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  • FIRST POST
    • JSCB
    • By JSCB 3rd Jan 18, 6:52 PM
    • 16Posts
    • 8Thanks
    JSCB
    Advice/Thoughts on my Financial Plan & Saving/Investments Balance as a 21 Year Old
    • #1
    • 3rd Jan 18, 6:52 PM
    Advice/Thoughts on my Financial Plan & Saving/Investments Balance as a 21 Year Old 3rd Jan 18 at 6:52 PM
    Hi everyone,

    My names Joe, and in basic I'm hoping for some advice from those more knowledgable, on my financial plan and investments. My post is quite long, so please bear with me!

    I'm 21, currently have 31.5K in savings and am saving at a rate of around 2k per month. I also have a Student Loan of 9K, after voluntarily paying off a further £6K over the last few months.

    Obviously I recognise I'm in quite a unique situation and as a bit of a novice to investing/financial planning; although I recognise the importance of it, I was hoping for some advice, feedback or perhaps even some guidance in what you think of my balance of savings/investments and plans for the future.

    My current financial goals are to:

    1. Have £15k in Shares by April 2018 and then to maintain an investment of at least £10k a year into shares ISAs (comprising both individual shares and funds).
    2. Voluntarily pay off my modest Student Loan early and in full by Dec 2018, minimising the current 6.2% interest rate being charged on it.
    3. Be ready to purchase a small house/flat of around 100k with my partner within 2 years and to of paid this off in full within 2 years after that by 25.
    4. To dabble with buying, renovating, selling/renting property after 25, as a way of subsidising and later retiring from my work in construction - which I'll inevitably need available funds to do.
    5. Achieve full financial independence by 35 and at some point complete a self-build.

    My current savings/investment balance is:

    - £6k in Help to Buy ISA - Paying 3.5% Interest (Growing at £200 pm) and due a 25% government bonus when cashed in towards a home. I'm planning on swapping this to a lifetime ISA this month so that I can put away £4k per year in to it as apposed to just 2.4k.
    - £10.5k in current accounts earning 5% interest
    - £6.2k in savings earning nothing

    £8k in a shares ISA wrapper, comprising approximately:
    - £5k in National Grid
    - £3k in Taylor Wimpey

    Going forward I'm thinking of moving some cash into more shares soon to achieve my goal of 15K by April, with an extra £2k to NG (making it 7k), an extra £2k to TW (making it 5k) and 3k into a new vanguard fund, like the life strategy 80% fund.

    So that's my plan, goals and current balance of things so far and I'm just wondering what others think or would advise going forward as none of the books I've read or podcasts I've listened to have ever covered a situation like mine at my age and I think I could really now do with external and personalised advice as apposed to just myself guessing my way through it.

    Therefore,
    -Do you think I have the balance right for my age, my goals, my risk tolerance? Should I be wary of the FTSE's record levels or is my current plan for shares a risk?

    -Are shares even right for me now? I'm wary of buying in at a high and ahead of a recession or being unable to access funds later if I need them (although its hard to predict exactly what I'll need and when at my age) but I also don't want to avoid investing completely forever either as I know the importance of mitigating the effects of inflation and using the compounding effect over the longer term.

    -Also is there anything you think I've forgotten about or ignored?

    -Or anything I should include or consider, such as the use of a SIPP if I ever go above £45k in earnings, although I know I can't access these until I'm at-least 57+, well out of my plan!

    Any thoughts or advice from those older, more experience or knowledgeable about anything above would be really great.

    Thanks a lot,
    JSCB
    Last edited by JSCB; 03-01-2018 at 6:54 PM.
Page 1
    • KeepOnKnitting
    • By KeepOnKnitting 3rd Jan 18, 7:05 PM
    • 145 Posts
    • 176 Thanks
    KeepOnKnitting
    • #2
    • 3rd Jan 18, 7:05 PM
    • #2
    • 3rd Jan 18, 7:05 PM
    I am very far from being an expert, but I would be very wary in your position of having £3k in shares in the building industry whilst my job is also in the building industry. Eggs in one basket and all that.
    • newatc
    • By newatc 3rd Jan 18, 8:14 PM
    • 146 Posts
    • 159 Thanks
    newatc
    • #3
    • 3rd Jan 18, 8:14 PM
    • #3
    • 3rd Jan 18, 8:14 PM
    I would also be concerned about having shares in your portfolio - that is a bit of a gamble by concentrating on two companies. I would choose a fund solution.
    I'd pay the Student Loan as soon as possible, I think you can ask the Loans Company to stop taking payments from your payslip coordinated with your payment to avoid them continuing to take money after loan has been paid off.
    Who knows when the market is going to take a correction or worse, I've been expecting it for 9 months! We do know however that the 6k is earning nothing and losing value so I would at least move that to a savings account; the Virgin double take pays 1.26 and allows 2 withdrawals a year if that suits your liquidity requirements.
    • cns06
    • By cns06 3rd Jan 18, 8:24 PM
    • 224 Posts
    • 107 Thanks
    cns06
    • #4
    • 3rd Jan 18, 8:24 PM
    • #4
    • 3rd Jan 18, 8:24 PM
    I would go max risk for the next 5 years. Something like VLS100.

