Save or Invest???

Paddy_Boy

Hi There

Just wanted to see what peoples thoughts were on my situation.

I have six and a half years till I need the money(House Purchase), I have used up my ISA allowance this year and for next once I bed and Isa in April.This is 100% invested in shares. These are to be included in my deposit.
I have 5 month's outgoings saved, do I basically spend the next 6 and a half years using regular savers/NS&I(when/or if they return), or do I think about lower risk investments like Gilt funds/bond funds or cautious managed etc? My thinking was that as such a large percentage of the deposit is in shares I should stick to cash??? Or split between cash and funds???

Is six and a half year time frame suitable for investing??

Many Thanks

Linton

6.5 years is just enough time I think provided you dont put the whole lot into something hairy.

If you dont want to manage the investments at a detailed level then a cautious managed fund could be appropriate bearing in mind you already hold individual shares. Such a fund would hold a significant amount in gilts and other less risky investments.

Perhaps you may want to consider transfering some of your shares into safer funds, if not now then well before you need the deposit.

DireEmblem

How about another option - Zopa, a social lending site.

It details in full the risks based on past information, and future extrapolations.

You choose a maximum you are willing to lend out to people, adn what markets you would like to be in.

I think the average rate for this is in the region of 7% before tax - would you be happy looking into something like this?

G_M

Gilts/bonds are traditionally safer than equities, but these days....?

6 years is enough to go into equities - spread them around.
Asia is good though gains in last few years mean they may stop climbing.
USA? Can only go back up now!

There again - what do I know?

Paddy_Boy

Perhaps you may want to consider transfering some of your shares into safer funds, if not now then well before you need the deposit

Most definatley!!

The fund that makes me interested is Invesco Perp Distribution, as the weighting is more towards bonds(60%) and the equities are positioned defensively. For now anyway!!

I suppose my dilema is, is it worth my sticking with regular savers etc when I will be putting say 250-300pm in to whatever I decide? As these have good fixed rates and what level of risk would I be taking on to try to beat such rates.

Loughton_Monkey

Although 6 years would normally be considered a 'good' period over which to invest, there are two factors that would worry me:

1. Any 'new money' you put into the same investment only has 5,4,3,2,1 years to 'run' and so is starting to look a little risky.

2. If you House Purchase date is not 'flexible', then you run the risk of 'timing'. Just to exaggerate (although it could happen). You have, say, £20K currently. You put another £5K in, drip feed over the period. So 4 years down the line, you are looking at your £25K plus some nice growth of £12K, so you're looking at £37K. Wonderful. But in the space of 3 months, there's another 'crisis' of some kind and within this period you could be looking at 30% fall. Now you're back to £25.9K, and wishing you'd shoved it all in the Post Office!

This is why on things like pensions, the general advice is to merge to less volatile and safer funds 5 years or so before retirment.

Personally, I would steer well clear of bonds. Interest rates can only go up. Rising Interest Rates decimate bonds.

Paddy_Boy

Thanks Loughton Monkey

I am inclined to agree with you, depending on factors my aim is to slowly reduce my share allocation in 2-3 years time. So I think fixed rate savings/regular savings is the way forward for me then at least I can feel at ease.

The thing is what could I invetst in(monthly) that is low risk that could offer a similar return to cash? Money Market/index linked gilt funds?

The decideing factor is that if my savings are fixed I know what Im getting myself in for.

Loughton_Monkey

There really isn't any 'right' answer, I'm afraid. As I see it, you have the following scenario when looking to produce a 'healthy' balance 6 years from now.

1. Savings products will almost certainly produce 'devaluation'. This is of course not a 'given' but it usually applies. By using some longer term 'fixed' rates around, or above the 4% could give you decent returns (more than 'instant' savers). If you really work hard and 'churn' money around the system with Lloyds Vantage accounts, Regular Savers, a few fixed term bonds, then you could be talking of averaging upwards of 3.5%.

2. The 'safer' form of funds still include virthually the same risks as 'fully leaded' funds, but they tend to be simply less volatile. In a crash you will lose, but probably won't lose your shirt. In a healthy market, they will rise, but probably not by any spectacular amount.

3. Using the [traditionally thought of] safe havens of Corporate Bonds/Gilts brings much less risk to your captial, but good growth prospects are far better against declining interest rates. Since almost everyone is foreseeing that interest rates will only go up, then they are probably best avoided at the moment.

My own 'investment objectives' differ slightly from yours. In my case, I am trying to 'inflation proof' my cash resources [at the very least] over as long as I have left to live, and taking into account small attrition as I spend some of it. I therefore have about a third or slightly more in a range of equities (some in lower risk), and the balance in a mixture of longer term fixes, 'best buys', and some of the exotic current accounts/regular savers....

So maybe you should think of adopting a 'mixed' strategy yourself. Just another thought; you might consider a 'bit' in some sort of property fund. OK these tend to be commercial properties - and you are thinking of a private property. But there must be a correlation. If this fund 'dies' then at least the cost of your house might stay reasonable. If, on the other hand, properties start going ballistic, then at least your deposit might get a bit of a boost.

missile

You might want to read the last bit of this article by Paul Lewis of BBC Moneybox. He gives an interesting arguement against the oft quoted maxim that equities give a better return that savings over the longer term.
http://www.web40571.clarahost.co.uk/archive/talks/20090319ThomsonReuters.htm
Please be advised: It was highlighted in a.n.other post by Rollinghome:A.

m0n3y_3

The full URL ends
archive/talks/20090319ThomsonReuters.htm

Paddy_Boy

Thanks, that is an interesting article.

Am gonna stick with the cash option for future savings, so that I have no unexpected crisis to contend with.

With regard to the equities, when I sell the shares I will want to keep the money in the ISA wrapper, what kind of sector would be suitable?? Money market, Gilt??

Many Thanks