Intelligent Money - your investment questions answered
Discussion
Julian et al,
First time contribution to this thread but have just started looking at online ISAs and know I can find some help over here. I don't currently have a lump sum to invest but will be looking to start making regular investment contributions in the near future. Have just looked at the employee share contributions that I've been making over the past few years and regretting not doing something more sensible like this sooner.
My question for now is, would I be better off with one of your funds vs. an online provider eg. Nutmeg etc. in terms of fees?
First time contribution to this thread but have just started looking at online ISAs and know I can find some help over here. I don't currently have a lump sum to invest but will be looking to start making regular investment contributions in the near future. Have just looked at the employee share contributions that I've been making over the past few years and regretting not doing something more sensible like this sooner.
My question for now is, would I be better off with one of your funds vs. an online provider eg. Nutmeg etc. in terms of fees?
Phillippe Lambert said:
Julian,
Many thanks, definitely some things to chew on there, and I do agree, the situation could be a lot worse, so for that I am thankful! Happy to cover the options here, as you say it might help someone else as ignorant as me!
Re: the other questions you raised, I am not married (yet) and no kids (yet) - I'm sure both of these will come along in the next five years or so though. I have a mortgage with my partner, which started last September on a 30-something year term (off the top of my head I would say 32 years remaining).
Interesting comments with regards to the additional employer contributions - I don't imagine this is something they would do, however is there any benefit in it for them?
The pension vs. ISA was one of the things that I couldn't quite get my head around, although it sounds like I might have had it about right. As a basic rate tax-payer I would obviously pay no tax on growth in an ISA; my rationale though was that by contributing to a pension I would be gaining by the additional 20% top-up from HMRC, giving a larger pot to grow? I appreciate I would then pay the tax back when I came to take the income later in life, but thought that this would be in effect somewhat mitigated by having had the benefit of the additional 20% compounding over the years. Is that just bad maths? Given that, is there any point at all in me paying into a pension outside of my workplace one, or would I be better off solely using my ISA?
I'd be happy to move the other funds over into an ISA, as I say I think they could be doing better for me. They would obviously need to be drip-fed in over the next 7 years or so, unless the rules change... How easy/difficult is it to do this, would they need to be sold and then re-invested, or can the holding be transferred into an ISA, then the money spread about appropriately?
More questions I'm afraid, as you can may be able to tell, this isn't my specialist subject! Thanks for your help thus far though.
James
Hi JamesMany thanks, definitely some things to chew on there, and I do agree, the situation could be a lot worse, so for that I am thankful! Happy to cover the options here, as you say it might help someone else as ignorant as me!
Re: the other questions you raised, I am not married (yet) and no kids (yet) - I'm sure both of these will come along in the next five years or so though. I have a mortgage with my partner, which started last September on a 30-something year term (off the top of my head I would say 32 years remaining).
Interesting comments with regards to the additional employer contributions - I don't imagine this is something they would do, however is there any benefit in it for them?
The pension vs. ISA was one of the things that I couldn't quite get my head around, although it sounds like I might have had it about right. As a basic rate tax-payer I would obviously pay no tax on growth in an ISA; my rationale though was that by contributing to a pension I would be gaining by the additional 20% top-up from HMRC, giving a larger pot to grow? I appreciate I would then pay the tax back when I came to take the income later in life, but thought that this would be in effect somewhat mitigated by having had the benefit of the additional 20% compounding over the years. Is that just bad maths? Given that, is there any point at all in me paying into a pension outside of my workplace one, or would I be better off solely using my ISA?
I'd be happy to move the other funds over into an ISA, as I say I think they could be doing better for me. They would obviously need to be drip-fed in over the next 7 years or so, unless the rules change... How easy/difficult is it to do this, would they need to be sold and then re-invested, or can the holding be transferred into an ISA, then the money spread about appropriately?
More questions I'm afraid, as you can may be able to tell, this isn't my specialist subject! Thanks for your help thus far though.
James
There is a balance as whether to use money to pay off the mortgage outweighs investing it for potentially higher future returns. This is not a straightforward, though we can easily work through it.
Pension vs ISA is more straight forward. As a basic rate taxpayer it will only cost you £80 for every £100 placed into your pension. If you remain a basic rate taxpayer in retirement it will only cost you £15 per £100 you draw out in retirement. So you are up, the question is, is it worth the 5% saving to lock this money away until 10 years before the state retirement age?
I would say it is, as it give you the discipline to use this money for its original purpose only.
