Best way to save/invest for the future?
Discussion
I'll keep it as brief as possible guys, unlike my last £100K thread, this one isn't hypothetical, I've decided that at 27 I really need to get my arse in gear and save properly for the long term. At the end of the day, when I retire, I'd like to be able to rely on some form of income to top up my final salary pension.
The situation I'm in is that I am on a fairly average income, in a flat month with no overtime I could probably afford to save about £200. Although I never become dependant on overtime, I would say that for the last year or two I've had so much of it that I can regularly afford to put away more than that.
Options that I'm considering are:-
The situation I'm in is that I am on a fairly average income, in a flat month with no overtime I could probably afford to save about £200. Although I never become dependant on overtime, I would say that for the last year or two I've had so much of it that I can regularly afford to put away more than that.
Options that I'm considering are:-
- The ubiquitous BTL property, it'll take me a couple of years to get the deposit together and would be purchasing something for about £55K and hoping to let for about £400-£450 per month which is about an 8% return before tax, expenses, void periods etc. I wouldn't pocket the cash but would try to save it or re-invest into the house. I don't own the home that I live in now, but could never afford to buy anything as nice if I had to buy it and so have no interest in trying to buy a house to live in, this seems like a way onto the ladder from how I see it.
- Unit Trust funds - my parents invested gradually in this manner over about 20 years, paying in each month, many of the funds did quite well and earned them a good return. The main advantage I can see is that with this method I could stop paying in if I needed to, or even draw money out if necessary.
- Anything I've missed?
Blue Oval84 said:
I'll keep it as brief as possible guys, unlike my last £100K thread, this one isn't hypothetical, I've decided that at 27 I really need to get my arse in gear and save properly for the long term. At the end of the day, when I retire, I'd like to be able to rely on some form of income to top up my final salary pension.
The situation I'm in is that I am on a fairly average income, in a flat month with no overtime I could probably afford to save about £200. Although I never become dependant on overtime, I would say that for the last year or two I've had so much of it that I can regularly afford to put away more than that.
Options that I'm considering are:-
Well, historically property has been a good investment, but clearly there are risks and ongoing costs, as you point out. Also, if you are only funding the deposiit from savings, then won't the rental income need to be used to fund the mortgage payments??!The situation I'm in is that I am on a fairly average income, in a flat month with no overtime I could probably afford to save about £200. Although I never become dependant on overtime, I would say that for the last year or two I've had so much of it that I can regularly afford to put away more than that.
Options that I'm considering are:-
- The ubiquitous BTL property, it'll take me a couple of years to get the deposit together and would be purchasing something for about £55K and hoping to let for about £400-£450 per month which is about an 8% return before tax, expenses, void periods etc. I wouldn't pocket the cash but would try to save it or re-invest into the house. I don't own the home that I live in now, but could never afford to buy anything as nice if I had to buy it and so have no interest in trying to buy a house to live in, this seems like a way onto the ladder from how I see it.
Blue Oval84 said:
- Unit Trust funds - my parents invested gradually in this manner over about 20 years, paying in each month, many of the funds did quite well and earned them a good return. The main advantage I can see is that with this method I could stop paying in if I needed to, or even draw money out if necessary.
- Anything I've missed?
Sidicks
sidicks said:
Well, historically property has been a good investment, but clearly there are risks and ongoing costs, as you point out. Also, if you are only funding the deposiit from savings, then won't the rental income need to be used to fund the mortgage payments??!
Yeah, the rental income would be used to fund the mortgage, I would however only buy something that was cheap enough that I could afford to pay the mortgage out of my salary during a void period.sidicks said:
If you haven't used your ISA allowance then you should be able to invest in the same underlying investments as a unit trust, but with taxable benefits.
Sidicks
Interesting, I have a mini cash ISA, but that's all. The problem with investing in the underlying investments is that I don't have a bloody clue which ones to invest in! I suppose it's one good way to avoid management fees though!Sidicks
If in it for the long haul, set up a stocks and shares ISA and max out your ISA allowance.
Rollover any dividends into more shares.
Over a long horizon, a portfolio of solid, bluechip equities will outperform other investment classes.
Spread risk over various market sectors (oil/ techs/banks/pharma/agri/mining/energy/green tech), allocate a small part of you fund to higher risk shares (say oil or gold small caps).
Good luck.
Rollover any dividends into more shares.
Over a long horizon, a portfolio of solid, bluechip equities will outperform other investment classes.
