What to do with my money for next 3yrs - £65k + 1k/mth

What to do with my money for next 3yrs - £65k + 1k/mth

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UnwiseOwl

Original Poster:

9 posts

107 months

Friday 24th April 2015
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I'm currently almost all in cash (not physical!) apart from my pension, and not planning on buying a house in the next 3 years at least (currently renting). I'm 27, single, no kids, no debts, currently earn 37k, only significant asset is a car worth 7k.

Current situation is 54k savings, all in an ISA earning 1.5% except for 1k which is in an S&S ISA invested in UK/developed world equity index funds. Then 11k in a SIPP, 60:40 equities:bonds in index funds. The money is savings from earnings, and around 15k from a few gifts and inheritances. I only started the pension and S&S ISA a year ago with lump sums and varying monthly contributions thereafter.

I'm saving about 650/mth into my ISAs (575 into cash, 75 into S&S). A total of 350/mth gross goes into my pension, 200 of it from me and 150 from my employer. So 1k/mth total, which'll probably rise by 100-150/mth each year.

I've been thinking lately if my money is in the right places, and about where I'm putting my new money. If I carried on as is for 3 years, I'll end up with 75k cash, 3.5k S&S, and 24k in my pension ignoring all growth and pay rises.

When I do drop an anchor somewhere and buy a house (probably in 3-5 years), I'm not sure how much of my total money should go into it. I've read some interesting pieces about not putting all but your emergency fund into your house deposit, as it can better grow elsewhere. This would obviously be affected by growth (housing and investments) and mortgage interest rates.

I'd likely need to spend around 150k for a reasonable place around here, so a 25% deposit would be 38k, or 60k for a 40% one. The interest rates at the moment are barely different, so it's the size of the loan that would affect the cost. At current example rates (1.8%) and 25yrs it seems that putting in an extra 22k reduces the monthly cost from roughly 470 to 370. So is it then just a question of if 22k can earn more than 100/mth elsewhere? For the 40% option, I think remaining heavy in cash is right given the time frame. But would putting in 40% be the best thing to do, and if not, would I be wise to move into/build up e.g. equities/corporate bonds instead?

McFsC

578 posts

151 months

Friday 24th April 2015
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Buy a house now. No more rent, enjoy lower rates for longer and pay the mortgage off earlier, maybe allowing you to retire earlier.

Simpo Two

85,147 posts

264 months

Friday 24th April 2015
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I can't add anything other than to say well done. You make other 27y/os I know look pretty stupid.

okgo

37,857 posts

197 months

Friday 24th April 2015
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Simpo Two said:
I can't add anything other than to say well done. You make other 27y/os I know look pretty stupid.
But also makes them look incredibly exciting vs the above wink

Simpo Two

85,147 posts

264 months

Friday 24th April 2015
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I'm not sure that pissing it up the wall constitutes 'exciting', but YMMV wink

UnwiseOwl

Original Poster:

9 posts

107 months

Saturday 25th April 2015
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McFsC said:
Buy a house now. No more rent, enjoy lower rates for longer and pay the mortgage off earlier, maybe allowing you to retire earlier.
Doesn't fit my situation unfortunately - I don't think I want to remain where I am now for 5+ years. I pay 500/mth for a flat which I could buy for 95k. Leaving a bit of an emergency fund in cash, I could put down 40k on it and the cheapest resulting mortgage would be around 270/mth. Add a 120/mth service fee and it's up to 390/mth for me to buy the place even before transaction costs. I'm ok with paying the premium for the flexibility and avoidance of risk. Plus I'd never buy a flat anyway due to the leasehold/service fee crap, so I'd need to borrow more for a house.

okgo said:
Simpo Two said:
I can't add anything other than to say well done. You make other 27y/os I know look pretty stupid.
But also makes them look incredibly exciting vs the above wink
Maybe so, but I don't scrimp so that I don't enjoy myself smile. I have a nice fast car, I spend two weeks abroad each summer, and I have money for shiny things and fun things (maybe not much by PH standards though). Saving and taking time to plan doesn't stop me doing those things, and helps ensure I can keep enjoying the future.

