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Balance between Savings & Investments ?
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baldbloke_2
Posts: 236 Forumite
I have been inspired by the various threads on this forum to find out more and more about 'investing' rather than just 'saving'. Although I readily admit that I have the balance between the two wrong I should be interested to hear the views of others.
Last year, for the first time, I invested £4k in an equities/funds ISA and have done the same again this year - part lump sum and part monthly purchase. I was intrigued to read on the Moneyextra site that one is advised to make a percentage of one's investments equivalent to one's age in Gilts & Bonds. So theoretically I should - at present - have 54% in Gilts/Bonds and presumably 46% in Managed or Tracker Funds - which I don't!
I am now wondering what the split should be between general Savings and Investments. I have a reasonable amount saved that I have no immediate need for and which I think could most definitely be used to better advantage for the 10+ years until I retire.
I am not seeking Pension or other advice but am simply interested to know what a reasonable balance would be.
For someone with £100k and a low-risk mentality would the advice be to 'invest' the larger part and if so what proportion.
Or is this an unanswerable or meaningless question ...
PS Thank you to Dunstonh in particular for making me think about these things at all!
Last year, for the first time, I invested £4k in an equities/funds ISA and have done the same again this year - part lump sum and part monthly purchase. I was intrigued to read on the Moneyextra site that one is advised to make a percentage of one's investments equivalent to one's age in Gilts & Bonds. So theoretically I should - at present - have 54% in Gilts/Bonds and presumably 46% in Managed or Tracker Funds - which I don't!
I am now wondering what the split should be between general Savings and Investments. I have a reasonable amount saved that I have no immediate need for and which I think could most definitely be used to better advantage for the 10+ years until I retire.
I am not seeking Pension or other advice but am simply interested to know what a reasonable balance would be.
For someone with £100k and a low-risk mentality would the advice be to 'invest' the larger part and if so what proportion.
Or is this an unanswerable or meaningless question ...
PS Thank you to Dunstonh in particular for making me think about these things at all!
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Comments
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Again it all depends on circumstances. If you are reasonably young (ie still working), it seems sensible to keep 6 months expenditure in cash or 'near cash' (term deposits, short dated bonds AAA bonds etc) in case you lose your job or are unable to work. The rest can be invested for the longer term.
However as you get older and closer to retirement, this starts to lose meaning as if you lost your job, you'd probably consider retiring anyway, or scaling back your work. Expenditure at retirement is exclusively from 'savings'.
Now what moneyextra is saying might be sensible at any other time than now, as the fixed interest market has been hugely distorted by a) actuaries and accountants changing pension rules so that they have to buy gilts b) FSA regulations that the newly created pension 'defecits' have to be 'sorted' (meaning more artificial demand for bonds) c) Gordon Brown refusing to issue enough gilts into the long end thereby keeping long term yields artificially low.
Bonds scare the hell out of me currently. So for Gilts/Bonds read 'lower risk funds' and for 'managed funds and tracker' (Urgggh) read higher risk funds. One of the main ideas of investing is to get a set of investments that don't depend on each other - so if one goes titsup(tm) then they all don't. So strangely 1 moderate risk fund plus 1 high risk fund can be less risky overall than the moderate risk fund alone.
Some of the criteria that I judge an investment by are a) does it have the potential to beat cash? b) what are the risk factors? c) are they similar to the other things in my portfolio?
If it fails a) which almost all fixed interest does at the moment, then there is no point going further.
HTH, ChrisI'm an Investment Manager. Any comments I make on this board should be not be construed as advice, and are for general information purposes only.0 -
Thank you for that considered reply. It is useful to know that all is not perfect in the gilts & bonds garden. The returns have often seemed quite low to average when I have looked at fixed-interest funds and I am pleased to hear that I was not wrong to wonder why they are the main if not only 'safe' option proposed by many of the sites.
I am interested to hear you suggest that even the instant access/rainy day savings that one sets aside can just as easily be in term deposits as in a regular high interest savings account. I shall seriously consider that over the coming year.
I very much like the idea of mixing the risk factor when considering funds and again I shall pay more attention to this aspect in future.
I am just about to transfer my Halifax Investor ISA to a different provider where the charges will be lower than 1.5% - easy to find now I take the trouble to look. It's all small beer to an IFA or Fund Manager but I shall be looking even more carefully now at the type of investment I choose.
Thank you once again.0 -
I am not an IFA, rather a 'seasoned' investor! As Chris says 6 months income in the form of savings is the 'industry standard' answer. As for the rest, it all depends on your attitude to risk, as does geographical spread, industry/sector spread etc. i.e. you could invest all of the rest. This investment could then be spread into a % in investments you are very comfortable with, and a % on which you hope to make more significant gains, that is, something more risky. Its a pity the property market is at a high at present, there used to be opportunities there. The 'industry' is plugging Commercial Property at present, but I am very suspicious of that, because CP is the first thing to suffer in a recession.
My ideal, as a retired person, is half savings, half investments, with 40% of the investments in 'nannies', and the rest in growth investments so that the growth as its drawn down, takes advantage of the joint CGT allowance.Survivor of debt, redundancy, endowment scams, share crashes, sky-high inflation, lousy financial advice, and multiple house price booms. Comfortably retired after learning to back my own judgement.
This is not advice - hopefully it's common sense..0 -
Actually, the standard answer from the FPC is 3 months' income. I say 6 months' expenditure. It seems a bit more sensible - a form of redundancy self-insurance.
Regarding your percentage split - I think it is simpler than that. Save enough then invest the rest. Or another way to look at investing in retirement, is to break up (in your imagination!) the remainder of your life. Take 80 as an end point if you like. Then you can break up your remaining expenditure into a set of periods - 0-3 years, 3-6 years, 6-10, 10-20, ...., death.
You can then invest what you need over the next 3 years in cash or near cash, 3-6 years you can afford to take a bit more risk, so cash and a bit of equity/property etc, 6-10 a bit more, and 10-20 etc, more and more equities/higher risk stuff - then death is what you would like to have left over to pass on (or live off if you survive past your end date). If you then add up what you have in each pot, you can work out a decent allocation for yourself. Repeat the exercise each year or two, and rebalance, and you end up with an investment strategy. I think this approach makes more sense than (age)% in bonds. Otherwise I'd have a quarter of my investable assets in bonds - which I most certainly do not - my portfolio is all sex and violence!I'm an Investment Manager. Any comments I make on this board should be not be construed as advice, and are for general information purposes only.0 -
Excuse my ignorance here but ... when you use the word 'cash' do you mean fixed interest bonds & gilts as investments or can one include - for example -yearly bonds from a Bank or BS if the interest rate is a good(ish) one?
For people like me it is a real mental struggle to understand that your word 'cash' might mean more than the High Street savings accounts etc that I have used throughout my working life.
To be perfectly honest it is the prospect of the eventual inherited proceeds from a family home that has begun to focus my mind . There must be many like me who suddenly find that they are about to be dealing with far larger sums than they ever managed before and know instinctively that their bank or BS account is probably not the only or wisest choice to make.0
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