Newbie Question - Debt v Investing

atush

Hi! I'm a new member of this forum and want to take some advice. I also want to invest but I don't know where should I invest? I'm afraid of the scam today because a friend of mine was a scam victim...

Bill Cage, You could start a newe thread, or you can come back and tell us some things. how much in a lump sum, or how much per month? Do you have any debt, and do you pay tax? Do yu have any other savings and investments? Do you have a pension?

on a bull run PCA really can lower your returns hugely

As for this little nugget, all I had to say and THIS is the thing you pick on? If you regarded my whole post, I said use this method if you will be nervous investing a lump sum in todays' turbullent markets. We haven't seen a true bull market for a few years now, and some crashes/corrections have come pretty quickly. I remember the banking crisis started in the summer when I was in france w/o my computer so was stuck not being able to trade. I had liquidated some things and bought gold a while before that thank goodness lol.

I invest monthly into numberous different plans as well as investing lump sums. And have done fairly well after market corrections.

dtsazza

Credit-Crunched wrote: »

PCA only works in a falling market, on a bull run PCA really can lower your returns hugely

PCA always "works" in the sense that you bought your holding at roughly the average price over the period (with the very nice bonus that proportionally more of the shares were bought at lower prices). That's what it's supposed to do.

Of course, if you know the market is going to go monotonically up it makes sense to pile in with everything on day one. But those situations are almost impossible to predict in advance. In fact, if it was 99-100% sure that prices would be say 20% higher next month, they'd be 20% higher now.

PCA is a form of diversification - in that it reduces your potential losses as well as your potential gains, with a slight bias towards statistically higher amounts (assuming a random walk around a trend). As with all diversification, if you can predict the future with good accuracy you don't need it. Me, I'll be take steady, unspectacular returns over a chance of very high returns, any day.

Ark_Welder

thenudeone wrote: »

You don't get "interest" on unit trusts.

Distributions from bond funds are treated as interest, and this can be reclaimed by non-taxpayers or if held within an [edit] S&S ISA.

Mister_Bump

Thanks for all the replies, ive had a quick look, gonna read in more depth when i get a chance and do a bit more research generally.

Loughton_Monkey

Here are some very general recommendations.

1. Most importantly, do not [and to make it quite clear, I repeat do not] invest a single penny through your High Street Bank. It is the equivalent of getting on a bus, paying £2.50 to go into town to buy a book for £30 at Waterstones, that you need for a birthday present next month - when you could get on the internet to Amazon, buy the same book for £17.50, and have it delivered to your door for nothing in 3 days time. Except in your case, you're talking about £20K!!!! Just use banks for what they are good at. Savings and Mortgages.

2. For 'Unit Trusts' [as you call them] you are presumably thinking of the more modern OEIC's (basically the same thing). You can either do this through a Stocks & Shares ISA, or you can do it through Pensions. The latter attracts tax relief and you should consider seriously if it's really pension you need for the longer term savings. It is more efficient. And Pensions/ISA's these days both can [and tend to] invest in the same funds.

3. If you have not yet 'finalised' your mortgage, then I would very strongly recommend you make it an Offset mortgage. For reasons I can't understand, many people seem to ignore these, and I can never understand why. As far as I know they are still available at roughly equivalent rates to traditional mortgages. I cannot think of a single 'negative' to them. But there are bags of positives with them. Here are the main ones:

• Unlike many others, you can effectively have 'repayment holidays' or you can have 'overpayments' without penalty. Total flexibility that often comes in handy.
• Over the period of the mortgage, [10 years] it is virtually certain that you will get an 'edge' from time to time. This means you can "make money" from the mortgage i.e.
• When savings interest rates get well below your mortgage rate, then your offset account provides you with an almost infinite 'home' for your savings tax free. Basically far better than a cash ISA any day.
• When, on the other hand, [like now for some of us with older offsets] savings rates are above normal savings rates, then you have massive 'arbitrage' by taking all your mortgage balance out, to invest at a profit.
• At times when there is no real 'edge', then the Offset behaves exactly the same as any other mortgage.

ps [I have a theory that most people don't choose Offsets because - by definition - there is never an 'edge' [imbalance of interest rates] when you take the mortgage out. I suspect they don't understand that inevitably, at some time later, an 'edge' is likely to occur].

blinko

I would over pay a bit more of your mortagage. Get it down to a comfortable level

Agreed on the don’t invest in anything the banks offer, accept a savings account the rest of it will be junk.

An offset mortgage is a good idea too.

pqrdef

Mister_Bump wrote: »

He said no because the interest rates on these funds can be bigger than your mortgage rates.

Wasn't that the argument in the heyday of endowment mortgages? What happened to them?