    As you say forget the SIPP for now. If you are planning on retiring in your 30s or early 40s.

    You could always start a SIPP later in life to take advantage of the wrapper. i.e say start one early 50s.

    If you are not already a member I would join this forum https://forum.mrmoneymustache.com/index.php

    There is a UK section.
    • Linton
    • By Linton 3rd Jan 18, 9:36 PM
    • 8,853 Posts
    • 8,884 Thanks
    Linton
    • #5
    • 3rd Jan 18, 9:36 PM
    • #5
    • 3rd Jan 18, 9:36 PM
    I agree with the others. Going for shares in a small portfolio is foolish. To avoid making serious losses in a one-off failure you need 15 different shares at least. And by restricting your investments to the UK you are prevented from taking advantage of a significant number of the world's major industries - eg there are no electronics companies of any significance, nor any car manufacturers, very few software companies and they are middle ranking at best etc etc.

    So I suggest you keep to a general global fund for the time being.
    • Alexland
    • By Alexland 3rd Jan 18, 9:52 PM
    • 1,084 Posts
    • 717 Thanks
    Alexland
    • #6
    • 3rd Jan 18, 9:52 PM
    • #6
    • 3rd Jan 18, 9:52 PM
    Agree holding 2 individual shares very high risk. Agree HTB to LISA transfer for house deposit so act quickly. Partner can also have a LISA perhaps? If your income is high enough the full student loan will be repaid soon anyway then yes get it paid early provided you will still have a good LTV on mortgage for best rates? I don't see a proper pension anywhere in your plans - this also needs to start early and there are often tax and growth benefits in delaying extreme mortgage overpayments in order to fund pension. Pension is usually a good place to hold your stock market funds such as VLS80.

    Good luck, Alex.
    Last edited by Alexland; 03-01-2018 at 10:00 PM.
    • JSCB
    • By JSCB 3rd Jan 18, 10:30 PM
    • 16 Posts
    • 8 Thanks
    JSCB
    • #7
    • 3rd Jan 18, 10:30 PM
    • #7
    • 3rd Jan 18, 10:30 PM
    Thanks everyone for all your great replies! Instead of replying one by one, I've tried to respond to everyone individually in one post below!

    newatc - Thanks for your response. The student loan is kind of my first objective. I know people - even Martin Lewis for most cases - say its not worth voluntarily paying off a student loan as you might never pay it off in full if you just leave it anyway, but in my case with so little, I know I will and probably in the next 10 years, and therefore don't see the point in accumulating 6.2% interest a year on it including inflation while I risk investing cash to make similar returns.

    I'll also have a look at the virgin account.

    cns06 - Thanks for your response. Why would you go max risk for the next 5 years may I ask?

    I've also come across the Mr Money Mustache forum before after it was mentioned on the Mad FIentist Podcast, in fact I might even be a member, I just couldn't remember the name of it when I wrote this! I'll have a look at that forum again and probably post something similar on there in the next few days.

    Linton - Thanks for your response and I hear you, I've only just began looking into funds really and still find them more confusing than individual shares which I can more easily research and relate to. However, I know they're the way for me to go and should make up a large part of my portfolio in the future. Would you be completely against holding any individual shares at all though?

    I'd like to keep those I have in Taylor Wimpey and National Grid, as I see them as buy and holds anyway. They're companies I understand and they both have pretty good dividend yields of 7% and 5% respectively, but with what yourself and others have said, I should just perhaps refrain from investing in them or other individual shares any further for a while and instead focus on building up a decent holding in funds. Would this sound like a good approach to you?

    Also, how would you suggest going about finding a suitable fund? I've looked primarily at vanguards life strategy funds and retirement funds, which seem simplest and most generic, however, I've also read people saying they wouldn't touch vanguard with a barge pole as its funds are overly invested in US equities which are at record highs, which is a worrying thing to read when you're just beginning!

    Alexland - Hi Alex, thanks for your response! We're going to transfer our HTB's in LISA in the next week before the deadline, having been leaving it until now as we get 3.5% on our HTB but will only get 0.75% in the new LISA with Skipton.

    In terms of having enough cash for a good LTV, what do you need to put down for the best rates? I'm predicting we'll have 50K between us in our LISA's in two years time, which would be a deposit of 30-50% depending on what we go for.

    In terms of pensions, it's something I've thought about recently after I got googling about SIPP's, but I'm self employed and therefore not entitled to any employer pensions or matched contributions or anything like that anyway and the only other way of doing it as far as I'm aware would be with a SIPP.

