Your Advice to a 19-20 year old

Dr_Ox

Hi there,

I was hoping to get different opinions on what a 19-20year old on low income should currently be doing in this climate. i.e. investing into stocks/shares Isa as time is on their side?

I am prepared to invest for the long term say 20-30 years, so is it a good idea to buy now while stocks/shares are really cheap?

Is there anything else i should/could be doing? Note; The Pension at my company is very poor.

Thanks

Aegis

Why are you investing? Is it for retirement or for something in later life that you have in mind? Is this something you might try investing for the very long term now but will then want for, say, a property deposit in a couple of years?

Naturally there are numerous options, and questions about why you're doing it will help identify the options which are suitable.

B.E.N

Investing is, at the moment, a wise thing to do, if you've got the money, are willing to take the gamble, and can afford to lose it.

The fact that you're on a "low income" makes me think that some cash savings for a rainy day may be in order first, before stocks & share isas are even considered.

I don't think stocks are going to bounce back any time soon, so if I were you, I'd try and save a couple of £thousand in cash, for a rainy day, first, then once you've done that, invest in stocks/shares/bonds, etc - longer term-investments.

Dr_Ox

Aegis Yes i would be investing for retirement/very long term at least (although i could move my investments around essentially the money would all be viewed as retirement money)

I have a Cash ISA which i currently aim to max out every year this is likely to be my House Deposit.

B.E.N this is exactly the way i was looking at it. I do have money is Cash (cash isa) and other online/e-saver type accounts

Edit: Although i have low income i have low outgoings so i currently have alot of money to allocate, i might never find myself in as good a situation again.

turbobob

You are far more sensible than I was at 19! :money:

What sort of pension does your company offer? Do they make contributions, or will they agree to match any of your own contributions? Pensions are tax efficient (as you get tax relief on the premiums and the fund is sheltered from most taxes). But you can't access money in them until you retire, basically.

opinions4u

You say you are on a low income.

While I applaud your long term thinking, it's important not to forget the short/medium term either.

There's little point having a sizable pension pot and no house deposit. There's little point having money tied up in an inflexible 20 year plan when you can't afford a car that may be the catalyst to getting a better (higher paid) job.

So I think you need to prioritise a little.

1) What are your short term objectives? Car? House deposit? Holiday?
Consider things like regular saver accounts and/or cash ISAs for these.

2) What are your medium term objectives? Should you have any at the moment? Should these wait until you have a family? Or do you want to start saving for an unborn/yet to be conceived child's university costs now.

3) What is your long term objective? Retirement income?
Paying in earlier means more later. But it needs to be balanced against shorter term needs.

Sit down and work out what you really want to achieve. While addressing (2) and (3) is a good thing, it may be better to allocate nominal amounts to them at this stage so that you're simply in the habit. Then pile as much as you can in to option (1).

Every time you get a pay rise, however small, review things. Every time your circumstances change, review them again!

Dr_Ox

turbobob Thanks. I dont know the exact details of the pension (only from talking to workmates who are alot older, who are in the pension) i believe it is a stakeholder pension, you can put up to 16.5% of your before tax wage in, and the company will put in about 2.5-3%

Also i think it is some kind of Standard life type pension and you can set it at low risk, medium and aggressive?

I have looked at the different options i.e Stocks/Shares Isa vs. Pension
and for me i prefer stocks/shares isa at this time because of the flexibility/inheritability i can move my money around etc as long as i have the discipline to always view it as 'retirment money' (then i can move in and out of markets) i guess I may be naive/in experienced in this belief though ?

Dr_Ox

opinions4u Thanks for your advice. Plenty of things to think about there, i have a short term view which my priority is saving for a house deposity (cash isa)

Although as you have said i may need to properly sit down and map it all out. In the short - medium term things can change so i will deffinately keep reviewing it

Your points though about being tied up in a plan is exactly the reasons i would choose stocks/shares isa at this time? (note; this money is surplus money - not taking into account that i already max out my cash isa)

I think your right about getting into the 'habit' and increasing contributions when my income goes up.

opinions4u

Dr_Ox wrote: »

opinions4u Thanks for your advice. Plenty of things to think about there, i have a short term view which my priority is saving for a house deposity (cash isa)

To be fair, you appear to have a very mature view on your finances and their potential.

Although as you have said i may need to properly sit down and map it all out. In the short - medium term things can change so i will definitely keep reviewing it

It makes a lot of sense and will, longer term, reap rewards that others won't get.

Your points though about being tied up in a plan is exactly the reasons i would choose stocks/shares isa at this time? (note; this money is surplus money - not taking into account that i already max out my cash isa)

I read the reference about more flexibility after I'd typed my reply. That is certainly a matter of discipline and knowing when / when not to use that money. Life runs a varied course and there will be times when you will be tempted, often for good reason to spend your pension if you have access to it in this way.

Additionally, funds tied up in a pension won't usually affect your rights to means tested state benefits if illness or unemployment strikes, but money in a stocks and shares ISA could reduce or remove your entitlement. Balance is key (and not always easy to achieve).

You could do with finding out why your employer's pension is classed as poor. If they pay anything towards it, that makes it better than a similar fund where there is no employer contribution. Scheme members may feel that the employer should pay more, but that doesn't necessarily make it a bad scheme.

I do think there is value in investing at the moment. But don't expect growth to be rapid and do be prepared to see markets continue to fluctuate if you do put money in. Remember, as banks reduce their reliance on wholesale funding any recovery in the UK housing market will be slow. This is likely to mean a few years of little or no growth in the wider economy.