Where best to direct money? savings/shares/pension/mortgage?

[Matt..]

Give the uncertainties around everything at the moment, what would be the most sensible option for directing additional funds? savings (cash isa), savings (s&s isa - funds), pension, mortgage overpayments? or something else?

My savings cash ISA seems a bit pointless right now.

[Ozzie Osmond]

Cash ISA has been pointless since 2008 when interest rates hit the floor. It's really a waste of the ISA tax advantages because tax relief on nothing is nothing.

• Pension - tax relief up front and then grows tax free. Get 25% out tax free at the end as well. If you're a 40% taxpayer this is a no-brainer so long as you can leave the money tucked away until age 55. Invest in mainstream stocks and shares funds. There is risk but you should get returns.

• ISA - no tax relief going in but grows tax free and what comes out eventually is completely tax free. Invest in mainstream stocks and shares funds. There is risk but you should get returns.

What rate of growth can you expect? With a bit of luck, say, 8% compound over the long term. No guarantees though.

[Jockman]

Mortgage overpayments if you are risk averse (not a criticism).

Lifetime ISA out next April with 25% return if you are under 40.

[Simpo Two]

Jockman said:

Lifetime ISA out next April with 25% return if you are under 40.

25% return for how many years? If it's more than 5 I'll buy one

On a serious note, and with reference to Ossie's post, another difference between pensions and ISAs is that one you have total control over, the other you have little and the rules change every year.

[brickwall]

Ozzie Osmond said:

• Pension - tax relief up front and then grows tax free. Get 25% out tax free at the end as well. If you're a 40% taxpayer this is a no-brainer so long as you can leave the money tucked away until age 55. Invest in mainstream stocks and shares funds. There is risk but you should get returns.

This is where my money is going for the moment. Up to £40k per year can go in (less if you earn over £150k).

I also reckon 40% relief will disappear fairly soon and be replaced with effective 25% relief through lifetime ISAs, so am building up the fund while the allowance is still there.

Caveat to this is that you lock away the money for rather a long time...

[Ozzie Osmond]

brickwall said:

I also reckon 40% relief will disappear fairly soon and be replaced with effective 25% relief through lifetime ISAs, so am building up the fund while the allowance is still there.

Very wise IMO. Fill yer pockets lads!

[mike9009]

For me I am doing a little bit of all three. I am slightly risk adverse and so this spreads the risk for me.

1. Increased pension contributions (I am a 40% earner, plus it helps increase the child benefit I get to keep). Just I don't want to lock too much away.
2. Mortgage overpayments. I have a cheap base rate tracker, so the money is cheap but I would like to be mortgage free sooner rather than later (a potentially dumb thing to do at present interest rates, but over the next 8 years I don't know where it will be.....)
3. Stocks and shares ISA in a global fund. Nice to have some savings I can call on in the short term (new car, perhaps?)

Its maybe a compromised strategy, but spreads my future risks - I am not talking about huge sums into each pot, but roughly 40% pension, 40% overpayments and 20% ISA of 'spare' earnings - anything above this each month gets added to overpayments.

Mike

[jonny70]

Have 6 months basic expenses such as mortgage/rent , utility bills and groceries etc in easy access account for emergencies /unexpected circumstances.

After this depends on your LTV on your mortgage and rate of interest you pay and if you are planning to move to a bigger house then make sense to overpay the mortgage

Otherwise assuming you are getting the maximum employer contributions to your pension, a stocks and shares isa or SIPP contributions . You can always pay into your isa and put into a SIPP at a later date if you don't want to tie up tillyour 55/57

[Liggle]

What I do:

3 month immediately accessible emergency fund (basic bills to live), anything past this is wasted money that could be invested (IMO of course)

Invest the surplus in a stocks and shares ISA built up of several index funds and ETF's. I purchase a fund £1k at a time or there abouts and have diversified across US Index, World High Dividend Yield, Emerging Markets and the UK Index. I'm quite new to this but have since decent returns since starting a few months ago (11%+)

[was8v]

Liggle said:

Invest the surplus in a stocks and shares ISA built up of several index funds and ETF's. I purchase a fund £1k at a time or there abouts and have diversified across US Index, World High Dividend Yield, Emerging Markets and the UK Index. I'm quite new to this but have since decent returns since starting a few months ago (11%+)

for a newbie, where do you do this? Is it through one company?

[Liggle]

was8v said:

for a newbie, where do you do this? Is it through one company?

I've got my ISA through Hargreaves Lansdown, they offer very low rates for their funds hence chosing them. As for choosing the fund/ETF theres endless reading on the internet! Monevator is a good place to start for ETF vs. Index Fund info:

http://monevator.com/low-cost-index-trackers/

Index fund and ETF investing is very passive and low risk, its a favourite amongst investors who don't way to pay someone to chose funds for them.

[Craikeybaby]

I do all 4, I pay a bit extra in to my pension to keep me below 40% tax, over pay the mortgage a bit as although we have a good deal being mortgage free sooner is better, S&S ISA in a diverse fund for longer term savings and a cash savings account (was an ISA, but better rate on normal account) for shorter term savings. Obviously none are going up too fast due to splitting hte money between them, but I prefer to keep my options open.

[Hainey]

Craikeybaby said:

I do all 4, I pay a bit extra in to my pension to keep me below 40% tax, over pay the mortgage a bit as although we have a good deal being mortgage free sooner is better, S&S ISA in a diverse fund for longer term savings and a cash savings account (was an ISA, but better rate on normal account) for shorter term savings. Obviously none are going up too fast due to splitting hte money between them, but I prefer to keep my options open.

Exactly the same strategy as me pretty much to the letter.

If they take away the benefits of paying into a pension as a 40% taxpayer though then I'll put the money into a S&S ISA as at the moment the perks are the only reason I am willing to tie the money up for decades.