Spread risk over various market sectors (oil/ techs/banks/pharma/agri/mining/energy/green tech), allocate a small part of you fund to higher risk shares (say oil or gold small caps).
Good luck.
Blue,
Get the basics right before you start looking at where to chuck a few hundred quid each month. Do you own or rent, and how much are your mortgage payments? Do you have expensive credit card debt? Consider getting rid of pricy debt before saving and investing at a time when returns are volatile and uncertain. Consider proper insurance too; there is no point in investing like mad and having no financial top cover for the day when some twonk in a Volvo slaps into you, leaving you potentially unemployable and reliant on state benefits.
Do you have kids, and/or are you getting married? If you're a bog standard tax rate payer, ISA and the rest of it will allow you liquidity and the chance to build up funds before transferring it into a pension later on, when you're a higher rate taxpayer and can get more tax relief (who knows what the future holds?).
Identify your ultimate objectives and work backwards from that - reduce it to this simple question.. "why am I investing?". And then write it down - you might end up with;
1. I want (us?) to retire at 55, with the house paid off and a flexible combined income in retirement of £27500k per annum.
2. I want to build towards an emergency fund of 3 months salary.
3. I want to be sure that if I get crippled in an RTA, we're covered and the plan stays on track.
4. In order to achieve all that, I want to have £1500 every two years for a decent holiday between now and then and only dirty weekends away inbetween.
5. I want to budget for £2000 running costs for the car each year.
6. I want a new car every 3 years between now and then.
7. I want to help the kids through Uni.
8. I want (us) to be able to live off the wife's salary between now and then and I/we can save all mine.
So, don't plod forward into the dark, instead - identify that/those concise enabling objective(s) and extract backwards to what you should be doing today. Anyone can leap into something, chucking money into a product or strategy that might sound good, but might be hopelessly wrong for no real fault (everyone's objective are different). Getting the desired end result/outcome is the tricky thing (we chucked blokes into C130s 10 years ago and flung them around the globe at the drop of a hat, where are we now though - did we achieve the objective that we wanted? Quite possibly not..).
So, if you can, quantify what life is going to look like when you want to retire. Imagine that you're retiring today and that the house is paid off, that the kids have all left home (ha) and that you either want to spend the first 5 years of retirement walking across Oz in flip flops and swimming with dolphins or you're happy pottering around the garage. Its important to consider what you at least would like it to look like, because each scenario will cost you vastly differently and you will need to consider investment input and strategy accordingly. Look upon your pension as a retirement salary - how much will you need? Then, work backwards from that. Is what you're doing now enough and/or suitable? BTL might work for lots of people on daytime TV, but given the risks/returns/characteristics, is it the best way to achieve YOUR particular objective?
Have contingencies built in, and if you identify your life goals, consider a suitable amount of risk to each of them. You can never neutralise risk; all you can do is be contingent and happy with what you're doing for it. If you want to attach a higher degree of risk to longer term investments than you might for shorter term ones, fine - but are you the type of person who can sleep at night still, if the arse falls out of the market one particular week. There are some risks you have no control over (interests rates/inflation/currenct/commodity prices etc) and some you have (investment choice etc). Consider each of them in turn.
Be flexible and be informed - do what is right for YOU not your mate in the pub. Do your research and get the product and provider that is right for you. Cheap is not always best - for instance, you might have a self invest investment ISA that has a cheap as chips Annual Management Charge but if you want to make lots of fund switches, the costs will rack up. Don't be seduced by great returns either; I can think of funds which on the surface of it look great but only because the manager has been selling off the fund crown jewels leaving not a lot and a hopeless strategy. Identify your objectives and nail each of them, ruthlessly - financial planning needn't be complicated. But have fallbacks in place if life throws you a curved one. Think of it in terms of a combat appreciation:
AIM -> FACTORS -> OPTIONS -> PLAN.. EXECUTE.
All that I have typed is incredibly simplified dumbed down pointers, so finally, if you think that you need it, don't be afraid to get advice you trust and that you are happy to be responsible for. That might be from a bank bloke, an IFA, your dad, some random bloke on a messageboard.. but ultimately, you have responsibility. Everyone else has a vested responsibility somehow in talking to/at you - which is fine (if you also benefit), but remember this is about you and your objective - identify that first and then start working backwards.
Get the basics right before you start looking at where to chuck a few hundred quid each month. Do you own or rent, and how much are your mortgage payments? Do you have expensive credit card debt? Consider getting rid of pricy debt before saving and investing at a time when returns are volatile and uncertain. Consider proper insurance too; there is no point in investing like mad and having no financial top cover for the day when some twonk in a Volvo slaps into you, leaving you potentially unemployable and reliant on state benefits.