Of course, if you have pension income in retirement that is within the future personal allowance band, then you have got around income tax altogether on this money, so are laughing.
The reality may be a bit of each.
You have also hit upon an important point that many miss. The basic rate tax relief on pension contributions gives you a 25% uplift straight away. This means you have more money working against inflation every year. That is good maths!
Yes, it will take time to move everything into a tax free position, but more like 3 years rather than 7 (if you use a combination of both tax wrappers).
Keep on asking the questions and please pick me up if I miss answering any of them!
jonnydm said:
Julian et al,
First time contribution to this thread but have just started looking at online ISAs and know I can find some help over here. I don't currently have a lump sum to invest but will be looking to start making regular investment contributions in the near future. Have just looked at the employee share contributions that I've been making over the past few years and regretting not doing something more sensible like this sooner.
My question for now is, would I be better off with one of your funds vs. an online provider eg. Nutmeg etc. in terms of fees?
Hi JonnyFirst time contribution to this thread but have just started looking at online ISAs and know I can find some help over here. I don't currently have a lump sum to invest but will be looking to start making regular investment contributions in the near future. Have just looked at the employee share contributions that I've been making over the past few years and regretting not doing something more sensible like this sooner.
My question for now is, would I be better off with one of your funds vs. an online provider eg. Nutmeg etc. in terms of fees?
Firstly, we are an online provider!
We just also give you a named individual who will work with you over the years to ensure you always make informed decisions. Nutmeg do not do this.
Finally, you have to add up points 1 & 2 to decide upon this!
If you don't want/need someone to assist you in your financial planning then for a simple ISA investment then I wouldn't use Nutmeg.
I would use Vanguard.
I would also advise against using IM Optimum - unless you want a human at the wheel when the water becomes choppy. Equally, if you just want to track the world (with different degrees of bond exposure) then IM is about to launch portfolios that would have have seriously outperformed Vanguard LS in doing this.
So, I can't tell you if you would be better off using IM or someone else.
Or investment returns have be much better than Nutmeg's, but not quite as good as Vanguard's over certain years.
This is unexpected with Nutmeg, but completely expected with Vanguard during a bull market.
IM Index would have wiped the floor with both though.
That you actually have a named human who is qualified and experienced in assisting you with all of your financial planning is something neither of them offer.
Please ask a few more questions and I will be able to be more helpful!
Cheers
Julian
Sorry, just read this back.
I had just come back from the dentist and been put on antibiotics for an abscess. I hate going to the dentist.
If my last post came across in any way as being unhelpful than I apologise profusely.
Did I mention that I hate going to the dentist.
PS The worse thing is that I can't drink for a couple of weeks now. I was given the choice and the non-drinking ones made more sense in the dentist's chair. I am thinking I made the wrong choice!
To everyone who can!
I had just come back from the dentist and been put on antibiotics for an abscess. I hate going to the dentist.
If my last post came across in any way as being unhelpful than I apologise profusely.
Did I mention that I hate going to the dentist.
PS The worse thing is that I can't drink for a couple of weeks now. I was given the choice and the non-drinking ones made more sense in the dentist's chair. I am thinking I made the wrong choice!
To everyone who can!JulianPH said:
Hi James
There is a balance as whether to use money to pay off the mortgage outweighs investing it for potentially higher future returns. This is not a straightforward, though we can easily work through it.
Pension vs ISA is more straight forward. As a basic rate taxpayer it will only cost you £80 for every £100 placed into your pension. If you remain a basic rate taxpayer in retirement it will only cost you £15 per £100 you draw out in retirement. So you are up, the question is, is it worth the 5% saving to lock this money away until 10 years before the state retirement age?
I would say it is, as it give you the discipline to use this money for its original purpose only.
Of course, if you have pension income in retirement that is within the future personal allowance band, then you have got around income tax altogether on this money, so are laughing.
The reality may be a bit of each.
You have also hit upon an important point that many miss. The basic rate tax relief on pension contributions gives you a 25% uplift straight away. This means you have more money working against inflation every year. That is good maths!
Yes, it will take time to move everything into a tax free position, but more like 3 years rather than 7 (if you use a combination of both tax wrappers).
Keep on asking the questions and please pick me up if I miss answering any of them!
Julian,There is a balance as whether to use money to pay off the mortgage outweighs investing it for potentially higher future returns. This is not a straightforward, though we can easily work through it.
