£500 a month to save & invest - best way to split
Discussion
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hstewie said:
hstewie said: Not that nobody should bother but that the average investor probably shouldn't and should just stick to a cheap simple diversified investment like a tracker or a suitable multi-asset fund.
Turn it around for a moment.
Why aren't you average?
What's your edge?
Agreed.Turn it around for a moment.
Why aren't you average?
What's your edge?
I myself made the mistake. I did all the reading, I thought I knew better, I bought single stocks and I enjoyed the idea that I was “investing”.
I had some winners - felt good, I had some losers, that felt bad. On average, I was up a good few percent. Clever me eh!
But after a few years it was quite clear to me that I couldn’t beat the market. I’d have been better off with less risk just buying the index - set and forget.
In some ways, it’s a rite of passage. Everyone wants to believe they are smarter in some way when they discover the investment idea, but when the highly paid professionals can’t even beat the market long term, what the hell chance does an amateur have (even if they dedicate hours a day to it).
The good thing about these 'nothing to pay, everything is awesome' trading companies is that while you are doing your actual investing with a proper firm you can sling some beer tokens at having a punt to satiate that appetite. In the past the minimum bet sizes of spreadbets and CFDs made it impossible to go punting with small sums but the new generation of brokers are built around $50 developing markets punters not £5000 ones. What you have to be careful of though is the social media rabbit holes and those brokers themselves where everything is focussed towards getting people to go all in on their bets. So long as you have proven to yourself that you have the self control that the worst gamblers lack then you can use these firms to good advantage, if only for the fun.
To the OP. I am fairly risk averse so any income I had left over each month I would split into thirds
1. Pension contributions
2. Mortgage overpayments
3. Having fun
Hindsight is wonderful, but this has worked well for me. I never really saw the point of an ISA once you have a few months pay stashed away.
1. Pension contributions
2. Mortgage overpayments
3. Having fun
Hindsight is wonderful, but this has worked well for me. I never really saw the point of an ISA once you have a few months pay stashed away.
mike9009 said:
To the OP. I am fairly risk averse so any income I had left over each month I would split into thirds
1. Pension contributions
2. Mortgage overpayments
3. Having fun
Hindsight is wonderful, but this has worked well for me. I never really saw the point of an ISA once you have a few months pay stashed away.
If the goal is to grow wealth for the long term then surely doing 2 rather than investing that money will leave them quite a bit worse off.1. Pension contributions
2. Mortgage overpayments
3. Having fun
Hindsight is wonderful, but this has worked well for me. I never really saw the point of an ISA once you have a few months pay stashed away.
durbster said:
mike9009 said:
2. Mortgage overpayments
If the goal is to grow wealth for the long term then surely doing 2 rather than investing that money will leave them quite a bit worse off.But part of it comes from the constant barrage of media going on about house prices going up, being too high, and at record levels etc. - yet conveniently ignoring inflation…..
Because of this, people have assumed that houses are the “best” investment that they can make.
But when you look at it closely and factor in inflation, it’s not at all true - house prices haven’t actually gone up much above inflation for quite a long time. And you’d have been much better off investing rather than paying off the mortgage since 2008 for example.
That said, it takes a strong constitution to ride the investment downs whilst sitting on a big ol mortgage.
No CGT on main residence and obviously most people are also leveraged so it isn’t always quite as simple as comparing to equities I feel.
To ignore ISA is a person decision but they’re the crown jewel in my portfolio in my mind. No tax ever and no LTA, no restriction on access, and hopefully far less gov meddling - unlike pensions.
To ignore ISA is a person decision but they’re the crown jewel in my portfolio in my mind. No tax ever and no LTA, no restriction on access, and hopefully far less gov meddling - unlike pensions.
okgo said:
No CGT on main residence and obviously most people are also leveraged so it isn’t always quite as simple as comparing to equities I feel.
To ignore ISA is a person decision but they’re the crown jewel in my portfolio in my mind. No tax ever and no LTA, no restriction on access, and hopefully far less gov meddling - unlike pensions.
Completely agree but it goes back to the point you’ve made before; you need discipline and we can see fewer and fewer sections of society seem to have that trait. For those that don’t, far better to see them lock the money away in a pension or overpay their mortgage than to be faced with a monthly ISA update with a devil on the shoulder whispering in their ear anytime something shiny catches their eye. To ignore ISA is a person decision but they’re the crown jewel in my portfolio in my mind. No tax ever and no LTA, no restriction on access, and hopefully far less gov meddling - unlike pensions.
