Should I go cash or Stocks & Shares

lisyloo

Here's my current scenario

Mortgage £157K @ 0.99% tracks BOE (max avail £166K)
Offset Cash £ 4K
Cash Isas £ 55K @ 2.8% variable
NS&I £ 12K @ approx 6% tracks RPI
S&S £ 51K @ approx 10%

Come April should I?

1) Put £10,680 into cash ISAs (can fund from drawdown) and £445 per month each into each S&S ISA.
2) Put £10,680 into S&S ISAs and £445 per month into each S&S ISA.
3) Put £890 per month into S&S ISAs.

I want to exclude pensions for the time being as my job is a little insecure and the priority short term is to have enough to cover the mortgage.
My feeling is that the stock market is undervalued.
I've seen the PWC report and I know it isn't an exact science so would be interested in the views of others of whether to go for equities or not and if so whether to go for the lump sum or not.
I am inclined towards option 1 to maintain a balance and it maximises the use of the cash allowance on day 1.

Thanks in advance.

Soliton

The options don't make sense unless you replace the £10,680 with £5,340.

If you think your job is unsecure at present then I would suggest you need to consider what your outgoings would be if the the job disappeared. How long would your easily accesible cash keep you going? Is this long enough to find a freplacement job? Answering these questions together with your attitude to risk should lead you in the right direction.

lisyloo

The options don't make sense unless you replace the £10,680 with £5,340.

Sorry, I have a husband.

If you think your job is unsecure at present then I would suggest you need to consider what your outgoings would be if the the job disappeared. How long would your easily accesible cash keep you going? Is this long enough to find a freplacement job?

Could survive on the one salary if necessary.
There would not be any risk to housing and paying bills, although if it were a long term situation there would have to be a dramatic adjustment to lifestyle to go from 2 salaries to 1. Would almost certainly adjust my expectations about the mortgage term.
My redundancy money should last 8 months which should be long enough to get another job, although clearly the job market isn't great and I have the leeway to eek the money out for longer.

I am considering going for the cash on day 1, because that can then be transferred to stocks and shares at any point later on whenever we feel it's appropriate, so that gives us all options really.

Soliton

Don't be sorry you have a husband. They can be useful .

Given the circumstances you describe, I agree that the cash approach is the most appropriate. I would go that way and then when things are resolved (current job risk goes away or new job secured) I would transfer the cash ISA to S&S ISA.

Also, I wish you all the best with the job situation.

jimjames

Soliton wrote: »

Don't be sorry you have a husband. They can be useful .

You beat me to that comment:D

I would think the option 2 that gives the benefit buying into the current market prices but also gives the option of monthly investments getting any lower price should the market drop over next year is the best option.

You then have the possibility that if there is a big drop at any point you could invest the remaining balance to get the lower price at that point.

You don't say your age (I know you're not meant to ask a lady!) but if you are investing long term then a higher proportion in stock market based investments could give better returns. You already have £71k in cash according to my calculations which should be a reasonable short term emergency savings pot.

lisyloo

You then have the possibility that if there is a big drop at any point you could invest the remaining balance to get the lower price at that point.

No I wouldn't I'm afraid.
The £445 per month (each) comes out of our income when we get paid, so I don't have that money available in advance.
(the initial lump sum can be covered by the drawdown).

You don't say your age

early 40's

but if you are investing long term

The mortgage needs to be paid off in 8 years, but I think that's long term enough for equities.

Something could happen workwise when Q1 figures are known, so I may take the safer option 1 with a view to transferring at some later point.
It is interesting to get others views and you are right, there is a lot of cash.
I didn't take the NSI because it was cash but because RPI+1% looked good and TBH for no capital risk it's looking like a good choice.

Loughton_Monkey

Personally, at that age, I would put half into S&S and the other half into cash ISA's

As an aside, I would also 'max out' what appears to be an offset mortgage. Looks like you have a spare £9K sitting in it (or is it 9+4=13?). Might as well put it into something at 3% and earn the extra. OK, they will require you to pay in £X a month into it, but you can withdraw it the next day.

lisyloo

Personally, at that age, I would put half into S&S and the other half into cash ISA's

Thanks, I would be interested to know your views on how age affects this.
I have about 25 years until I can draw my state pension, so I don't feel I need to be too conservative just yet.

