Need a bit of help prioritising

konstantinovs

I briefly skimmed on this in one of my other posts (and received a helpful answer ) but was hoping to get an in-depth response to my situation.

So I'm 21, have a decent job with a fairly good salary. Have about 11k in savings. Manage to save ~£750 - £1k per month, putting it into ISA and my regular savers. There are 4 things that I am conscious of utilising my money for (not necessarily in order):

1. Saving up for a house deposit. I would like to do this ASAP. Even if I save exclusively for this, it will still take another 3 years I imagine before I have enough money for this commitment.

2. Saving up to start up my own business. My business idea is not fully formed yet, and in any case I want to leave it a few years (~25 y/o) before I quit my job and pursue this. I'm estimating cost of starting the business to be at least as much as saving for a mortgage.

3. Using money to invest. I am aware of the importance of investing, and so want to start building a long-term diversified portfolio of trackers as soon as possible. However, building a fully diversified portfolio (i.e. 5+ trackers) would require a large chunk of money in order to negate the costs of dealing (I've seen ~1k per transaction thrown about in some posts??? So a ~5k commitment to begin). Anyway, if I were to go down this route, then the initial outlay would set me back a bit in terms of achieving goals 1 and 2.
Is it even necessary to wait until I have enough money to build a full portfolio? Or could I just buy a global tracker now, with say £1k, then when I'm ready to spend another 1k, buy another tracker, then add another one later etc??

4. Saving for a pension. Whilst not a priority, I'd like to put a bit away for this. My employer does not match contributions, so I guess the long-term nature of this goal makes it quite similar to #3.

So there you go, I'm in a muddle as to where to begin and what my next aim should be of these 4....should I be aiming to distribute my savings amongst all 4 simultaneously, or just focus on one at a time? Any help would be greatly appreciated.

psychic_teabag

konstantinovs wrote: »

3. Using money to invest. I am aware of the importance of investing, and so want to start building a long-term diversified portfolio of trackers as soon as possible. However, building a fully diversified portfolio (i.e. 5+ trackers) would require a large chunk of money in order to negate the costs of dealing (I've seen ~1k per transaction thrown about in some posts???

It's quite easy to buy tracker (and other) funds with no dealing costs. Buying ETFs typically would have transaction charges.

You could use the Vanguard Lifestrategy fund as a single ready-made diversified fund, though I don't know of any (DIY) platforms that let you buy it without either a dealing or holding fee.

calypso_rhapsody

Given both your age and your very different potential needs, i would be inclined to the view that you should maintain maximum flexibility in your savings structure. So would therefore suggest that saving within a pension should not be your priority at this stage ... you can always divert savings into a pension later when you have achieved objectives 1 and 2 in particular. But with the exception of pensions, any other savings do not necessarily need to be 'ear-marked' as towards 1, 2 or 3, you can pool them ...

The time horizon that you are placing on both 1 and 2 is less than 5 years so traditional advice would be that this is not suitable for equity investments .. and some would argue that more volatile markets such as we currently have move that time horizon out to 10 years or so. So arguably 3 is a little different from 1 and 2 in this respect. But no-one knows what markets will do ...

Personally, i would probably be seeking to maximise tax sheltered savings - so a mix of cash and S&S ISAs, maybe ignoring pensions for a short time.

Also i'd rethink whether 3 is an objective in itself - you would presumably be investing for some purpose? maybe a more secure retirement? in that case it would have lower priority to me than 1 and 2 ...

And finally - there are lots of folk who are pretty sceptical about the property market (i am not. long term, one of them) so some would argue that 1 is less of a priority than 2 .... if you can build a successful business perhaps you won't need to worry about the other 3? Don't suppose Martin is too worried about them now!

konstantinovs

psychic_teabag wrote: »

It's quite easy to buy tracker (and other) funds with no dealing costs. Buying ETFs typically would have transaction charges.

You could use the Vanguard Lifestrategy fund as a single ready-made diversified fund, though I don't know of any (DIY) platforms that let you buy it without either a dealing or holding fee.

Thanks, I didn't know this. I shall investigate a bit further!

calypso_rhapsody wrote: »

Given both your age and your very different potential needs, i would be inclined to the view that you should maintain maximum flexibility in your savings structure. So would therefore suggest that saving within a pension should not be your priority at this stage ... you can always divert savings into a pension later when you have achieved objectives 1 and 2 in particular. But with the exception of pensions, any other savings do not necessarily need to be 'ear-marked' as towards 1, 2 or 3, you can pool them ...

The time horizon that you are placing on both 1 and 2 is less than 5 years so traditional advice would be that this is not suitable for equity investments .. and some would argue that more volatile markets such as we currently have move that time horizon out to 10 years or so. So arguably 3 is a little different from 1 and 2 in this respect. But no-one knows what markets will do ...

Personally, i would probably be seeking to maximise tax sheltered savings - so a mix of cash and S&S ISAs, maybe ignoring pensions for a short time.

Wouldn't a S&S ISA be contradictory to your other point? Because then my money would be tied up in investments?

Also i'd rethink whether 3 is an objective in itself - you would presumably be investing for some purpose? maybe a more secure retirement? in that case it would have lower priority to me than 1 and 2 ...

not necessarily for retirement, although that is part of the reason. Just to have some money to fall back on later in my life I guess I'm just keen to get started early to let my investment returns accumulate for as long as possible.

And finally - there are lots of folk who are pretty sceptical about the property market (i am not. long term, one of them) so some would argue that 1 is less of a priority than 2 .... if you can build a successful business perhaps you won't need to worry about the other 3? Don't suppose Martin is too worried about them now!

haha point taken. I guess I will just keep on saving away in top accounts for now, my priorities may well change over the next couple of years, who knows?

Thanks for the responses guys.

DiggerUK

I can only support the advice to stay as flexible as possible.

Go with anything that keeps you ahead of inflation, maximises your return, and is easily accessible.
Ignore the siren calls about 'free money' with pensions....'free money'??? and don't forget, you will be locked out of that money for over 40 years.

Go with the plan to get a house, once you have a secure roof over your head, you can weather any storm.
Best of fortune.
..._

gadgetmind

DiggerUK wrote: »

don't forget, you will be locked out of that money for over 40 years.

Meaning that you get access to it just when you need it most. How very convenient!

DiggerUK

gadgetmind wrote: »

Meaning that you get access to it just when you need it most. How very convenient!

Exactly the same as if you had saved in other ways, plus you have the option of pulling out if the plan starts losing money; which is what many are experiencing with their pensions today.
..._

gadgetmind

DiggerUK wrote: »

Exactly the same as if you had saved in other ways

Unless in the mean time you've spent it, or lost it through bankruptcy.

plus you have the option of pulling out if the plan starts losing money

Which is exactly the wrong thing to do.

The reasons why pensions work as they do is to protect those without much of a clue from themselves.

Zekko

1. Start paying into a pension and save up your cash deposit for mortgage.
2. Overpay mortgage to reduce the term.
3. When the mortgage is paid off you can start ploughing money into investments.
4. Enjoy retirement with a house paid for, and income from pensions and investments.

durzoblint

konstantinovs wrote: »

2. Saving up to start up my own business. My business idea is not fully formed yet, and in any case I want to leave it a few years (~25 y/o) before I quit my job and pursue this. I'm estimating cost of starting the business to be at least as much as saving for a mortgage.

You do not necessarily have to quit your own job or save as much as a mortgage deposit to start your own business. You can start small and grow.

When your business has grown so big as to require you quitting your day job you will know it.

Theyarv1

Also in 5 years time the market might be in a better place - you may be able to find financial backing for your business without having to put that much in yourself.