Is this a good plan for £70k savings?

[hallion]

Hi guys,

Due to having to get a mortgage for a new house quickly, I had to leave First Direct and go with the Halifax (First Direct time frame for a new mortgage was weeks longer).

I had £70k of savings offset in my old FD mortgage/savings account which was saving me a lot of mortgage interest and knocking years off the life of the mortgage.

With the Halifax, there is no offset facility so my savings are setting earning nothing at present. My plan is:

1. Move £20k into my Santander 123 current account for 3% interest rate.

2. Move £15k into Fundsmith as an ISA (done quite a lot of reading on this and seems like a good fund).

3. In April 2015 open a new ISA with Hargreaves Lansdown and spread £15k across these funds:

Standard Life UK Equity Unconstrained
Marlborough Multi Cap Income
Schroder UK Dynamic Smaller Companies

4. Put remaining £20k into premium bonds and keep adding more savings into it.

Does this seem like a good way to save/invest my money? BTW, my mortgage is £200k.

Thanks for any advice.

Edited by hallion on Tuesday 30th December 10:43

[ringram]

What rate tax do you pay?

SIPP will offer up to 45% tax refund, so depending on what you are saving for is a good option.

That means you get the tax back by the end of this tax year to offset your PAYE.

But the rule of thumb is to pay off the highest interest debt first unless you can exceed the after tax returns elsewhere.

Question then is what is your mortgage interest? If its more than ~1.5% then premium bonds are a waste of time. You are better to reduce the mortgage.

You should also hold a bit outside an ISA or SIPP for emergencies. Say 3 months wages.

Seems the main question is what is your savings for? That will determine what you should do with it.

That said, I think you can improve on your designs.

[MajorProblem]

How fast did you need an FD mortgage? I've sorted mine (as a current FD customer) in less than 6 weeks.

The whole house purchase start to finish is just shy of 8 weeks.

[ringram]

BTW avoid funds, the platform charge as well as the fund charge itself will guarantee you lose money over similar ETF or low cost investment trusts etc.

Unless you can find a provider with no platform charge. (ie) Compare total fee's/costs before deciding.
http://www.moneywise.co.uk/investing/first-time-in...

[Ollerton57]

ringram said:

BTW avoid funds, the platform charge as well as the fund charge itself will guarantee you lose money over similar ETF or low cost investment trusts etc.

Unless you can find a provider with no platform charge. (ie) Compare total fee's/costs before deciding.
http://www.moneywise.co.uk/investing/first-time-in...

I wouldn't avoid funds as a blanket rule. Yes, if the fund is a UK Large Cap and you can use, as mentioned above,a much cheaper ETF tracker. However the OP also wants to invest in a smaller companies fund - this (as well as emerging markets, tech etc.) is where I personally see an advantage in an actively managed fund. Basically I wouldn't avoid funds at any cost as for anything not vanilla, they generally serve their purpose.

[ringram]

Why not Northern VCT's or Baronsmeads etc if you want smaller companies. 30% tax credit with those and all gains tax free.
Cant see the point of funds IMO. I shop on total cost.

I dont think there is any fund which does not have a more lower cost alternate available.

Its a fact that active management does not deliver outperformance in aggregate.

[davepoth]

Silly question OP, but why didn't you just go for a smaller mortgage?

[Edinburger]

ringram said:

BTW avoid funds, the platform charge as well as the fund charge itself will guarantee you lose money over similar ETF or low cost investment trusts etc.

Unless you can find a provider with no platform charge. (ie) Compare total fee's/costs before deciding.
http://www.moneywise.co.uk/investing/first-time-in...

This is absolutely not true for a variety of reasons. No one can say ETFs or ITs will outperform funds (UTs, OEICs, etc).

[Edinburger]

hallion said:

Hi guys,

Due to having to get a mortgage for a new house quickly, I had to leave First Direct and go with the Halifax (First Direct time frame for a new mortgage was weeks longer).

I had £70k of savings offset in my old FD mortgage/savings account which was saving me a lot of mortgage interest and knocking years off the life of the mortgage.

With the Halifax, there is no offset facility so my savings are setting earning nothing at present. My plan is:

1. Move £20k into my Santander 123 current account for 3% interest rate.

2. Move £15k into Fundsmith as an ISA (done quite a lot of reading on this and seems like a good fund).

3. In April 2015 open a new ISA with Hargreaves Lansdown and spread £15k across these funds:

Standard Life UK Equity Unconstrained
Marlborough Multi Cap Income
Schroder UK Dynamic Smaller Companies

4. Put remaining £20k into premium bonds and keep adding more savings into it.

Does this seem like a good way to save/invest my money? BTW, my mortgage is £200k.

Thanks for any advice.

Edited by hallion on Tuesday 30th December 10:43

You're diversifying so that's good. Obviously you should consult an IFA if you want proper researched and regulated advice, but my thoughts on this are as follows:

I'd avoid the premium bonds like the plague
3% on Cash is good return and I assume that's with no constraints on accessing the cash?
Hargreaves Lansdown are excellent but you'll get a cheaper ISA elsewhere - if cost is important to you
Depending on your age and attitude to risk those funds may or may not be appropriate but I can't say from here

Hope that helps.

[Edinburger]

ringram said:

What rate tax do you pay?

SIPP will offer up to 45% tax refund, so depending on what you are saving for is a good option.

That means you get the tax back by the end of this tax year to offset your PAYE.