Do you have kids, and/or are you getting married? If you're a bog standard tax rate payer, ISA and the rest of it will allow you liquidity and the chance to build up funds before transferring it into a pension later on, when you're a higher rate taxpayer and can get more tax relief (who knows what the future holds?).
Identify your ultimate objectives and work backwards from that - reduce it to this simple question.. "why am I investing?". And then write it down - you might end up with;
1. I want (us?) to retire at 55, with the house paid off and a flexible combined income in retirement of £27500k per annum.
2. I want to build towards an emergency fund of 3 months salary.
3. I want to be sure that if I get crippled in an RTA, we're covered and the plan stays on track.
4. In order to achieve all that, I want to have £1500 every two years for a decent holiday between now and then and only dirty weekends away inbetween.
5. I want to budget for £2000 running costs for the car each year.
6. I want a new car every 3 years between now and then.
7. I want to help the kids through Uni.
8. I want (us) to be able to live off the wife's salary between now and then and I/we can save all mine.
So, don't plod forward into the dark, instead - identify that/those concise enabling objective(s) and extract backwards to what you should be doing today. Anyone can leap into something, chucking money into a product or strategy that might sound good, but might be hopelessly wrong for no real fault (everyone's objective are different). Getting the desired end result/outcome is the tricky thing (we chucked blokes into C130s 10 years ago and flung them around the globe at the drop of a hat, where are we now though - did we achieve the objective that we wanted? Quite possibly not..).
So, if you can, quantify what life is going to look like when you want to retire. Imagine that you're retiring today and that the house is paid off, that the kids have all left home (ha) and that you either want to spend the first 5 years of retirement walking across Oz in flip flops and swimming with dolphins or you're happy pottering around the garage. Its important to consider what you at least would like it to look like, because each scenario will cost you vastly differently and you will need to consider investment input and strategy accordingly. Look upon your pension as a retirement salary - how much will you need? Then, work backwards from that. Is what you're doing now enough and/or suitable? BTL might work for lots of people on daytime TV, but given the risks/returns/characteristics, is it the best way to achieve YOUR particular objective?
Have contingencies built in, and if you identify your life goals, consider a suitable amount of risk to each of them. You can never neutralise risk; all you can do is be contingent and happy with what you're doing for it. If you want to attach a higher degree of risk to longer term investments than you might for shorter term ones, fine - but are you the type of person who can sleep at night still, if the arse falls out of the market one particular week. There are some risks you have no control over (interests rates/inflation/currenct/commodity prices etc) and some you have (investment choice etc). Consider each of them in turn.
Be flexible and be informed - do what is right for YOU not your mate in the pub. Do your research and get the product and provider that is right for you. Cheap is not always best - for instance, you might have a self invest investment ISA that has a cheap as chips Annual Management Charge but if you want to make lots of fund switches, the costs will rack up. Don't be seduced by great returns either; I can think of funds which on the surface of it look great but only because the manager has been selling off the fund crown jewels leaving not a lot and a hopeless strategy. Identify your objectives and nail each of them, ruthlessly - financial planning needn't be complicated. But have fallbacks in place if life throws you a curved one. Think of it in terms of a combat appreciation:
AIM -> FACTORS -> OPTIONS -> PLAN.. EXECUTE.
All that I have typed is incredibly simplified dumbed down pointers, so finally, if you think that you need it, don't be afraid to get advice you trust and that you are happy to be responsible for. That might be from a bank bloke, an IFA, your dad, some random bloke on a messageboard.. but ultimately, you have responsibility. Everyone else has a vested responsibility somehow in talking to/at you - which is fine (if you also benefit), but remember this is about you and your objective - identify that first and then start working backwards.
Ginge R said:
Blue,
Get the basics right before you start looking at where to chuck a few hundred quid each month. Do you own or rent, and how much are your mortgage payments? Do you have expensive credit card debt? Consider getting rid of pricy debt before saving and investing at a time when returns are volatile and uncertain. Consider proper insurance too; there is no point in investing like mad and having no financial top cover for the day when some twonk in a Volvo slaps into you, leaving you potentially unemployable and reliant on state benefits.
Do you have kids, and/or are you getting married? If you're a bog standard tax rate payer, ISA and the rest of it will allow you liquidity and the chance to build up funds before transferring it into a pension later on, when you're a higher rate taxpayer and can get more tax relief (who knows what the future holds?).
