ISA etc for an idiot...
Discussion
Have come into a small pot of cash (sub 10k)
What do I do with it? (don't want to pay off off my mortgage)
ISA? Peer to peer thing like Zopa?
Happy to put it in for a few years as long as I can get it out in an emergency.
Other than I'm utterly clueless where to start as I've never had savings previously.
What do I do with it? (don't want to pay off off my mortgage)
ISA? Peer to peer thing like Zopa?
Happy to put it in for a few years as long as I can get it out in an emergency.
Other than I'm utterly clueless where to start as I've never had savings previously.
Edited by DuraAce on Wednesday 1st May 07:48
A couple of points that require consideration before making a decision:
1. How long is a "few years"? A couple? 5? Or 10+?
2. Define "Emergency"? Emergency funds should really be placed in a very liquid asset with next to no / little risk to capital e.g. cash, or Govt bonds.
3. Do not invest in P2P - this investment breaks your fundamental rules re: need easy access, because you're loaning money for an agreed timescale. A couple of more reasons to not to invest in P2P are because credit rates are generally low - compared to default rates - and if the economy tightens, default rates increase. Are you adequately compensated - based upon current rates - compared to default risk?
Determine what proportion of your £10k is really needed for emergency funds. Put into a cash ISA (cash fund), and consider putting the remainder into a S&S [Stocks & Shares] ISA (passive global index fund 50% global equities / 50% Govt bonds - accumulation, so that dividends are automatically re-invested) that has a low Total Expense Ratio [TER].You could go 100% global equities, but general asset allocation theory discussions focus around a minimum 25% Govt bond allocation and a maximum 75% equitiy allocation (you can swap the proportions around within this range e.g. 75% bonds / 25% equities, 50% / 50%, etc).
You can generally get money out of the large, liquid funds fairly easily - however, there is always the risk that when you'll need the money, the fund price may be at a lower price than the price that you paid (loss). Hence, why I suggested dividing your allocation between emergency fund (little to no capital risk with easy access) and non-emergency (degree of capital risk with easy access).
What hasn't been discussed, and I feel there needs to be a more indepth conversation, is an appreciation of financial literacy (understanding basic concepts) and investor psychology (how people react to events). In bull markets, there is a general appetite for 'riskier' investments e.g. equities, but the lack of financial literacy sees investors lnvest in schemes that are a hell of a lot riskier than the investor imagined c.f. LCF mini-bonds scandal In bear markets, there is a wave of panic as portfolios lose money and investors start selling everything inc. the kitchen sink - even if pursuing an investment strategy that is designed to work in both a bull and bear market (regular contributions to a passive index fund).
Although I have advocated an approach, it is better if you spend a little bit of time gaining basic financial literacy so that you understand the pros and cons of an approach, and feel more comfortable in understanding and evaluation what the real risks are. The 'Investing 101' tutorial on Investopedia is not a bad place to start, as is Monevator. Hopefully, other posters will contribute with some basic investment books to start with - you do not need to delve into buying a copy of 'Security Analysis!
Cheers!
1. How long is a "few years"? A couple? 5? Or 10+?
2. Define "Emergency"? Emergency funds should really be placed in a very liquid asset with next to no / little risk to capital e.g. cash, or Govt bonds.
3. Do not invest in P2P - this investment breaks your fundamental rules re: need easy access, because you're loaning money for an agreed timescale. A couple of more reasons to not to invest in P2P are because credit rates are generally low - compared to default rates - and if the economy tightens, default rates increase. Are you adequately compensated - based upon current rates - compared to default risk?
Determine what proportion of your £10k is really needed for emergency funds. Put into a cash ISA (cash fund), and consider putting the remainder into a S&S [Stocks & Shares] ISA (passive global index fund 50% global equities / 50% Govt bonds - accumulation, so that dividends are automatically re-invested) that has a low Total Expense Ratio [TER].You could go 100% global equities, but general asset allocation theory discussions focus around a minimum 25% Govt bond allocation and a maximum 75% equitiy allocation (you can swap the proportions around within this range e.g. 75% bonds / 25% equities, 50% / 50%, etc).
You can generally get money out of the large, liquid funds fairly easily - however, there is always the risk that when you'll need the money, the fund price may be at a lower price than the price that you paid (loss). Hence, why I suggested dividing your allocation between emergency fund (little to no capital risk with easy access) and non-emergency (degree of capital risk with easy access).
What hasn't been discussed, and I feel there needs to be a more indepth conversation, is an appreciation of financial literacy (understanding basic concepts) and investor psychology (how people react to events). In bull markets, there is a general appetite for 'riskier' investments e.g. equities, but the lack of financial literacy sees investors lnvest in schemes that are a hell of a lot riskier than the investor imagined c.f. LCF mini-bonds scandal In bear markets, there is a wave of panic as portfolios lose money and investors start selling everything inc. the kitchen sink - even if pursuing an investment strategy that is designed to work in both a bull and bear market (regular contributions to a passive index fund).
Although I have advocated an approach, it is better if you spend a little bit of time gaining basic financial literacy so that you understand the pros and cons of an approach, and feel more comfortable in understanding and evaluation what the real risks are. The 'Investing 101' tutorial on Investopedia is not a bad place to start, as is Monevator. Hopefully, other posters will contribute with some basic investment books to start with - you do not need to delve into buying a copy of 'Security Analysis!
Cheers!
DuraAce said:
Have come into a small pot of cash (sub 10k)
What do I do with it? (don't want to pay off off my mortgage)
ISA? Peer to peer thing like Zopa?
Happy to put it in for a few years as long as I can get it out in an emergency.
Other than I'm utterly clueless where to start as I've never had savings previously.
If you have money available to save/invest and are looking at a cash/S&S ISA you are not an idiot! What do I do with it? (don't want to pay off off my mortgage)
ISA? Peer to peer thing like Zopa?
Happy to put it in for a few years as long as I can get it out in an emergency.
Other than I'm utterly clueless where to start as I've never had savings previously.
Edited by DuraAce on Wednesday 1st May 07:48
Forget Zopa and the likes (you take all the risk, they take most of the reward).
I would reconsider paying off your (or part of your) mortgage early. This carries no risk and adds to your financial security.
I wouldn't personally go for a cash ISA, you will lose money to inflation every year at current rates.
A S&S ISA is also only a good idea if you have 5 years minimum to invest. You can, of course, go for a shorter term by investing in gilts and bonds within one.
Equally, have a look at NS&I products.
To give a better answer more info is needed though.
Cheers
Julian
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