Yup. The reason there is, in the U.K., this base level financial advice to pay down the mortgage is because it is the simplest, easiest and safest bit of generic, one size all bit of advice that can be given.
The individual has an income and also has a massive debt that is several multiples of that income. I'm really simple terms, that massive debt is to be paid down and cleared by that income and the faster you do so the less it costs you when the bubble consists of just those two things.
What we also know is that very, very few people have the discipline to deviate away from that simple plan and prosper. It doesn't matter how many times people go on about investing elsewhere for superior terms, on almost every occasion the punter releasing that classic remark into society is shopping and gambling his nuts off and believing that if he tells enough people that he is investing for alpha then he might be able to believe his own bullst.
Those who are capable of actually investing separately, doing so properly and normally, who won't go and buy a car or go on some princess shopping spree with the savings can very much create a long term wealth pool that is separate from the mortgage. You're still technically 'paying down' that mortgage like it were an offset but you aren't giving that capital to the mortgage lender every month but putting it elsewhere to pay off the mortgage in lumps later.
But for most people, giving that monthly excess to the mortgage lender is better as that money has then gone and with it the temptation to get a new handbag, holiday, car, kitchen, teeth or hair implants etc.
My view as to when the generic advice to just pay down the mortgage is always wrong is when the mortgage holder has no wealth buffer, just an income and a mortgage. When those are the only two things a person has they must focus on creating the wealth buffer first so as to derisk their life as quickly as possible. That buffer simply needs to be in the size of a years worth of net income or a fresh home deposit and needs to be stored as an easily available cash or cash equivalent. If an adult can't even achieve that but instead rents a new car, rents a load of stuff for the home, generally goes shopping at the most important point in their life to be saving because this is the moment they are at the highest risk of a financially life changing moment then advising them to pay down the mortgage directly so that money has gone and can't be got back is the simplest and best advice.
If someone does have the ability to build back that buffer then they probably fall into the really tiny niche of people who have no need to pay down the mortgage directly but can just invest low risk and tax efficiently alongside that debt obligation and play the two off against each other.
If you want to go gambling for alpha, that's fine. I absolutely love a spot of gambling, you don't use the savings pot you use the shopping money because gambling isn't investing, regardless of how many times my profession of financial gambling will insist on trying to claim it is some form of investing, it's just another form of shopping. You're doing nothing more than buying something for personal gratification so just use the money from your shopping account not one's investment pool which isn't for shopping yet, it's for shopping when all employers have told you to go away sometime after turning 50.
The individual has an income and also has a massive debt that is several multiples of that income. I'm really simple terms, that massive debt is to be paid down and cleared by that income and the faster you do so the less it costs you when the bubble consists of just those two things.
What we also know is that very, very few people have the discipline to deviate away from that simple plan and prosper. It doesn't matter how many times people go on about investing elsewhere for superior terms, on almost every occasion the punter releasing that classic remark into society is shopping and gambling his nuts off and believing that if he tells enough people that he is investing for alpha then he might be able to believe his own bulls
t. Those who are capable of actually investing separately, doing so properly and normally, who won't go and buy a car or go on some princess shopping spree with the savings can very much create a long term wealth pool that is separate from the mortgage. You're still technically 'paying down' that mortgage like it were an offset but you aren't giving that capital to the mortgage lender every month but putting it elsewhere to pay off the mortgage in lumps later.
But for most people, giving that monthly excess to the mortgage lender is better as that money has then gone and with it the temptation to get a new handbag, holiday, car, kitchen, teeth or hair implants etc.
My view as to when the generic advice to just pay down the mortgage is always wrong is when the mortgage holder has no wealth buffer, just an income and a mortgage. When those are the only two things a person has they must focus on creating the wealth buffer first so as to derisk their life as quickly as possible. That buffer simply needs to be in the size of a years worth of net income or a fresh home deposit and needs to be stored as an easily available cash or cash equivalent. If an adult can't even achieve that but instead rents a new car, rents a load of stuff for the home, generally goes shopping at the most important point in their life to be saving because this is the moment they are at the highest risk of a financially life changing moment then advising them to pay down the mortgage directly so that money has gone and can't be got back is the simplest and best advice.
If someone does have the ability to build back that buffer then they probably fall into the really tiny niche of people who have no need to pay down the mortgage directly but can just invest low risk and tax efficiently alongside that debt obligation and play the two off against each other.
