How should a young person save/invest for the long term?

jimjames

Pension or Stocks & Shares (S&S) ISA should be something to look at as early as you can.

There is an interesting comparison showing someone saving into their pension between 20 & 30 then stopping and another starting at 30 and having to save until they are 60 to get the same benefit.

http://monevator.com/how-compound-interest-can-save-our-pensions/

A great quote from the above article:

Don’t think that investing for the future can wait until later. The early years count. Start saving something now and do it regularly. The longer your investments have time to grow, the greater the power of compound interest to make you money.

JC_Maven

Thank you all for your suggestions and I welcome any more that you have.

There have been quite a few comments on 'saving' for a house or emergency fund and while I think these are all sound ideas, i am wondering how you are differentiating saving from putting money in low-risk investments? Is this simply money you have quick access to?

CLAPTON wrote: »

but your strategy should be a mixture of

pension provision
property to live in
cash savings for rainy day and general
S&S ISA for tax advantages
Index linked savings (when avaialble)

the details depend upon your individual circumstances which you haven't shared but if you are 'young' then saving for a property is probably your top priority

By pension provision, are you referring to the "National Employment Savings Trust" (NEST) that the government will be rolling out over the next 4 years?

Would an index linked savings account be comparable to a S&S ISA or are there more closely related examples?

OK to divulge a little into my circumstances, I am 20 I have a 5ishk Cash ISA, in University, simply looking for diversified long-term options (as in 'choices' not futures ) in terms of investing with relatively high long-term yields (which is a given in most cases). A structure/portfolio that I can put in place now so that when the income starts coming in I can add to it asap and take advantage of the great bounty that is compounding.

Lokolo wrote: »

That's my Young Persons Plan.

Sounds great, I think I am on step 2 of that plan. So to clarify, was it 23k for a deposit on a mortgage and are you saving for your pension or is that a future step? Good job with the saving while at Uni, that must have been tough! I know it is for me...

srcandas wrote: »

But as Anne Elk would say "this is my theory and my theory alone" or something like that

:beer:

I heard a great quote that you may like that is
"The first 30 is for learning, the next 30 is for earning"
which I think sums up your principle quite well, and is also a principle that I believe in. I do think there is a balance to be struck (such is life) but thanks for raising this idea.

BLB53 wrote: »

Hope that helps.

It does, thanks

You all seem quite knowledgeable of these things so maybe I can pose a slightly more challenging topic of discussion in addition to all those above...

Is is sometimes advised that since young people have a longer time to recover from high-risk investments that they could/should allocate more of their investment resources to a higher proportion of high-risk funds or investments than, let's say, a 65 year old just going into retirement.

My question is what are some of this high-risk strategies that are talked about in these cases and through your experience or otherwise, how you have found their effectiveness in the long-term?

Disclaimer: I am talking about a diversified portfolio in all cases where resources are spread intelligently through high medium and low risk cases, not looking for tricks or short term gains, just tweaking the system that's all :A (people get nervous when you start talking about 'high-risk'...)

cashbackproblems

I am 25 and just started a new job and so far my savings goals have been:

-Buying a property, something which will happen in the next 6 months with help from parents for a deposit. This imo is most important thing rather than wasting £££ on rent.
-I saved 10k from my student loans/grants which i put all into shares, some have gone down some up overall i am in +ve and holding about 13k worth for long term i.e. 5-10 yrs.
-I save £100-150 p/m in a S+S ISA via HL into 3 emerging markets funds. This money wont be touched until 55+ when i hope to retire.
-I also fill up my cash ISA and have regular saver where i pay £100p/m

ALL this will dramatically reduce once i get a mortgage, and i will be saving no more than £100-200 p/m. I also have a good company pension non contributory 12.5%.

You are only 20 so i would ensure you are getting a good degree (2.1) and get a job in the first instance, everything else at that age should be a second concern

JC_Maven

cashbackproblems wrote: »

I am 25 and just started a new job and so far my savings goals have been:

Such and Such

You are only 20 so i would ensure you are getting a good degree (2.1) and get a job in the first instance, everything else at that age should be a second concern

That looks like a great plan, good spreading of your investments and consistent payments.

