mid 20's with 30000 to save/invest

earthlover

I was just looking at the NS&I website. Can anyone clarify if my thinking is correct for me:-

for example, if you bought IL certs now and inflation was say 5%. If inflation dropped by say 1% during the year (is that deflation?) would the certs still pay 4% + 0.5% interest on the anniversary?

Or would they just pay 0.5% interest.

Hope I made that clear enough.

Lokolo

earthlover wrote: »

I was just looking at the NS&I website. Can anyone clarify if my thinking is correct for me:-

for example, if you bought IL certs now and inflation was say 5%. If inflation dropped by say 1% during the year (is that deflation?) would the certs still pay 4% + 0.5% interest on the anniversary?

Or would they just pay 0.5% interest.

Hope I made that clear enough.

Deflation is when the % is negative e.g. -1%, 3 consecutive months of negative inflation means a recession. When there is negative inflation you will get 0.5%.

Inflation going from 5% to 4% means the economy is still inflating, but at a slower pace. 0% means theres no inflation.

earthlover

OK thanks for that.

I do indeed remember the BP spill. I remember thinking I should buy shares in BP! But did'nt!

atush

Yes, I would advise you son to ask if his employer has a pension, and if he can contribute to that one.

If not, have him carry on putting in an amt monthly to the new one out of salary. As for extra contributions, how much were you going to have him put in? You can either put it in one lump sum, or you can spread the payments out over a year, so as to drip feed it into the market.

And i did buy BP shares (after the spill). I hold Shell, but felt I should buy a bit of 'depressed' BP. this is called contrarian investing ;-)

Ark_Welder

earthlover wrote: »

If inflation dropped by say 1% during the year (is that deflation?) would the certs still pay 4% + 0.5% interest on the anniversary?

Only if the rate of inflation is 4% on the actual date that the interest due is determined. So if annual inflation rose to 10% 6 months into your investment, but dropped back to 4% after 12 months, then you would get 4%+RateForThatYear%.

That isn't as scary (or profitable) as it first looks: if the annual RPI was 4% in one year's time, but in the meantime it had increased to 10%, then prices would have had to have dropped, i.e. negative inflation, to bring prices back down so that they were only 4% above those today.

When the rate of inflation falls, e.g. 5% to 4%, this is termed disinflation.

ses6jwg

I am 23 with roughly the same pot. I have the following:

£17000 in Nationwide's 3.1% Cash ISA
£1200 in Santander 3.5% Cash ISA
£3500 in NS&I Index Linked Certs RPI+1.00%
£8000 in High-Risk AIM Listed Shares
£8000 in a stocks and shares ISA holding FTSE companies such as BP, Greggs, Aviva, etc, and £50pcm into a FTSE All-Share tracker. Dividends set to "re-invest". I realise I am over exposed to the UK, however my AIM shares operate globally.

I also pay around £64 a month or 5% of gross pay into a company pension scheme and have around £3000 built up in that thus far. My employer matches this, and also pays in 9% of my gross pay on top of the matched contribution.

I also pay £30 pcm into the companies Share-Save scheme.

My tips would be to maximise and utilise any tax shelters such as ISAs and NS&I products, keep a good 6 months expenditure in easy to reach, and don't be afraid to take a risk with some of the capital. I have, and have benefited greatly from it almost doubling my original pot in 4 years.

kidmugsy

earthlover wrote: »

I was just looking at the NS&I website. Can anyone clarify if my thinking is correct for me:-

for example, if you bought IL certs now and inflation was say 5%. If inflation dropped by say 1% during the year (is that deflation?) would the certs still pay 4% + 0.5% interest on the anniversary?

Or would they just pay 0.5% interest.

Hope I made that clear enough.

If inflation over the year in question is 4% then you get 4% index-linking & 0.5% interest. It doesn't matter what the inflation rate was the year before. (To be more precise, the interest bit goes up from 0.25% per annum in the first year, so that it averages out at 0.5% per annum over the full five years.) If inflation turns negative - i.e. if prices in general drop - then you would find yourself getting only the interest, but your capital will not drop, come what may. In my opinion they are a very attractive deal (which is why you are limited to £15k).

earthlover

Thanks to Ark Welder, ses6jwg and kidmugsy for your input.

I'm much clearer on the IL certs now.

ses6jwg

You seem to have a good financial head on your shoulders for your age.

I see you only have 3000 in IL certs; is that because you want to take more risk or you think inflation has pretty much peaked, which is one thing that I keep wondering.

You certainly seem to have chosen the right time to get into shares! I would be surprised if shares to as well in the next 4 years.

atush

Earth, with the NSI ilsc, you can withdraw your money after one year has passed (even htough it is meant as a longer fixed term acct). So you will have an out if you feel the money is better put elsewhere in future.

ses6jwg

earthlover wrote: »

Thanks to Ark Welder, ses6jwg and kidmugsy for your input.

I'm much clearer on the IL certs now.

ses6jwg

You seem to have a good financial head on your shoulders for your age.

I see you only have 3000 in IL certs; is that because you want to take more risk or you think inflation has pretty much peaked, which is one thing that I keep wondering.

You certainly seem to have chosen the right time to get into shares! I would be surprised if shares to as well in the next 4 years.

The reason I only have £3500 in IL savings is purely because that is the only spare capital I had at the time!

I did not want to withdraw from ISAs to buy IL certs as they are slightly more illiquid.

I did not want to withdraw from my shares as the returns have been much greater and the potential greater still.

If I had more capital I would have put more into them.

He needs to start paying into a pension NOW. It's free money.

Buy him a book on investing. The Naked Trader by Robbie Burns is good. Let him start with a fantasy share dealing account for 6 months. If he does OK, I would not be afraid of putting £5k into real shares and seeing how it goes.