Pension vs ISA is more straight forward. As a basic rate taxpayer it will only cost you £80 for every £100 placed into your pension. If you remain a basic rate taxpayer in retirement it will only cost you £15 per £100 you draw out in retirement. So you are up, the question is, is it worth the 5% saving to lock this money away until 10 years before the state retirement age?
I would say it is, as it give you the discipline to use this money for its original purpose only.
Of course, if you have pension income in retirement that is within the future personal allowance band, then you have got around income tax altogether on this money, so are laughing.
The reality may be a bit of each.
You have also hit upon an important point that many miss. The basic rate tax relief on pension contributions gives you a 25% uplift straight away. This means you have more money working against inflation every year. That is good maths!
Yes, it will take time to move everything into a tax free position, but more like 3 years rather than 7 (if you use a combination of both tax wrappers).
Keep on asking the questions and please pick me up if I miss answering any of them!
Thank you for the further answers, reassuring that my maths was in fact good! I guess in a simplistic world the optimum approach is to masterfully create a pension pot that pays out just enough over 25/30 years to fall within whatever the personal allowance may be in the future, and the rest of a retirement income to come from a well built ISA? I appreciate that is practically impossible to achieve though...
I get your point with regards to potentially paying a lump off the mortgage, my view, rightly or wrongly, is always that I would rather have a lump of "cash" readily available should I need it, rather than more equity in my property. Probably not the right way to look at things, but still.
At the moment the three larger holdings are across two different platforms. Could these all be amalgated under one umbrella with IM, put to better use, and then distributed out over the 3(?) years, depending on the approach that I decided to take?
As I said, I've quite enjoyed the process of mucking around picking funds for my ISA, but my strategy was not that scientific - pick the ones that have had the most growth in the last five years, and some based on reading through this thread and others on here. Perhaps not the best approach for all of my life savings!
Hope the dentist wasn't too mean, I'm on a non-drinking kick at the moment so somewhat feel your pain.
James
jonnydm said:
Not at all unhelpful, the value add is important and will hopefully only grow in that importance over time!
How best to get the ball rolling with yourselves?
Hi Jonnydm, How best to get the ball rolling with yourselves?
You can either go to our private client site :https://www.intelligentmoney.com/private-clients and follow the application process via "apply" on the top right, or if you would like to talk through how we work and our investment approach in more detail drop me a pm at nik.burrows@intelligentmoney.com and we can set up a chat and you can find out if we are right for you,
Nik
Phillippe Lambert said:
I get your point with regards to potentially paying a lump off the mortgage, my view, rightly or wrongly, is always that I would rather have a lump of "cash" readily available should I need it, rather than more equity in my property. Probably not the right way to look at things, but still.
That’s a good idea, to cover the risk of a big bill/losing job and needing to pay mortgage off still etc. The problem is with current interest you’re losing money by doing it as any safe cash will be below inflation now. There is different numbers out there as to how much to have for a rainy day (some say 3-6 months salary). If you’ve done that then rest is probably good to either repay mortgage or invest in something more risky so you can beat inflation. Although it’s also good not to be all in on markets, so you can invest cheaper during a fall. It’s all a balance, and how much risk you are ok with. A single guy with no commitments will probably be more ok with more risk, whereas someone with a big mortgage, kids etc will want to make sure to keep them going fine, at the potential lose of a little profit. NRS said:
That’s a good idea, to cover the risk of a big bill/losing job and needing to pay mortgage off still etc. The problem is with current interest you’re losing money by doing it as any safe cash will be below inflation now. There is different numbers out there as to how much to have for a rainy day (some say 3-6 months salary). If you’ve done that then rest is probably good to either repay mortgage or invest in something more risky so you can beat inflation. Although it’s also good not to be all in on markets, so you can invest cheaper during a fall. It’s all a balance, and how much risk you are ok with. A single guy with no commitments will probably be more ok with more risk, whereas someone with a big mortgage, kids etc will want to make sure to keep them going fine, at the potential lose of a little profit.
Thank you, again valuable input, and I do completely agree with you. I probably should have worded myself better earlier, when I referred to having a lump sum of cash available, a rainy day fund if you will, I do intend to have it invested somewhere so as to try and beat inflation as you say.If this "cash" was invested in an ISA or similar, I would at least have relatively easy access to it if I needed to, whereas by paying off a chunk of the mortgage it is tied up in an asset that would take a minimum of two months to realise, and leave me having to find somewhere else to live!
It's an interesting thought though, and I would be interested to know where the happy medium is between reducing the mortgage vs investing the cash to (hopefully) make a return in excess of the mortgage interest rate. Probably not a simple fag-packet answer to that one though.
