Recent Graduate needing investment advice (40K)

Kmaid

Hi all,

I am a 23 year old web developer living in London working on Great Portland Street. I have no significant other living the life of a bachelor. I earn a reasonable salary which covers my living expenses and a small amount of savings I will outline.
I have a 70% 30% budget (70% living expenses 10% long term savings 10% short term savings and 10% fun money). This does not factor in retirement which although sensible is difficult to prioritize over living well.

I am very fortunately to be in the situation after university (2:1) to be debt free, renting, employed having 40k to invest. This sum is currently it is split between three banks in the form of an NSI savings account, ING savings account and Halifax Websave Isa. I have no need to access this money in the immediate future (24months+) and do not mind a low/medium amount of risk for the right rewards as I am still young and could recover. I have a 3-4 month contingency fund should it be required outside the stated amount.

I have been mulling over how to invest this money over the past 8 months and have had a number of ideas however have yet to decide on what the best course of action should be.

Ideas:

1. Growth investment. (thisismoney.co.uk/money/investing/article-1725051/Cheapest-20-investment-trusts-deliver-24-return.html)
2. Bullion Investment. (thisismoney.co.uk/money/investing/article-2014315/Gold-silver-best-investments-2011.html)
3. Property Investment. (I would put down a deposit for a flat within London living in a room and rent out the remaining rooms)

Reservations:

1. This seems to be a volatile market to me. My concerns is how to select the correct trust. 4 year performance reviews etc would help boost confidence.
2. While the gold market seems to consistently increase the price seems very high. I am concerned about getting into the market too late.
3. With population constantly on the increase housing will always be in demand but bad tenants can cost serious money as my brother has experienced.

I am looking to set up an appointment with my father’s financial advisor to review some other options however would appreciate feedback upon my ideas and any alternative investment options to be considered.

Thank you for your time reading this

Kmaid.

Linton

You seem to be approaching money management in a very sensible and mature way - well done, you will be extremely pleased you did this in a few years time when many of your contempories are struggling with serious debt.

The fundamental rule of long term investing is diversification. So if you have several different areas in which you could fruifully invest, the answer to "which one?" could well be "all of them".

Looking at your stated options:

1) Growth investment: you should not be looking for "the fund", rather a range of say 5-10 funds that will give you a broad coverage of areas of the global economy that could provide long term growth. So you could be talking about Emerging Markets, Technology, Natural Resources, Far East, Small Companies etc. If you look at https://www.trustnet.com you will get some idea of what is available.

Growth funds can be volatile, so it may be prudent to also have a safety portfolio and balance between the two.

2) Bullion: no reason why shouldnt hold some, but nowhere near 100% IMHO - think diversification. One problem is that it doesnt generate any income, another is that for "a repository of true value" it is remarkably volatile at times and at others in the past has spent many years going nowhere.

3) Property: Being a landlord is a long term job which can involve significant hassle. Unlike the other two where you buy and forget, except for an occasional review. It is also subject to taxes (income tax on rents, CGT when you sell) which you can largely avoid in the other investments. On the other hand the returns have been very good in the past, whether they will be again remains to be seen.

One point - these investments are not suitable for the short term, say < 5 years. If that really is yor time scale you would be much safer in a high interest fixed term savings account.

Talking to an IFA will be very helpful. You should use it as a learning opportunity with the aim of becoming independent in a few years.

Aidan010

If you are interested in investing then property investment would be a good option because property investment is like a solid asset for the future..It is better to take the advise of the experienced property agents and make right moves.

atush

As you are currently paying rent, if you could find a property that you liked with just 40K as a deposit, then that could be the way to go- esp if you are looking for a lodger. you would save on rent, gain income thru your lodger, and possibly (hopefully and probably) build equity. 40K isn't much of a deposit in london though.

Property prices have come down, but seemingly are doing better in London where you are than some other places.

Do reconsider your ideas about pensions though. Does your employer offer one? Do they contribute? The best thing a 23 yr old can do is start paying into one, even small amts will grow over time through compound interest, tax relief, investmant gains etc and you will find in years to come it was one of your 'better' ideas.

Loughton_Monkey

Kmaid wrote: »

.......I have a 70% 30% budget (70% living expenses 10% long term savings 10% short term savings and 10% fun money). This does not factor in retirement which although sensible is difficult to prioritize over living well........

Although the bulk of your ideas are worthy of discussion and have some sense, I strongly 'caution' you about this part of what you have said.

Since you are a graduate, it is wise to assume that you will have a 'career' [rather than a 'job'] and that your earnings will improve in real terms throughout working life. This is enviable, and fine, but tends to come with a 'drawback'. That is the danger that you build up a lifestyle that costs a high proportion of your later salary - when because of lower salaries in prior years, it is simply impossible for you to have funded for the same spending in retirement out of your much smaller early salary.

Start by imagining a life of 40 years working on, say, £30K in 'real' terms. Just a 'job'. In very round figures, if this person invested £6K and spent £24K, there is a prospect that state + private pension would produce £24K to live on in retirement. That's a zero drop in lifestyle. But what if he only saves £5K and spends £25K. Sounds like 'only' a £1K gap. But in fact the pension will now only be, say, £23K so in fact that's a £2K drop. A 'double whammy'!

Do the mathematics based upon an increasing salary in real terms. Then you will understand why I am strongly recommending that you do not forget the power of compounding and that what you do in the first 20 years of career will have possibly more [financial] impact than the second 20 years. So please consider that pension contributions now should be prioritised above living 'well'.

I retired early, aged 56. In £note terms [not real terms] my 'final' year earnings were in the order of 100 times my salary in my first year at work. But the mainstay of what I am living on now, is much more to do with what I did [financially] in my first 22 years of career, than in the rest [during which I was tending to earn very high salary].

p00hsticks

Kmaid wrote: »

I have no need to access this money in the immediate future (24months+)

If you are seriously saying that in 25 months time you might want to get the money back, then I really don't think you should be looking at property - they buying and selling costs alone would take a big chunk out of your 40k, even if it was a rising market (which I don't believe it is right now )

Kmaid

Sorry, I am sure i should quote each reply however I am at work so its more difficult. Please bare with

1. 24 Months + is just that. I have no impending need for this money or in fact an investment goal. I don't want to tie it up for a very long (10 years) time however if the rewards are right I would consider locking some of it up for that kind of length.

2. Diversity is important I feel silly for completely overlooking this. How many investments should I be looking at and is there any way to manage them in one place?

3. If I was to take on a property I would also live in landlord and pay morgage instead of rent (£550 is current rent ex bills, tax) and hopefully rent out the rooms to friends.

4. I know i need a pension and how important the compound interest is. I am hoping to get a payrise in August and will apportion some of the additional income to said pension. I would have preferred it to do it earlier but I am young and I do like to party having just become self sufficient was unwilling to compromise on this.