Best prudent financial approach

[johnpsanderson]

I’ve been looking at a few of the threads on here for a while, and know there’s lots of info I could trawl through, so apologies for asking what is possibly a well worn question.

Thinking about future security, what’s the best approach to using the small (in powerfully built Director terms) amount of spare/surplus money i have.

I have a mortgage. Thanks to ongoing overpayments it can be cleared when the current fixed term ends, in about 3 years, the balance is now under 10k and the current rate is under 2%. We don’t plan on moving/upsizing.

I have a bit of money saved up, which ticks the “3 months income if everything goes wrong” box and which is now sitting in Premium Bonds given I have no interest in risking the capital.

I have a defined benefits pension with 17 years in (since I was 21) in the University Superannuation Scheme. It feels like this should do me reasonably well for old age. I pay a little bit each month into an optional defined contributions element, by choice and only for the last couple of years, but the last I looked the value had gone down despite a whole years payments in (CoVID?).

I’m not interested in speculating with high risk, but feel like I probably should be sensible about what I do to maximise what I do. I do pay a bit of higher rate tax.

Any advice welcomed, even if it’s ‘go see an IFA’.

[greygoose]

You could put some money into a tracker fund on a monthly basis, if you are not going to need it for a few years, Vanguard have low costs and are popular.

[covmutley]

How is the mortgage going to take 3 years to pay off 10k?

I would up your pension payments, which should presumably help to avoid the higher rate tax.

[mikeiow]

greygoose said:

You could put some money into a tracker fund on a monthly basis, if you are not going to need it for a few years, Vanguard have low costs and are popular.

I'd agree with this: you have likely 20+ years more work before you might want to be able to retire 'early', so try to spill excess funds into S&S ISAs to give you some tax-free cash you could get your hands on.

Vanguard is certainly decent & super low cost if you go direct, but I would (personally!) suggest being adventurous in your fund choice - go LS80 or LS100 for that length of time.

Equally, my personal preference would be to head to the sticky thread, have a skim, then I would (indeed, did!) open an ISA with those guys - if you like the passive tracker, pick IM80 or IM100, but you could perhaps split that ISA into multiple funds - perhaps pop half (or whatever you like!) into PHEquity - I personally see that as a fund of stocks that ought to pay off handsomely over a 10+ year time horizon.

See the pics I posted this morning on https://www.pistonheads.com/gassing/topic.asp?h=0&... to see what the difference can mean over a longer period (not those specific funds, but ones I have in my work pension).....

Note I have written "personally" 3 times up there. Many people are "risk averse"....lots dump cash into cash ISAs. I see those as simply losing money to inflation every year. I do think an element of "high risk" is entirely appropriate & advisable to people with time horizons of 10+ years, but I am NOT a FA/IFA - they have to do risk assessments, the wording of which I suspect makes people nervous and cautious. Be bold! (personal view )

[Rob_125]

The best tax efficient way would be to increase your pension contributions, however you dont seem entirely convinced they are being invested particularly well. As well as this, pensions will soon lag the state pension by 10 years. So it depends what to want to do.

As above, I started putting money into Vanguard ls60 around 18 months ago, and have seen a real world 10% increase in that time (it is showing as over 20%, as it has been annualised). I did however do some extra buys in the covid dip, which has effectively increased this rate of return. Trustnet.com is really good for comparing funds, although previous performance is not an indicator or future performance.

I'm not sure i would bother with an IFA, especially with smaller sums, there is lots of info online, the IM sticky in this forum is a good place to start.

[anonymous-user]

covmutley said:

How is the mortgage going to take 3 years to pay off 10k?

I bet you can think of a way.

[CubanPete]

covmutley said:

How is the mortgage going to take 3 years to pay off 10k?

RTOP

[Mr Whippy]

USS pensions seem to be a contentious one on the valuation methodology and if they're under/over funded, and if they can meet future needs, and if they need to start changing new member terms or alter contributions etc.

Even a decade ago I remember people protesting at Edinburgh university when USS met there to do their annual get together because of their changes to the scheme benefits.

I'm not sure if that impacts anything, but I'd get a professional to look at the value of it properly and get a really good feel for what you have there vs what you could do for yourself with a separate DC pot.

[CubanPete]

I up the pension contribution to make the most of the higher rate tax relief.

Premium Bonds is one of the best safe Investments for quick ready cash access, and you never know...

Balance in a stocks and share ISA, as mentioned have a look in the IM sticky.

If you want a bit of fun and have a garage, keep have a think about what the next Mk2 escort / 205 Gti might be A couple of £k might give a nice return - This is pistonheads after all!

[cheeky_chops]

covmutley said:

I would up your pension payments, which should presumably help to avoid the higher rate tax.

This. If your not high rate, see if they do salary sacrifice, this removes the 13% NI element so £100 earner is £100 into pension, not £87.

[johnpsanderson]

Thanks everyone for adding the thoughts.
I’ll look at pension in the first instance, potentially even doing something separate to the setup through work, given the mentions above to tax liability I am hoping the pension contributions reduce taxable income even if into a privately setup, rather than employer based, pension?

Premium bonds have already yielded 0.2% after being in for a month, so have beat the ISA they were previously sat in!

Will have a look at the Fund options mentioned. Not something I have any experience with, so some reading to do.

Edit: p.s. the 3 years for the mortgage is primarily to avoid penalty fees for early repayment.