    However, since I can't access this until I'm at least 57+ which is no good for achieving financial independence early, I was thinking I'd only open and put into this in the next 10 years if I were to earn more than £45k in a particular tax year, as I'd then get a tax bonus of 40% on top of this making it a no brainer.

    Otherwise, I thought I'd probably wait until after 30 (a bit closer to 60) and mortgage free before looking at it again. Am I wrong or missing something? Would love to hear your advice on this and how the tax/growth benefits of putting into one of these instead of over paying the mortgage you mentioned works. Should I be putting money away into something I can't touch for 40 years just yet or waiting and seeing? Thanks again
    Last edited by JSCB; 03-01-2018 at 10:33 PM.
    • Alexland
    • By Alexland 3rd Jan 18, 11:25 PM
    • 1,084 Posts
    • 717 Thanks
    Alexland
    • #8
    • 3rd Jan 18, 11:25 PM
    • #8
    • 3rd Jan 18, 11:25 PM
    In terms of having enough cash for a good LTV, what do you need to put down for the best rates? I'm predicting we'll have 50K between us in our LISA's in two years time, which would be a deposit of 30-50% depending on what we go for.
    Originally posted by JSCB
    Generally the more you own of a property the lower the mortgage rate on the remaining borrowed balance. This happens up to around 40% when the lender will have near certainty that they will recover their money. Start looking at mortgage rates online and do some maths on if holding back a bit of your student loan money would be worthwhile to enable you to borrow the larger mortgage amount at a lower rate. Having said that I fully repaid my loan in 2005 before buying my first property and have no regrets.

    In terms of pensions, it's something I've thought about recently after I got googling about SIPP's, but I'm self employed and therefore not entitled to any employer pensions or matched contributions or anything like that anyway and the only other way of doing it as far as I'm aware would be with a SIPP.

    However, since I can't access this until I'm at least 57+ which is no good for achieving financial independence early, I was thinking I'd only open and put into this in the next 10 years if I were to earn more than £45k in a particular tax year, as I'd then get a tax bonus of 40% on top of this making it a no brainer.

    Otherwise, I thought I'd probably wait until after 30 (a bit closer to 60) and mortgage free before looking at it again. Am I wrong or missing something? Would love to hear your advice on this and how the tax/growth benefits of putting into one of these instead of over paying the mortgage you mentioned works. Should I be putting money away into something I can't touch for 40 years just yet or waiting and seeing? Thanks again
    Originally posted by JSCB
    There's no point achieving early financial independence if you don't have any money to fund your retirement. A SIPP (or Stakeholder or Personal pension) would give an immediate government boost of 25% (equivalent to 20% tax relief) and under current rules you could withdraw 25% tax free and then the remaining 75% at your income tax rate in retirement. It is possible in the 10 years before your state pension starts you could withdraw much of the 75% tax free if you have no other taxable earnings. Then when the state pension starts you could withdraw more at a slower rate tax free. If you contribute lots into your SIPP you could end up paying 20% income tax on some of the 75% taxable proportion.

    Also worth continuing to invest in a S&S LISA after your first property purchase to help with retirement. The LISA gives a similar 25% bonus but the access at 60 is not treated as taxable income.

    In addition to the tax advantages of pensions and LISAs historically the value of low cost well diversified S&S investment funds has grown faster than the interest avoided on mortgage overpayments.

    Alex.
    Last edited by Alexland; 03-01-2018 at 11:40 PM.
    • Eco Miser
    • By Eco Miser 4th Jan 18, 3:41 PM
    • 3,320 Posts
    • 3,083 Thanks
    Eco Miser
    • #9
    • 4th Jan 18, 3:41 PM
    • #9
    • 4th Jan 18, 3:41 PM
    I'm self employed
    Originally posted by JSCB
    Really self-employed sole trader? Or director/employee of a limited company? If the latter, a pension gets money out of the company without paying corporation tax, income tax or national insurance on it.
    I'd like to keep those I have in Taylor Wimpey and National Grid, as I see them as buy and holds anyway.
    Originally posted by JSCB
    Do you sub-contract to either or both of those companies? In which case, a down-turn could both lose work and the value of your holdings.

    In order to have Financial Independence, you have to have an income (or sufficient capital to spend) for the rest of your life. A pension takes care of this income for the later part of your life, is saved free of tax, and has a long time to grow, meaning you need less to cover the first part. Whether saving in a pension beats concentrating on your other objectives is something for you to decide, but don't dismiss it simply because you won't be able to access it for 40 years. There are annual limits, which are set by politicians, and may not be so favourable when you want to maximise them.
    Eco Miser
    Saving money for well over half a century
    • JSCB
    • By JSCB 4th Jan 18, 8:51 PM
    • 16 Posts
    • 8 Thanks
    JSCB
    Alex - Hi again, thanks for the explanation about mortgage rates! I was thinking our first property would be no more than 150k at the very maximum, more likely 100-120k anyway and within 2 years we should have 50k set aside between us in the lifetime ISA which would equate to ownership of 33-50%, without considering any additional cash savings. Therefore, I'm thinking we should have that covered without needing to hold off of paying off my student loan.

