Types of investment vehicles

jamels2

I am thinking about alternatives to a pension, more of an investment which will guarantee a regular indefinite return.

For example, a buy to let property in the right area (demand) with a large deposit and decent monthly income after tax.

Something different to a big pot you fill up and can only access from age 50+ and which could run out/reduce in value.

Is there anything else other than the buy to let? I can't imagine regular savings accounts would offer enough return. For example 100k@5% would only return 5k a year which you'd struggle to live on!

grey_gym_sock

there's nothing guaranteed. there are just different kinds of risks.

shares and property (including commercial as well as residential) look like the 2 best assets classes for the long term. the tax wrapper (pension and S&S ISA are the obvious 1s) should be secondary.

personally, i'm not likely to bother with BTL, because you can't spread your risk unless you have enough to buy lots of BTL properties, and it's too much hassle. i'll stick to shares, but include some REITs (which give you commercial property, but with a decent spread of risk).

dtsazza

grey_gym_sock wrote: »

there's nothing guaranteed. there are just different kinds of risks.

Completely agreed - there is no guarantee that one could rent out a BTL property at all, and definitely no guarantee on what sort of net yield would be received. Ditto with normal dividend-paying shares, preference shares, or bonds. Roughly in that increasing order of security and decreasing order of yield, by no coincidence.

You cannot guarantee a return. You can modify your attitude to risk (or rather, volatility) - accepting more of it in return for greater expected/average returns. But nothing will be guaranteed.

jamels2 wrote:

Something different to a big pot you fill up and can only access from age 50+ and which could run out/reduce in value.

A pension is just a tax wrapper. Any other form of investment would also be a "big pot", and most investments could be held within a pension anyway. Admittedly you do have the age-limited access, but that's essentially the purpose of pensions. If that's a big sticking point, S&S ISAs have similar tax wrapper advantages without the age restriction.

And any investment can "run out/reduce in value", by the definition of what constitutes investment. The only financial vehicles where your capital is not at risk are deposit accounts, but as you say they tend to have relatively low yields (much less than 5% at the moment), and don't guard against inflation - your capital can still reduce in value in real terms.

Besides, if you think about it for a second - if there was an alternative investment that guaranteed good returns, then it wouldn't be an alternative at all, it would be something that everyone used as their "cookie cutter" retirement plan! The usual choices are usual for a reason; because they generally work best in everyday circumstances. Unless you suggest there's an unusual aspect of your own situation, I can't see why alternative choices would necessarily work better.

jamels2

thanks for the advice, can you advise any introductory books to read which will teach me about shares? I know very little about the subject, and how you would go about investing money in them. I would like to learn more about this though, as an alternative to buy to let. In fact I know very little about finance and business in general. I assume shares are where the general publics money is invested in companies they believe will be profitable and generate them a return. I also assume the companies sell these shares in order to grow. Lastly I assume that a company would only sell of a certain amount of shares, so that they are still the majority owner of the company. I may be totally wrong, which is why I ask for advice on a book to read!

Linton

jamels2 wrote: »

I am thinking about alternatives to a pension, more of an investment which will guarantee a regular indefinite return.

For example, a buy to let property in the right area (demand) with a large deposit and decent monthly income after tax.

Something different to a big pot you fill up and can only access from age 50+ and which could run out/reduce in value.

Is there anything else other than the buy to let? I can't imagine regular savings accounts would offer enough return. For example 100k@5% would only return 5k a year which you'd struggle to live on!

A BTL wont guarantee a steady income if you have a gap in the letting, or a tenant from hell who wont pay. And I cant quite see how it is very much more accessible than a pension. The only way you can get hold of any significant amount of money from it, should you need to, is to sell the lot which may be difficult to do quickly. A pension is not likely to lose money over an extended time period, let alone "run out".

If you are planning to live on the proceeds of your investment, then a long term extraction of more than an inflation adjusted 5% is not likely to be sustainable in my view, no matter what you invest in.

BLB53

thanks for the advice, can you advise any introductory books to read which will teach me about shares?

Afew to look at 'Slow & Steady Steps..' http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1361990892&sr=1-1
also 'Smarter Investing' http://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-ebook/dp/B00ABHBAK6/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1361990963&sr=1-1
on pensions 'DIY Pensions' http://www.amazon.co.uk/D-I-Y-Pensions-ebook/dp/B00B7QN8XM/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1361991051&sr=1-1

Of course, there's lots of free stuff on the web eg lots of useful articles on www.monevator.com , www.retirementinvestingtoday.com , www.miserlyinvestor.com and www.diyinvestoruk.blogspot.co.uk

Happy reading!

jamels2

some fantastic looking books there, thanks!
before your suggestions, the only one i'd noticed was called the naked trader.
i really want one to explain to me the whole concept behind stocks and shares, in the wider context, not just how to buy/sell them.
the smarter investment book looks very good based on the reviews, although quite expensive.

atush

Alternatives to a penson (from BTL to other schemes) dont' include tax relief. Which can mean you are 20-40% up on anything saved elsewhere plus no tax on income/CGT.

So, no, there are no real alternatives to having NO pension. There are things like Isas (incl S&S) property etc you can hold alongside a pension so as to be the most flexible in your future goals.

grey_gym_sock

atush wrote: »

So, no, there are no real alternatives to having NO pension.

that's going too far ...

it partly depends on what tax relief you're getting on contributions vs what rate of tax you guess you might pay on the pension. sometimes that gives a pension a huge advantage, sometimes very little.

also, if you're aiming for extreme early retirement, then you can only put a very limited amount in a pension, because it won't help with early retirement, but will only provide a boost in mid or late retirement.