Another question about AVCs. My understanding is that you can pay up to an additional 40k a year and can backdate this 3 years if you have not previously used up your allowance.
Is the backdating option a one time event or can it be used multiple times. i.e. Do you get one opportunity at paying in up to 120k or is it on a continuous rolling 3 year basis?
Also does the payment have to be made to a pension you are currently paying in to (current employer one) or can it also be to a deferred one (if you have more than one)?
Is the backdating option a one time event or can it be used multiple times. i.e. Do you get one opportunity at paying in up to 120k or is it on a continuous rolling 3 year basis?
Also does the payment have to be made to a pension you are currently paying in to (current employer one) or can it also be to a deferred one (if you have more than one)?
KTF said:
Another question about AVCs. My understanding is that you can pay up to an additional 40k a year and can backdate this 3 years if you have not previously used up your allowance.
Is the backdating option a one time event or can it be used multiple times. i.e. Do you get one opportunity at paying in up to 120k or is it on a continuous rolling 3 year basis?
Also does the payment have to be made to a pension you are currently paying in to (current employer one) or can it also be to a deferred one (if you have more than one)?
Hi KTF, Is the backdating option a one time event or can it be used multiple times. i.e. Do you get one opportunity at paying in up to 120k or is it on a continuous rolling 3 year basis?
Also does the payment have to be made to a pension you are currently paying in to (current employer one) or can it also be to a deferred one (if you have more than one)?
You can contribute £40k p.a. or 100% of your taxable income, whichever is the lower, in any tax year. This is the total amount that you can contribute so any existing contributions need to be taken into account before making additional payments.
To carry forward previous years unused allowance you must first maximise this years contribution, you can then go back three years and use up any unused allowance from previous years. Carry forward isn't a one time event you can make use of it at any time that you have unused allowances from the previous three years.
You can make the additional payments into any pension plan, so you can contribute to any existing plan you have or you could set up a new one.
I'm happy to take a look at your circumstances and let you know what your options are if that would help. You can PM me at nik.burrows@intelligentmoney.com
Regards
Nik
KTF said:
Thanks Nik. I wasn't sure about the backdating part but its useful to know that it isn't a one time opportunity.
I see the advantage of AVCs but am less keen on the whole 'cant touch it until you retire' aspect on the off chance that the cash is needed in the future.
But the 40% free uplift & IHT advantages are strong factors as well. It's about creating a balance between emergency cash, ISAs & pensions & given you can only stuff £20k in an ISA per year then pensions are a valuable resource for higher rate tax payers.I see the advantage of AVCs but am less keen on the whole 'cant touch it until you retire' aspect on the off chance that the cash is needed in the future.
guywilko said:
Julian
Any plans to float your company?
Guy
Hi GuyAny plans to float your company?
Guy
Absolutely none whatsoever!
We have offers to buy us about 4 times a year, have had private equity companies wanting to take a stake and have been approached regarding handling a flotation, but we are just not interested.
I am the majority shareholder and the other shareholders are all key people within the company. So we are completely privately owned and and view IM as being an extension of ourselves and our personal values.
Were we to float this would become lost in satisfying the demands of external shareholders (quite rightly).
I don't want external downward pressure on staff costs (I believe you should pay people what they are worth, not just what you can get away with) and upward pressure on charges/margins (I believe in adding honest value for all our clients).
I hope that makes sense.
Out of interest, if you don't mind, what made you ask?
Cheers
Julian
Adidas101 said:
Good afternoon
At the age of 45 what should the balance be between putting money into an ISA and a pension account?
I am trying to save some money in case my son decides to go to university, balanced against adding to my pension pot to take in 22 years.
Kindest regards
Adidas 101
Hi Adidas 101At the age of 45 what should the balance be between putting money into an ISA and a pension account?
I am trying to save some money in case my son decides to go to university, balanced against adding to my pension pot to take in 22 years.
Kindest regards
Adidas 101
The balance is up to you and can change each year. For example you may wish to use an ISA to start with (so you have access if you might need it, or you know - as in your case - you are going to need some of it).
You may use a SIPP/pension for money you want to save for retirement (as the tax advantages can be much higher).
A combination of the two approaches (which has already been said) is the best idea.
If I were you I would have a chat with Nik. There is no obligation and all he will do is help you.
Post here or PM me if you prefer.