    However, while it's a bit late now as I've already paid £6k of a £15k loan off which I can't get back, I have been thinking about and wondered whether would you also would be worried in my position about paying off a student loan early with the fair possibility a labour government gaining power in future and potentially whipping any existing loans or altering the interest rates charged on them in such a way that would make me wrong to of paid it off early?

    Also, I hope you wouldn't mind me asking but what did you borrow and have paid off by 2005 and what makes you glad you did it when most others leave there's and never voluntarily pay off anything?

    In terms of a pension, perhaps it's something I should look at again and will definitely consider carrying on with the LISA after I've first used it for a house, as I quite like the extra 5% bonus over the standard tax relief and the fact it is totally tax free when withdrawn. Perhaps could do that and then still put into a SIPP any excess over 45K if I ever earn above that.

    After researching online, they say you should put into a pension a percentage of your pre-tax salary of at least half your age, so around 10.5% in my case, around 4k at the momemt which is coincidently the same as the Lifetime ISA, making just carrying on with that after using it for a house in 2 years seem like quite a good idea.

    Eco Miser - Thanks for your reply! Just a self-employed sole-trader sadly, as what you said sounds very beneficial.

    I sub-contract to a contractor who contracts to Taylor Wimpy amongst various other house builders. So I'm not massively exposed to Taylor Wimpy as such, although perhaps to the industry. However, with what people have said about this double risk and about not being overly exposed to any particular industry, I'm going to hold back exposing myself to them any further until I've developed a more balanced and diverse portfolio, including funds.

    Thanks for your advice also on pensions. I think I've always had the perception that 'pensions' were old fashioned and for older people, not people like me just starting out. However, your explanation about putting enough away into a pension to ensure I'm secure for later life, therefore reducing the amount I need to be financially independent (for then 25 years as apposed to forever) makes perfect sense.

    As I mentioned to Alex above, the recommend pension contribution is 10% of untaxed earnings, so about £4k a year for me atm. This is the same as the lifetime ISA, making contributing into it something I could easily carry on with after purchasing my first home as well as putting any excess earnings over 45K if I get them, into a SIPP to gain the 40% tax relief on that.

    Would this sound like a good plan to you? With a 4.5% interest rate (based on 6.5% minus 2% inflation), the LISA would compound to £370K over the 37 years between 33 (when I plan to first buy) and 60.
    • Alexland
    • By Alexland 4th Jan 18, 9:15 PM
    • 1,084 Posts
    • 717 Thanks
    Alexland
    I have been thinking about and wondered whether would you also would be worried in my position about paying off a student loan early with the fair possibility a labour government gaining power in future and potentially whipping any existing loans or altering the interest rates charged on them in such a way that would make me wrong to of paid it off early?
    Originally posted by JSCB
    Labour have already done a lot of backtracking on the 'off the cuff' suggestion of writing off existing student loans early as it is prohibitively expensive. It is just an aspiration not a policy. My personal view is that if they get power the most they could do is reduce the interest rate and increase the income level to start repayments.

    Also, I hope you wouldn't mind me asking but what did you borrow and have paid off by 2005 and what makes you glad you did it when most others leave there's and never voluntarily pay off anything?
    Originally posted by JSCB
    I was at uni in the late 90s and the interest rate on those student loans was also unattractive. There appears to have been a generation between us that benefited from low rates. From memory the amount I repaid early was £6k which in today's money with inflation would be worth about £9k. If I hadn't repaid early my income was high enough that it would have naturally concluded in a few years anyway.

    My younger wife (in that low interest rate generation) let hers conclude repayment naturally and by chance it completed a month before the birth of our son.

    After researching online, they say you should put into a pension a percentage of your pre-tax salary of at least half your age, so around 10.5% in my case, around 4k at the momemt which is coincidently the same as the Lifetime ISA, making just carrying on with that after using it for a house in 2 years seem like quite a good idea.
    Originally posted by JSCB
    I have never put less than 15% into pensions but that includes employer contributions so if you also plan to continue LISAs and have property investments (watch out for income and capital gains tax) this seems a sensible pension contribution for now. It really depends how much wealth you seek to accumulate and the lifestyle you intend to lead after you stop earning.

    Also when you do your compounding calculations remember the LISA can only take contributions to 50 and it's the growth above inflation that counts so remember to reduce growth by 2-3% per year.

    Alex.
    Last edited by Alexland; 04-01-2018 at 9:30 PM.
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