Well for me this is more about interests, I am not worried about my financial situation in the slightest. Call me crazy but I love the inner workings and systems of money, compounding and intricacies of investment from a semi-purely academic approach.

BLB53

Is is sometimes advised that since young people have a longer time to recover from high-risk investments that they could/should allocate more of their investment resources to a higher proportion of high-risk funds or investments than, let's say, a 65 year old just going into retirement.

Personally, I think its down to asset allocation. I would suggest that a younger investor should be 100% equities, whereas someone in their 60s might be 50% equities and 50% bonds to reduce volatility.

If I was in my 20s I would be investing regular monthly contributions into either investment trusts or low cost passive trackers.

CLAPTON

BLB53 wrote: »

Personally, I think its down to asset allocation. I would suggest that a younger investor should be 100% equities, whereas someone in their 60s might be 50% equities and 50% bonds to reduce volatility.

If I was in my 20s I would be investing regular monthly contributions into either investment trusts or low cost passive trackers.

I'm not sure I agree with this as it depends upon whether you have pension income or you depend upon generating income from your 'investments/saving
a 60 year old can expect to live for 25-30 years that's a long time to be in bonds that may pay less than inflation

For the person without a property then investing in S&S is probably not the best strategy as the market may be down when the money is needed for a deposit.

So for a youngster of 20 then maybe they are looking at 5 years to buy their first property; not really long enough for S&S timescales
however, as you are interested in the market maybe split things 50-50% so half in best savings a/cs and the other half in S&S

and about pensions: if your (future) employer is contributing to the pension pot then at least pay sufficient to get the max from the employer... free money is hard to beat.

Hydromancer

cashbackproblems wrote: »

I am 25 and just started a new job and so far my savings goals have been:

-Buying a property, something which will happen in the next 6 months with help from parents for a deposit. This imo is most important thing rather than wasting £££ on rent.
-I saved 10k from my student loans/grants which i put all into shares, some have gone down some up overall i am in +ve and holding about 13k worth for long term i.e. 5-10 yrs.
-I save £100-150 p/m in a S+S ISA via HL into 3 emerging markets funds. This money wont be touched until 55+ when i hope to retire.
-I also fill up my cash ISA and have regular saver where i pay £100p/m

ALL this will dramatically reduce once i get a mortgage, and i will be saving no more than £100-200 p/m. I also have a good company pension non contributory 12.5%.

You are only 20 so i would ensure you are getting a good degree (2.1) and get a job in the first instance, everything else at that age should be a second concern

How the heck did you manage to save this much through uni? I find it difficult to make ends meet with my student loan.

somethingcorporate

It's only ever a possibility if parents bail them out. Lots of my friends were this fortunate that they could save / invest their student loans. The rest of us ended up with £14k of debt to show for it and will be paying it back well into their 30s!

I agree with the rest that focus on getting a good job out of uni. Like most things in this world you get out what you put in. Get a good job and it will give you more (or at least some) income in which to speculate with later in life. If you do want to invest your cash in high-risk do take a long-term view - the daily fluctuations may make you feel a little bit sick!

ds1980

If you're defining young then from birth if you ask me. We had savings from friends and family etc and taught that if you wanted something you had to save to get it.

There are three of us and all of us had enough money by 18 to buy houses, cars etc without any help from parents (except pocket money that was saved etc )

If you're talking about what others have said then you have some great info.

None of this was investing just simply saving and it being in savings accounts. We are quite entrepreneurial and think this is key. We would buy goodies from the cash and carry and sell at school along with cigs and anything else we could get our hands on!

IMO investing is something you can/should do when 18+ and have house, car and a lifestyle you want. Reason being that until you have "everything" you need the avergae person is likely to need some money for a rainy day and dont think having it tied up is great at that time of your life. There are obvious exceptions such as pension as been stated and i understand the early years are important but lifestyle is too.

YoungBusinessman

IMO invest totally on getting income as high as possible. Follow the money first, happiness later.

To a certain degree, dont make yourself suicidal/depressed etc.