Identify your ultimate objectives and work backwards from that - reduce it to this simple question.. "why am I investing?". And then write it down - you might end up with;
And a lot of other very useful advice
Wow, brilliant post thanks Ginge!Get the basics right before you start looking at where to chuck a few hundred quid each month. Do you own or rent, and how much are your mortgage payments? Do you have expensive credit card debt? Consider getting rid of pricy debt before saving and investing at a time when returns are volatile and uncertain. Consider proper insurance too; there is no point in investing like mad and having no financial top cover for the day when some twonk in a Volvo slaps into you, leaving you potentially unemployable and reliant on state benefits.
Do you have kids, and/or are you getting married? If you're a bog standard tax rate payer, ISA and the rest of it will allow you liquidity and the chance to build up funds before transferring it into a pension later on, when you're a higher rate taxpayer and can get more tax relief (who knows what the future holds?).
Identify your ultimate objectives and work backwards from that - reduce it to this simple question.. "why am I investing?". And then write it down - you might end up with;
And a lot of other very useful advice
To be honest, my current house is rented, however, it's an unusual situation in that I rent from my parents, pay a fair rent and couldn't possibly afford to live in a house like this if I had to buy it. For that reason, I have almost no desire to buy a house to live in, it would simply mean grossly increased monthly outlay for a smaller, older house in a crap area.
I don't have any credit card balance to speak of, I pay it off each month in full, I have one bank loan that I used to buy my car, it has 3.5 years left to run, if I cleared it in full then I'd save just £800 of interest so I'm not convinced that I would bother clearing it. Think I'd rather save up the cash in an ISA and use it to avoid the need to borrow again the next time I change my car!
As far as family is concerned I have no plans to "settle down" with any individual, I'd far rather keep my independence, although that's not to rule out a child (or maybe two) at some point.
The life insurance thing hadn't ever really crossed my mind to be honest, I get bloody good sick pay through work, and excellent death in service payouts (which would only really benefit my kid brother) so the possibility of being permanently disabled in a crash hadn't occurred to me. I will be investigating this.
I didn't realise that I could bottle my savings up in an ISA now and then get more tax relief by bunging it into a pension when I'm on 40% tax! Superb, I fully intend to earn enough to pay 40% tax at some point in the hopefully not too distant future!
As I'm 27, I would like to think I could retire in maybe 25-30 years on a comfortable income, say £35-40K in today's money. My current final salary pension scheme would mean I'd need to be earning about £50K in today's money to achieve that.
I think I'm going to speak with the bank, investigate what they can offer in way of investments (HSBC seem to have a reasonable idea about this sort of stuff as far as high street banks go?) and will probably ultimately end up sticking some money into an ISA and a variety of investment funds.
The High Street banks are money shops remember, and exist for the benefit of the shareholders - so nail down the salesman to the Nth degree on what your ISA is going to cost you. Ask him if the Funds are passively or actively invested because what you don't want to be doing is paying excessive management charges for mirror or tracker funds.
What YOU need to do is nail down your capacity, inclination and threshold for investment risk. If the fund that is offered to you is sold as a balanced fund, ask for a breakdown of the specific funds and check that over time, the risk profile of the funds haven't shifted. A so called 'balanced' fund or basket of funds that was sold as balanced 4 months ago, would have a far higher (in all probability) risk profile now. Ask how often fund switches are made and how much they might cost - or are you happy to be on an investment rollercoaster? Be careful if thats what you do find yourself on - you might end up on BBC Watchdog as someone with a sad face complaining their funds have lost 25% just before retirement.
I am not anti-banks per se, but its your money so play hardball and only accept what YOU want. Don't be afraid to haggle, and don't be afraid to walk out and go somewhere else.
Good luck!
What YOU need to do is nail down your capacity, inclination and threshold for investment risk. If the fund that is offered to you is sold as a balanced fund, ask for a breakdown of the specific funds and check that over time, the risk profile of the funds haven't shifted. A so called 'balanced' fund or basket of funds that was sold as balanced 4 months ago, would have a far higher (in all probability) risk profile now. Ask how often fund switches are made and how much they might cost - or are you happy to be on an investment rollercoaster? Be careful if thats what you do find yourself on - you might end up on BBC Watchdog as someone with a sad face complaining their funds have lost 25% just before retirement.
I am not anti-banks per se, but its your money so play hardball and only accept what YOU want. Don't be afraid to haggle, and don't be afraid to walk out and go somewhere else.
Good luck!
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