If you want to go gambling for alpha, that's fine. I absolutely love a spot of gambling, you don't use the savings pot you use the shopping money because gambling isn't investing, regardless of how many times my profession of financial gambling will insist on trying to claim it is some form of investing, it's just another form of shopping. You're doing nothing more than buying something for personal gratification so just use the money from your shopping account not one's investment pool which isn't for shopping yet, it's for shopping when all employers have told you to go away sometime after turning 50.
Shnozz said:
Completely agree but it goes back to the point you’ve made before; you need discipline and we can see fewer and fewer sections of society seem to have that trait. For those that don’t, far better to see them lock the money away in a pension or overpay their mortgage than to be faced with a monthly ISA update with a devil on the shoulder whispering in their ear anytime something shiny catches their eye.
Can’t really say anything that wasn’t said by Da above there. I think you’re both right, most well paid folk I know are determined in one way or the other to snatch defeat from the jaws of victory. My wife would probably use our ISA to pay off the mortgage if I wasn’t around, despite the fact our rate is 1.8%
One of the major issues and risks for younger adults is that it is perfectly natural to have no wealth at that age which means there is no real access to quality investment advice and they are left to the mercy of free services such as the internet which inevitably steers folk into punting as those are the services which can make money from people with little money. There is an enormous skew between the services available for those who have achieved wealth of some form, which is most often merely a function of time and those who are starting out on their journey. If we were to reshape anything in the U.K. then given that the U.K. benefits from more people succeeding to create wealth than it does from young people failing, the U.K. should arguably pay for these people to have free access to non profitable investment advice. There ought to be a State financed IFA service for those below a certain wealth threshold rather than leaving them to the mercy of services which can make a profit from serving those with low wealth. As this would be a rich client pool for the larger investment houses there is no reason why they couldn't pay for it either. It's certainly in their long term interests to create as many 40+ year olds with sufficient wealth to be their clients.
DonkeyApple said:
One of the major issues and risks for younger adults is that it is perfectly natural to have no wealth at that age which means there is no real access to quality investment advice and they are left to the mercy of free services such as the internet which inevitably steers folk into punting as those are the services which can make money from people with little money. There is an enormous skew between the services available for those who have achieved wealth of some form, which is most often merely a function of time and those who are starting out on their journey. If we were to reshape anything in the U.K. then given that the U.K. benefits from more people succeeding to create wealth than it does from young people failing, the U.K. should arguably pay for these people to have free access to non profitable investment advice. There ought to be a State financed IFA service for those below a certain wealth threshold rather than leaving them to the mercy of services which can make a profit from serving those with low wealth. As this would be a rich client pool for the larger investment houses there is no reason why they couldn't pay for it either. It's certainly in their long term interests to create as many 40+ year olds with sufficient wealth to be their clients.
I think this is sort of beginning to happen with the likes of Blackrock offering proper investment products on services like Transferwise.The idea of a state funded IFA is nice but who is going to offer it? Firms like SJP? Youd be better off with gambling.
CLK-GTR said:
I think this is sort of beginning to happen with the likes of Blackrock offering proper investment products on services like Transferwise.
The idea of a state funded IFA is nice but who is going to offer it? Firms like SJP? Youd be better off with gambling.
Yup, knowing how govts work it would end up be an SJP white label. The idea of a state funded IFA is nice but who is going to offer it? Firms like SJP? Youd be better off with gambling.
The issue with digital wealth products is that a firm needs to be of a certain standing to not need to make revenue immediately from their customers. The majority of digital wealth management services are lost leaders to hook in customers which you then actively funnel into your profitable business which is usually some form of gambling product masquerading as investment. But even quality digital advice isn't really quality personal advice but a series of one size fits all static calcs. Better than nothing but not ideal. I've consulted on several digital wealth platforms over the years and they're all seen as sales funnels internally as opposed to end products.
YorkshireStu said:
I’ve not been picking my own stocks for very long but I’m now trading with the profits of profits made last year! My current Portfolio since January this year is nearly 16% up and nudging £90k now on what Seeking Alpha, Delta etc suggest are currently relatively low risk Stocks.
The thing is, a rising tide lifts all boats. It's not been hard to be up, quite materially, this year - markets are on a roll. Don't take that as validation of any stock picking edge you may believe you/your broker/commentators you follow have. If I was in OP's shoes, whatever amount I was thinking of investing monthly would be in a global tracker ETF - something like iShares Core World Equity £ - either hedged or unhedged, through a reputable platform that offers discounted dealing costs if via a monthly plan, ie Hargreaves Lansdown, and wrapped in an ISA. It's very low cost, the monthly plan averages the entry prices and there's no concerns about the money disappearing into some black hole.