Cheers
Julian
Phillippe Lambert said:
Thank you, again valuable input, and I do completely agree with you. I probably should have worded myself better earlier, when I referred to having a lump sum of cash available, a rainy day fund if you will, I do intend to have it invested somewhere so as to try and beat inflation as you say.
If this "cash" was invested in an ISA or similar, I would at least have relatively easy access to it if I needed to, whereas by paying off a chunk of the mortgage it is tied up in an asset that would take a minimum of two months to realise, and leave me having to find somewhere else to live!
It's an interesting thought though, and I would be interested to know where the happy medium is between reducing the mortgage vs investing the cash to (hopefully) make a return in excess of the mortgage interest rate. Probably not a simple fag-packet answer to that one though.
I’m not an expert, but risk with having rainy day fund in something that beats inflation is you will have the risk of losing some of it at the time you’re likely to need it most. I.e. if the economy tanks then shares will drop, and it’s probably the time you’re most likely to lose a job due to the downturn. You’d then want your full rainy day fund to help pay the mortgage when you have no job. And of course it’d be harder to get a new one at that time too. I think best thing is to have enough in best savings account as possible, and accept the loss of a bit of it with time, but it covers worst case scenario.If this "cash" was invested in an ISA or similar, I would at least have relatively easy access to it if I needed to, whereas by paying off a chunk of the mortgage it is tied up in an asset that would take a minimum of two months to realise, and leave me having to find somewhere else to live!
It's an interesting thought though, and I would be interested to know where the happy medium is between reducing the mortgage vs investing the cash to (hopefully) make a return in excess of the mortgage interest rate. Probably not a simple fag-packet answer to that one though.
It’s also kinda personality related - if you worry about not having emergency cash then it is perhaps a better investment to feel happy you are safe by having more there. If you’re more of a gambler then you might be happy with less - and often will win, but a few might get burnt if things go badly.
The amount that you hold in an emergency fund is a very personal thing and will vary for a number of reasons, some objective and some subjective the key is coming to a number that you are comfortable with.
It is then a case of remembering what that money is there to do, and growth is typically not its main objective so the rate of return is usually secondary to access and certainly of value.
Having this cash in the right place also allows you to leave other funds to function as you want them to.
Building your investment strategy is often about understanding and remembering that you will have funds in different areas that may have different objectives and not getting too hung up always chasing returns.
Nik
It is then a case of remembering what that money is there to do, and growth is typically not its main objective so the rate of return is usually secondary to access and certainly of value.
Having this cash in the right place also allows you to leave other funds to function as you want them to.
Building your investment strategy is often about understanding and remembering that you will have funds in different areas that may have different objectives and not getting too hung up always chasing returns.
Nik
Nik makes some excellent points here and I would just like to expand on them.
Sometimes getting into to much detail on your emergency reserve cash fund can be counter productive. It should be viewed as part over your overall portfolio.
If you have investments in property (even just your own home), a pension/SIPP and ISAs then when your add cash to this it becomes a much smaller part of your overall assets, each element of which is designed to achieve a specific function.
Whilst your cash element may indeed be losing out to inflation, it is this financial reserve that enables you to make equity investments with other elements and when these are combined your overall position should be a very positive one over the long term.
Understanding what each component of your finances is designed to achieve is all part of successful financial planning (which is not to be confused with financial advice).
This is integral to our Private Client service. It is not just about managing your investments, it is about helping you manage your personal aims and objectives to ensure you fully understand all of these things and get where you want to be.
Nik and his team set out to fully explain all of this and work with each client as much or as little as they require to inform and educate them on the big picture, as well as the individual components, so that they become more knowledgeable and confident going forwards.
Sometimes getting into to much detail on your emergency reserve cash fund can be counter productive. It should be viewed as part over your overall portfolio.
If you have investments in property (even just your own home), a pension/SIPP and ISAs then when your add cash to this it becomes a much smaller part of your overall assets, each element of which is designed to achieve a specific function.
Whilst your cash element may indeed be losing out to inflation, it is this financial reserve that enables you to make equity investments with other elements and when these are combined your overall position should be a very positive one over the long term.
Understanding what each component of your finances is designed to achieve is all part of successful financial planning (which is not to be confused with financial advice).
This is integral to our Private Client service. It is not just about managing your investments, it is about helping you manage your personal aims and objectives to ensure you fully understand all of these things and get where you want to be.
Nik and his team set out to fully explain all of this and work with each client as much or as little as they require to inform and educate them on the big picture, as well as the individual components, so that they become more knowledgeable and confident going forwards.
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