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What would you do?
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tiamaria
Posts: 1,483 Forumite
What would you do with 40-50K with the view of making some income/investment?
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It would depend on when I would want to withdraw any of the money, how critical it is that the whole amount is available, how much of the capital I would be prepared to risk, what other savings, investments and commitments I had, how much income I am aiming to get, whether I might need any of the capital to cover emergencies or other unexpected events, whether I was interested in 'ethical' investments...loose does not rhyme with choose but lose does and is the word you meant to write.0
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What would you do with 40-50K with the view of making some income/investment?
Is that all the money in the world you've got ?
In which case, your first priority should be to establish a decent cash stash (equivalent of 6 to 12 months worth of your salary or 5 to 10% of your investment portfolio, whichever the higher ), which will be your rainy day fund for any flood, fire, tempest or other act of god which may impact on your life.
After that, and ONLY after that, should you consider investing. Or actually, you may want to consider your pension situation ahead of investing.
Cash is a position, and an important one at that, ignore it at your peril. Yes you won't get much of a return on cash, but NOTHING will give you the stability and liquidity of pure hard cash.0 -
TakeCareOfThePennies wrote: »Yes you won't get much of a return on cash, but ...
At the moment cash can get you a decent return above inflation by using high interest current accounts for your savings. See many threads mentioning TSB, Nationwide, Lloyds, Santander, ...
It might be best to use these loss-leaders while they are still available.Free the dunston one next time too.0 -
Every time I read this forum the emergency fund seems to go up! 3 months income seems reasonable enough to me. Why on earth would you want to hide away anything approaching £36,000 (2 x the average apart after tax) in an easy access account?
Think investments, pension or paying off any debts. Maybe a combination of all three. Best thing to do with a hefty chunk is to seek some advice. If you've never had a large amount before it can disappear pretty quickly without some solid plans.0 -
Every time I read this forum the emergency fund seems to go up! 3 months income seems reasonable enough to me.
I agree. I've always aimed for 3-6 months of expenses (because the reason I'm able to save is spending less than 100% of income!) Unless you're in a risky job, the suggestion was far too cautious for my blood.0 -
3 months income is a joke.3 months income seems reasonable enough to me.
6 months is the absolute bare minimum any half-sensible person should have.
Remember, we are talking about anything and everything unexpected ranging from loss of earnings, to medical issues, to unexpected house/car costs etc.
We are therefore talking about a whole host of expenses, some might only be a few hundred pounds worth, some might cost you a few thousand.
For example, what happens if your employer decides to go on a cost-cutting exercise and show you the door ? In the current employment market are you absolutely 110% sure that you'll be able to get yourself into another job within the space of 3 months ? What if you temporarily had to take a lower paid job ?
Yes you might have insurance for some things, but what if they don't pay out ? What if they don't pay out as much as you were hoping ? What if they want you to pay first and then send them the receipts ?
If we take the average after-tax salary of £26,000, 3 months worth is a pitiful £6,500. It might sound like a lot, but it won't be if the excrement really hits the fan, you'll burn through £6,500 in no time.0 -
At the moment cash can get you a decent return above inflation by using high interest current accounts for your savings. See many threads mentioning TSB, Nationwide, Lloyds, Santander, ...
It might be best to use these loss-leaders while they are still available.
I agree. The high interest current accounts are the ideal place to keep an emergency fund as they are easy access. I still have an ordinary HSBC account to cover normal expenses (although as it's a free advanced account I get access to a higher rate on my regular saver) and then have accounts with TSB, Lloyds and Tescos all with debit cards I can lock away in a drawer until I need the money in an emergency.0 -
It depends how cautious you are. If you look at the stats for 'average' savings around the country, many don't have anything approaching 3 and 6 would be a dream. Some of those people are at least "half sensible", just relatively poor; although some no doubt are idiots who are flying by the seat of their pants.TakeCareOfThePennies wrote: »3 months income is a joke.
6 months is the absolute bare minimum any half-sensible person should have.
Once you have a decent amount of money to consider investments, I'd suggest that 6 months expenses rather than 6 months income is a reasonable compromise. If you were out of work 6 months you would not need 6 months income (including the components for savings, investments, holidays etc) - you'd need to cover your 6 months living expenses and you would probably economise on them to make it stretch further.
Similar if your boiler or car breaks down you will probably find that these emergencies are within the capacity of a 6-month living expenses fund.
The question is then how much if any 'insurance fund' do you need to cover an emergency during the unemployment - a perfect storm... Similarly if you are a household with two earners, what are the chances you are both out of work at the exact same prolonged time? If you have the same employer or work in similar industries it could be higher than for others.
Many people will have existing credit cards (which might cover many months' gross salary) and anyone investing £50-60k in investments is going to have access to a portion of those unless they've dumped all the investments into something illiquid like a property. So in a true emergency during a period of no income when you can't get loans or new credit, we could probably still get by, even if it is undesirable to borrow temporarily on the credit facilities or cash in some investments which have fallen in value.
I think 6 months salary as an emergency fund is more than most would aspire to - though this is a forum for money savings experts so its not surprising that there are people here who have found a way to afford that. I think it's a function of likely expenses rather than income though. If I earn £100k, I don't necessarily have twice the bare minimum outgoings of someone on £50k - we might both be perfectly happy with £x cash and £y investments and £z of credit card space, but the person with more salary would feel more belt-tightening when the stuff hits the fan if he has expensive tastes or some large fixed cost like a huge mortgage which is less flexible than some other variable costs.0 -
There is obviously no right or wrong answer to emergancy fund size but personally I think basing it on essential expenses makes alot more sence than basing it on income. We don't have one at all at the moment due to wanting to max our isa contribution for the year which is naughty of me.
Obviously we don't have the information to recommend what you should do with the money but If I came into £50k this weekend I personally would
£15k in a stocks and shares ISA at Charles Stanley Direct in a diverse basket of mostly passive funds.
£15k in cash in a Santander 123 account earning 3% and being my emergancy fund
£15k into the works pension or open a SIPP again in a diverse basket of mostly passive funds.
£5k on awesome holiday, Vegas Or New York are my favourites or maybe South Africa and go on safari.
Thats a good investment for your long term future, a good investment for your medium/long term future, security and peace of mind and a big chunk of fun and some memories to be made in the short term. No point saving everything for the future imo in case you never get there.0
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