Just digging into the mortgage vs savings chat, our fixed rate ends this year so I thought I'd build a little tool for myself so I can compare paying off the mortgage vs fixed rate saving vs investing. I'm actually quite shocked at the numbers.
According to my control data, a £200k mortgage at 4% over 15 years will cost £66,287 in interest.
Rather than paying off the mortgage, if you put that £200k into a fixed rate savings account that was also 4% it would return £160,189 in interest over the same period (including compounding).
In other words putting it into no-risk, fixed-rate savings you'd be £93,901 better off at the end of the 15 years. It's quite a difference.
If you risked it and managed to achieve the oft-stated 7% return from the stock market, that £200k would return £351,806. You'd end up £285,519 better off than paying off the mortgage!
Does that look right or have I borked my calculations?
According to my control data, a £200k mortgage at 4% over 15 years will cost £66,287 in interest.
Rather than paying off the mortgage, if you put that £200k into a fixed rate savings account that was also 4% it would return £160,189 in interest over the same period (including compounding).
In other words putting it into no-risk, fixed-rate savings you'd be £93,901 better off at the end of the 15 years. It's quite a difference.
If you risked it and managed to achieve the oft-stated 7% return from the stock market, that £200k would return £351,806. You'd end up £285,519 better off than paying off the mortgage!
Does that look right or have I borked my calculations?
CLK-GTR said:
I think this is sort of beginning to happen with the likes of Blackrock offering proper investment products on services like Transferwise.
The idea of a state funded IFA is nice but who is going to offer it? Firms like SJP? Youd be better off with gambling.
To be honest I don't even think most people need an IFA.The idea of a state funded IFA is nice but who is going to offer it? Firms like SJP? Youd be better off with gambling.
Think how many threads you see on here where they'll probably be fine if they just go an open a Vanguard account and chuck spare cash in an ISA.
They don't need planning they don't know where to even start.
Colonel Cupcake said:
I might be blind but I cannot see where you are getting 200k to invest.
The bank may lend you 200k to buy a house but not to invest, I assume. Plus, you still need somewhere to live.
Err yeah sorry, I got carried away playing around with the numbers and forgot the context of the thread. That was the most extreme scenario where you are in a position to either pay off the whole mortgage or invest the same amount. The bank may lend you 200k to buy a house but not to invest, I assume. Plus, you still need somewhere to live.
Just to round up the point though, it seems the switchover for that scenario figures is around £80k so if you found that down the back of the sofa, it'd be neglible to do one or the other. More than that and it's better off invested. Fixed savings are realistically more like 5% at the moment and in that case, the threshold comes down to around £62k.
I'm going to go back and build the thing I started before getting distracted, which was to compare the difference in monthly payments.
bhstewie said:
hstewie said: To be honest I don't even think most people need an IFA.
Think how many threads you see on here where they'll probably be fine if they just go an open a Vanguard account and chuck spare cash in an ISA.
They don't need planning they don't know where to even start.
That's the idea behind the UKPF flowchart - for many people, they can follow it and get a good enough answer to get them started..Think how many threads you see on here where they'll probably be fine if they just go an open a Vanguard account and chuck spare cash in an ISA.
They don't need planning they don't know where to even start.
DonkeyApple said:
Yup, knowing how govts work it would end up be an SJP white label.
The issue with digital wealth products is that a firm needs to be of a certain standing to not need to make revenue immediately from their customers. The majority of digital wealth management services are lost leaders to hook in customers which you then actively funnel into your profitable business which is usually some form of gambling product masquerading as investment. But even quality digital advice isn't really quality personal advice but a series of one size fits all static calcs. Better than nothing but not ideal. I've consulted on several digital wealth platforms over the years and they're all seen as sales funnels internally as opposed to end products.
But is it better to shove your money with an IFA or an active manager charging 2% pa to put your money in a FTSE index tracker? I don't think so.The issue with digital wealth products is that a firm needs to be of a certain standing to not need to make revenue immediately from their customers. The majority of digital wealth management services are lost leaders to hook in customers which you then actively funnel into your profitable business which is usually some form of gambling product masquerading as investment. But even quality digital advice isn't really quality personal advice but a series of one size fits all static calcs. Better than nothing but not ideal. I've consulted on several digital wealth platforms over the years and they're all seen as sales funnels internally as opposed to end products.
If you can get into a family office or private bank with bespoke advice then great, for everybody else I think a robo adviser is going to give you a better service. The mid tier of wealth services are taking a real hammering and rightly so. They offer little additional value for their chunky fees.
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