DukeDickson

4,721 posts

212 months

Saturday 25th April 2015
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okgo said:
Simpo Two said:
I can't add anything other than to say well done. You make other 27y/os I know look pretty stupid.
But also makes them look incredibly exciting vs the above wink
Or magpies with added stupidity. Weeing money away you never had in the first place is very X k pa millionaire and almost always not as remotely as playboy as it appears.
Six figures in the bank at @ 30 is a nice place to be if not working in a double + average salary paying job, in receipt of family cash, not a truly tight/miserable soul.

Then again, OP, blow it all and run up a big debt, find some like-minded friends and shout at politicians. They'll probably sort you out (warning - children and future generations may be harmed by this product).

Edited by DukeDickson on Saturday 25th April 01:38

okgo

37,857 posts

197 months

Saturday 25th April 2015
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I'm also 27. Save about the same as op on a non bonus month but know I would lead a fairly boring existence if I tried to do it on 37k. But it was mostly a tongue in cheek comment.

You've done well to get to that point and earn a fairly decent wage considering the area you must live for houses to cost that!


gazapc

1,319 posts

159 months

Saturday 25th April 2015
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If you are going to keep a significant chunk in cash for a year or two then atleast get a santander 123 account, 3% interest on 20k (other banks do similar offers but for a smaller total amount). Much better rates than your isa.

Condi

17,088 posts

170 months

Saturday 25th April 2015
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Is it not worth buying a house/flat for nothing more than the increase in value? Rent pays the mortgage, so its someone else investing their money in your house!

EDIT; doing the sums, you're getting 1 or 2% in an ISA, and yet giving your landlord 6.3% return on his flat. Bonkers.

UnwiseOwl

Original Poster:

9 posts

107 months

Saturday 25th April 2015
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okgo said:
I'm also 27. Save about the same as op on a non bonus month but know I would lead a fairly boring existence if I tried to do it on 37k. But it was mostly a tongue in cheek comment.

You've done well to get to that point and earn a fairly decent wage considering the area you must live for houses to cost that!
Thanks. Yes, decent wage in a low cost area is the only thing that makes this possible.

Condi said:
Is it not worth buying a house/flat for nothing more than the increase in value? Rent pays the mortgage, so its someone else investing their money in your house!

EDIT; doing the sums, you're getting 1 or 2% in an ISA, and yet giving your landlord 6.3% return on his flat. Bonkers.
I have wondered quite a lot, still on the no side. I would never buy a flat as I mentioned above due to the leasehold / service charge risks (monthly + lump sum demands for repairs), so it would have to be a house which would be more expensive. I'm not confident that increases in value would make it worthwhile (this isn't a prosperous area), taking into account transaction costs and the risks of ownership. Also I don't want to have much commitment here because I don't really want to be here, and also if I lost my job I would have to move elsewhere to find a comparable one. I said in my previous post (ignoring transaction costs and value increases), renting this place rather than owning it is costing me around 100/mth, but that 40k deposit would then not be earning interest, so renting is costing me 50/mth which I'd rather pay.

Condi

17,088 posts

170 months

Saturday 25th April 2015
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So whats the question then?

You asked for what the best return on your money would be, and if you're renting then that is likely to be a property. If you dont want to invest in a property then you need to find a range of other options, but thats down to personal preference. If it were me, I'd buy a nice 1966 Mustang - something to enjoy which is also going to appreciate over time. If you want to keep it all as paper then it depends on your risk attitude. 1.5% in an ISA is fk all, but there is no risk to that. Stocks and shares could get you about 5-7% if you were sensible, but could also lose 20% if China slows down or the Euro falls apart. You could take it to the casino and stick it all on black - high risk, high reward. Chances are you'll want something in the middle, but exactly what that is or how much you put there nobody else can answer for you.

By the sounds of things you have a lot of money in cash and a little in stocks and shares, I'd look at changing those around so you take on a bit more risk. Also how about social lending, Zopa or whatever its called. 5% return if locked away for 3 years I think they say?