But the rule of thumb is to pay off the highest interest debt first unless you can exceed the after tax returns elsewhere.

Question then is what is your mortgage interest? If its more than ~1.5% then premium bonds are a waste of time. You are better to reduce the mortgage.

You should also hold a bit outside an ISA or SIPP for emergencies. Say 3 months wages.

Seems the main question is what is your savings for? That will determine what you should do with it.

That said, I think you can improve on your designs.

The SIPP isn't approopriate if he needs access to those monies before he retires.

[BoRED S2upid]

Why not have a mortgage of 150k and do less of the stuff already mentioned.

[ghamer]

I wouldn't sleep at night with a £200k mortgage so I'd be addressing that first.

[gregf40]

ghamer said:

I wouldn't sleep at night with a £200k mortgage so I'd be addressing that first.

I know someone with £100m worth of mortgages - he sleeps just fine at night.

All that matters is your net wealth.

[hallion]

Thanks for the replies guys. The savings are mostly from my part time ecommerce business which has grown a lot more than I anticipated (I work in IT infrastructure for my main job). I'm a higher rate tax payer and my mortgage rate is 4.49% and fixed until 31/12/16. I would be keen to get another offset mortgage once I'm out of the current deal (LTV % will be no problem) so I want to do something with this money until I can move some of it back into the offset account in a couple of years. I'm 32 in February and would like to be mortgage free by 40. I pay 5% into my company pension and my employer matches that. I would like to have easy/penalty free access to the money so don't really want a SIPP yet or pay it directly off the mortgage (which is why I liked the offset account so much).

[gregf40]

LandBay offer an account that pays 3.5% per annum easy access (top on MoneySupermarket's peer to peer instant access loans).

[jeff m2]

The three funds you chose are not the optimum diversification, while they may be decent funds (moderate exp, good manager tenure) I think you need open your horizons a little.
A small cap fund can be very hit and miss, joining at this time wirh the markets moderately high may not be wise.
I would maybe increase the Fundsmith then look at diversifying out of UK with the remaining. Possibly a Global or European, yes I know Europe has a few problems at present, but to be part of a recovery is better than being part of a slide.
I personally would take a commodity or Latin fund over small caps. Oil and Iron ore so beaten down by oversupply and the strong Dollar could be good place for few percent.

Nobody seems to know how long the oil price will remain low, Russia just did a deal China that will likely prolong the low price, but by 2016 I'm sure (Guess) Iran and Iraq may vote differently on quotas.

Not always wise to go with what's hot, I like 10 - 15% on what's not, but that's me. Everyone needs to decide on their risk/reward ratio in an effort to maintain value. (beat inflation and a bit extra for the year you don't))

[Edinburger]

gregf40 said:

ghamer said:

I wouldn't sleep at night with a £200k mortgage so I'd be addressing that first.

I know someone with £100m worth of mortgages - he sleeps just fine at night.

All that matters is your net wealth.

True. And if your assets can outperform the cost of debts, it is often the right thing to do.

[ringram]

Edinburger said:

This is absolutely not true for a variety of reasons. No one can say ETFs or ITs will outperform funds (UTs, OEICs, etc).

Really!? Many many studies have proven active funds under perform. Perhaps you can list these "variety" of reasons.

Unless you are talking of passive funds, in which case fee's are important! In fact its fee's that determine the performance..

This is just one such article http://www.ft.com/cms/s/0/4b9840c0-7a42-11e4-a8e1-...

And another.. http://www.zerohedge.com/news/2013-04-29/wall-stre...

Finally fee's determine performance http://awealthofcommonsense.com/costs-matter/ "Multiple studies over the years have proven that cost is one of the major determinants of investment performance over the long-term."

[Edinburger]

ringram said:

Edinburger said:

This is absolutely not true for a variety of reasons. No one can say ETFs or ITs will outperform funds (UTs, OEICs, etc).

Really!? Many many studies have proven active funds under perform. Perhaps you can list these "variety" of reasons.

Unless you are talking of passive funds, in which case fee's are important! In fact its fee's that determine the performance..

This is just one such article http://www.ft.com/cms/s/0/4b9840c0-7a42-11e4-a8e1-...

And another.. http://www.zerohedge.com/news/2013-04-29/wall-stre...

Finally fee's determine performance http://awealthofcommonsense.com/costs-matter/ "Multiple studies over the years have proven that cost is one of the major determinants of investment performance over the long-term."

Fees are obviously one factor which impact performance, but there are many thousands of funds spanning different asset classes and you cannot just say that say that ETFs/ITs will outperform Funds. Some will outperform some funds, some funds will outperform ETFs/ITs.

If you buy funds, ETFs, ITs, etc., through a platform then you'll usually pay less than going direct as platforms have significant buying power so can negotiate prices right down.

At the end of the day there are a lot of factors to be considered as well as cost v perfomance.

[ringram]

Well seeing as nobody can predict the future. And one thing you can predict is cost.

Simply cost is a major determinant of performance. So why exclude the one thing you can control from your portfolio!?

https://personal.vanguard.com/us/insights/investin...

So yes accepted you have a diversified portfolio with good asset allocation, I strongly believe you should then select the investment based on cost. As performance has already been determined by your asset allocation. To argue otherwise suggests misunderstanding the facts to me.

I accept we may be saying the same thing from different angles. But just want to be sure.

This then suggests that on HL funds are not what you should be looking at IMO.