As an aside, I would also 'max out' what appears to be an offset mortgage. Looks like you have a spare £9K sitting in it (or is it 9+4=13?).

There is £9K in there which I intend to put into ISAs after April 6th (as per options 1 &2) topped up to £10,680 by March salary.
We do dip into the £4K several times a year to pay for holidays or other large bills, so we'd want to keep that cash for cashflow reasons.
We can't always use a credit card (or wouldn't want to due to charges) so we can't leave ourselves totally devoid of cash, especially if the mortgage is maxed out.

Might as well put it into something at 3% and earn the extra.

That's 1.8% for higher rate tax payers (assuming your 3% is gross), so I think I'd rather wait 3 weeks or so and put it in an ISA.

BTW - I do understand the value of higher rate tax relief on pensions, but I'm stressed out about the job right now and want to cover the mortgage off. We are currently contributing 15% each to pensions and will review that in 16 months once the remainder of the mortgage is covered off.

Loughton_Monkey

lisyloo wrote: »

Thanks, I would be interested to know your views on how age affects this.

I have about 25 years until I can draw my state pension, so I don't feel I need to be too conservative just yet...

I simply have a view that nobody should have any more than about 2/3rds in equities. And by the time you retire (like me) you tend to get a bit nervous at about 1/3rd. So in the middle, my own view is that about 50/50 is perhaps right. I noted that you are about that already and you might wish to stay like that.

And on top of this, you have to consider the nature of the house. The total value of the house is, in effect, and 'equity' investment. Your mortgage is a lot more like a 'negative' savings vehicle.

So in theoretical terms, you actually have a very large 'equity' exposure and (actually) a negative 'savings' exposure.

That was my only thinking.

All your other points about the offset mortgage/cash ISA etc. are quite valid.

lisyloo

I simply have a view that nobody should have any more than about 2/3rds in equities. And by the time you retire (like me) you tend to get a bit nervous at about 1/3rd. So in the middle, my own view is that about 50/50 is perhaps right. I noted that you are about that already and you might wish to stay like that.

Yes, I think the balance is roughly right at the moment, although when you add the cash together it looks like a lot.

The total value of the house is, in effect, and 'equity' investment.

Yep, you're right, the total picture is not just cash & S&s, it also include pensions (which are mainly equities) and property equity too.

Your mortgage is a lot more like a 'negative' savings vehicle.

Yep, but there is absolutely no question in my mind that it's a good vehicle for the simple reason that we can live in it and save rent for the rest of our lives.
The return in terms of "imputed rent" is good, completely safe and tax free.
Don't forget that any "lost opportunity" cost has to factor in 40% income tax or CGT (you may have noticed that virtually everything I have is tax free whether PPR, pension, NSI, ISA or offset).
Plus this is a once in a lifetime opportunity to save tons of interest.

So in theoretical terms, you actually have a very large 'equity' exposure and (actually) a negative 'savings' exposure.

I see what you mean, although I would group it three ways - property, equity and shares.
Your right it does give a better overall view, but you need to remember we do of course need somewhere to live as well :-)
We could of course rent and have no "investment" in property but with near zero rates and being close to the rest of our lives with rent free living that makes no sense at all to me.
The money is better off in the property due to it's value to us in terms of the imputed rent. Also if the price goes up long term there is no CGT.
It's also worth noting that cash savings at the moment are going DOWN in real terms, whilst the stock markets are doing well. The current condifions also affect my thinking as well.

Thanks for your thoughts.

I think I'm going to go for the cash on day 1.
That gives us the option of transferring later on whilst waiting for news on the job front.
My em ployers have given very clear statements that we have too many people, but no-one know if, when and who.

jimjames

Loughton_Monkey wrote: »

I simply have a view that nobody should have any more than about 2/3rds in equities. And by the time you retire (like me) you tend to get a bit nervous at about 1/3rd. So in the middle, my own view is that about 50/50 is perhaps right. I noted that you are about that already and you might wish to stay like that.

Thats an interesting thought. I'm just turned 40 and have been over 90% equities for the last few years. Its always seemed to me that as long as I have sufficient cash funds for short term or emergency needs that everything else is best in equities to get maximum growth for the future. That did cause problems in 2008/9 as it meant I didn't have as much cash as I would have wanted to buy at the low points so maybe I do need to have a rethink on percentages.