In the end, its your call. Diversify your portfolio, maybe accept a bit more risk for some more reward, but most of all make sure you're not having a crap time today hoping for a good time tomorrow. Tomorrow never comes, and having a great house at 40 isnt going to feel good if you've sacrificed all the fun in your 20's and 30's when you should be out there enjoying it.

McFsC

578 posts

151 months

Saturday 25th April 2015
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Condi, that's my point, he's missing it.

You are paying for your mortgage, just for someone else. Total waste. Use all of your money to put a deposit down, small mortgage, pay it off in not many years ( mortgage will be no more than your rent, so no extra outgoings ) then sell the flat when you want to move for more than you bought it ( you said more than 5 years, it will not have gone down ).

Simple economics, if you don't want to do that, then keep doing what you are.

matty g

231 posts

197 months

Saturday 25th April 2015
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McFsC said:
Condi, that's my point, he's missing it.

You are paying for your mortgage, just for someone else. Total waste. Use all of your money to put a deposit down, small mortgage, pay it off in not many years ( mortgage will be no more than your rent, so no extra outgoings ) then sell the flat when you want to move for more than you bought it ( you said more than 5 years, it will not have gone down ).

Simple economics, if you don't want to do that, then keep doing what you are.
Buy flat. Pay off mortgage. Save deposit. BTL flat and start again.

Rinse and repeat as necessary.

UnwiseOwl

Original Poster:

9 posts

107 months

Saturday 25th April 2015
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Thanks all. The question was where to put my money for the next 3 years, that isn't property due to the reasons I've already given. And secondly when I'm ready to buy property, how much to put into it.

I now see that I should probably take on a little more risk with S&S and maybe peer to peer lending - that answers the first one. On the second, the answer seems to be that property beats all else so when I'm ready put all but my emergency fund into it.

I do understand how not buying a property is costing me, and I'm not missing any of your points.

Condi said:
most of all make sure you're not having a crap time today hoping for a good time tomorrow. Tomorrow never comes, and having a great house at 40 isnt going to feel good if you've sacrificed all the fun in your 20's and 30's when you should be out there enjoying it.
This has been on my mind for the past year of two after seeing others either lose almost everything in divorces, or dying with a fortune having lived cheaply and saved earnings from average wage jobs all their lives. I didn't have much growing up so am naturally careful with money. That also that means that spending 2k a year on holidays and having around 300/mth disposable after all bills/costs feels like enough to be spending on fun (this is a cheap area). I'm not targeting a great house, just want to avoid being a mortgage slave until I retire.

newbieninja

46 posts

113 months

Saturday 25th April 2015
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I'm 26. Still pissing all my earnings up the wall - which is the NUMBER 1 thing I would suggest he does… But failing that, and wearing just a sensible hat, my savings are locked in BTL property in London. I can sell up pretty much within a day or two and realise gains far higher than the paltry interest rates on ISA's. Yes you can invest in stocks and shares, but IMO it's not worth the risk for such a marginal gain over the very best interest rates when you only have a limited amount of capital available outside of traditional, safer investments. I am surprised nobody has suggested he uses his savings for a BTL property deposit where instead of paying into savings, he uses the rental income to pay the majority of the mortgage and tops up if required with money that would have been going into savings. He can continue renting. But this way, he'll have a tangible fixed asset returning a pretty decent return?

Failing that buy a flash car and stop being single? spend it all on women/men (if thats your bag)

Condi

17,088 posts

170 months

Saturday 25th April 2015
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Not much point buying a BTL if he doesnt have his own house? The interest rates for first time buyers are great, he wont get anywhere near as good with a BTL, and then when he does want his own he wont be a FTB anymore.

The other option is to take on a FTB mortgage and then rent the property out - but Im sure thats very naughty and wouldnt be advised.

Pferdestarke

7,179 posts

186 months

Saturday 25th April 2015
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What a wise owl at 27. If only I'd had my head screwed on in quite the same way at that stage!

Pferdestarke

7,179 posts

186 months

Saturday 25th April 2015
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Penny shares?

limpsfield

5,871 posts

252 months

Saturday 25th April 2015
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okgo said:
Save about the same as op on a non bonus month
Love this