around five per cent a year after fees over the long term, although this is never certain. In this case, your money could potentially grow to around £26,000 after seven years.
If you’re just starting to invest, putting it all into the stock market at once can be scary.
A better approach could be to drip-feed it in gradually, investing, say, £1,000 a month until all your money is in the market. If you were able to continue investing £1,000 a month after this, a big ask, I know, then after seven years your portfolio could be worth more than £96,000.
Make sure to invest in a stocks and shares ISA if you can because then any gains and withdrawals
you make should be tax-free. I reached these numbers using Fidelity’s stocks and shares ISA
calculator.
You can play around with lump sums, regular contributions, and risk levels here – although
remember these outcomes are never guaranteed.
Investment options
When getting started investing, the choice can be overwhelming. Often, a good place to begin is a
low-cost passive fund which simply uses your money to purchase a small share of every company
listed in a given market. If you go for a global fund, that will spread your money across the world.
This is called “diversification” and is generally a good thing in investing: it’s the financial equivalent of not putting all your eggs in one basket.
Alternatively, many investment platforms now offer so-called “ready-made” portfolios. With these, you simply answer a few questions, usually about your risk tolerance and time horizon, and the platform will have a diversified portfolio already created to suit your risk level. You simply put your money in.
Overall, investing your money and renting rather than buying a home could be a very sensible
decision. But it will depend on various factors, including how long you’re comfortable leaving your
money for and what living arrangements you’re happy to accept in the meantime.
You could also do a hybrid approach: investing some money monthly into markets and putting the rest into savings so that, when the right property comes up, you hopefully have sufficient funds and don’t need to tap into your ISA if markets are volatile at that time.
You may also want to look at a Lifetime ISA (LISA). This is an account which allows you to save tax- efficiently for your first home while benefitting from a 25 per cent government uplift on your contributions. There are, however, various rules and restrictions so it’s important to investigate them before you commit to a LISA.
If you’re unsure, speaking to a financial adviser can help you to explore your options and build a plan that suits you.