Have savings to invest, but no income in the next 5 years as off to uni - what to do

MrJaiga

Im going to be going back to school this year, first college then uni to get a degree with the aim of travelling and teaching for the future.

I have £10k to play with and was wondering what you would do if you were in my situation. I doubt i will have any income in the next 5 years to be able to add to this, anything i do earn will most likely be spent on living costs

I already have 11k in ISA's that I will continue to move around each year to get the best out of them.

But i have another 10k sitting in my account not earning me anything.

I don't mind locking this away for the next 5 years while im studying as i won't be needing it due to have student loans.

Ive been looking at funds and have been impressed by some of the return on them, 10-20% growth (i know they fluctuate but i was just looking at some charts for the most popular funds) on some of these funds sure as hell beats 2-4% that im getting from ISA's.

Should i -
1) whack the whole 10k in a portfolio
2) put, say, 5k in and use the other 5k to drip feed into the funds.

Does it really matter that i won't have any income to add to my investment each month?

MoneySaverLog

Whacking the full amount into any fund is a risky strategy. You could be investing when the market is about to go down. Of cause you could be investing at the bottom but you wont know that necessarily.

Far better to drip feed it in each month.

MrJaiga

MoneySaverLog wrote: »

Whacking the full amount into any fund is a risky strategy. You could be investing when the market is about to go down. Of cause you could be investing at the bottom but you wont know that necessarily.

Far better to drip feed it in each month.

yes that makes sense. Any idea on the ratio i should be looking at for

initial amount to invest : amount stored in savings to drip feed

xylophone

You could put £5740 into an instant access cash isa on 6 April and the rest into the bank paying the best rate you can find - if you know that you will not be paying tax this tax year complete R85.

You could then perhaps open a stocks and shares ISA with £1000 from the non-isa account with the likes of Hargreaves Lansdown ,perhaps starting off with something like an equity income fund or a Distribution fund - you could then drip feed the rest in until October.

At the end of October you could request the s& s isa provider to transfer over the whole of this year's isa and then dripfeed that over the next six months into the fund of your choice or perhaps put £1000 into another fund (maybe a global equity fund) and dripfeed that in until the end of the tax year.

As an alternative to transferring over the whole of this year's isa as above (and assuming that one of your other isas is instant access), you could ask the s&s provider to arrange a transfer from that account at the rate of say £1000 a month.

If you do not wish to take an income, remember to use ACC units in your funds.

You do appreciate I am sure that your capital is not secure in stocks and shares?

You should do your own research before investing any money and ensure that you understand the risks.

Other posters recommend reading "Smarter Investing" by Tim Hale.
http://www.hmrc.gov.uk/isa/faqs.htm

MrJaiga

xylophone wrote: »

You could put £5740 into an instant access cash isa on 6 April and the rest into the bank paying the best rate you can find - if you know that you will not be paying tax this tax year complete R85.

You could then perhaps open a stocks and shares ISA with £1000 from the non-isa account with the likes of Hargreaves Lansdown ,perhaps starting off with something like an equity income fund or a Distribution fund - you could then drip feed the rest in until October.

At the end of October you could request the s& s isa provider to transfer over the whole of this year's isa and then dripfeed that over the next six months into the fund of your choice or perhaps put £1000 into another fund (maybe a global equity fund) and dripfeed that in until the end of the tax year.

As an alternative to transferring over the whole of this year's isa as above (and assuming that one of your other isas is instant access), you could ask the s&s provider to arrange a transfer from that account at the rate of say £1000 a month.

If you do not wish to take an income, remember to use ACC units in your funds.

You do appreciate I am sure that your capital is not secure in stocks and shares?

You should do your own research before investing any money and ensure that you understand the risks.

Other posters recommend reading "Smarter Investing" by Tim Hale.

thanks for the advice. At the moment i do not have any money tied in stocks and shares.

One of my ISA's is fixed for another year.

So ill use up my allowance for next year and which will take £5.6k out of my 10k saving.

So ill be left with approx £5k left to invest.

Ill start off by putting £1000 into a fund.

I have been looking at the Vanguard FTSE UK Equity Income -

Then i will move the £4k left into a bank with the best interest rate and drip feed into that fund.

How does that sound?

Im trying to learn about funds and investing, but having some trouble understanding the graphs, for instance, the graph for the vanguard ftse fund shows a growth of approx 20%

So that means, if i invest £1000, i would earn £200 in one year right?

Is there anything stopping you from putting 1k in an aggressive, volatile fund and earning a % interest you are happy with and then pulling out in 3, 6, 12 months for example?

gadgetmind

MrJaiga wrote: »

I don't mind locking this away for the next 5 years while im studying as i won't be needing it due to have student loans.

Five years isn't really long enough. What will happen if in five years you need this money for a house deposit but its value has dropped by (say) 50%, which can happen?

Equity investments work best when you have a multi-decade investing window and you also know you won't be a forced seller due to needing the cash *now*!

I'm pretty big on equities, and have 90% of my personal investments in this asset class, but for my 19yo daughter I use a very different approach. She uses cash deposits at 3% and NS&I Index Linked bonds, with some bank preference shares to add a little spice. (She also has some technology shares that I bought for her in 2008 but is selling these in a tax efficient way and moving into less risky assets.)

Alongside she has a pension that does use close to 100% equities but this is because she can't touch it for 35+ years.

MrJaiga

gadgetmind wrote: »

Five years isn't really long enough. What will happen if in five years you need this money for a house deposit but its value has dropped by (say) 50%, which can happen?

Equity investments work best when you have a multi-decade investing window and you also know you won't be a forced seller due to needing the cash *now*!

I'm pretty big on equities, and have 90% of my personal investments in this asset class, but for my 19yo daughter I use a very different approach. She uses cash deposits at 3% and NS&I Index Linked bonds, with some bank preference shares to add a little spice. (She also has some technology shares that I bought for her in 2008 but is selling these in a tax efficient way and moving into less risky assets.)

Alongside she has a pension that does use close to 100% equities but this is because she can't touch it for 35+ years.

In five years time i would have hopefully gained my degree and be off to travel and work so needing it for property or anything substantial will be very remote.

I plan to work as a english teacher and travel around the world, so buying property is out of the option for me. My plan is to travel and work (i want to live in a few asian countries for a while) and just save all the money i earn in the next 10-20 years and then when im in my 50's ill probably think about settling down somewhere and that's when ill start thinking about property.

I could leave this money locked in investment till that time, I can't really see myself needing it because after uni ill be off traveling and working so ill be earning money by then. And its not as if im going to need to buy and house or car or support a family while traveling so the money can be locked away.

I just gave 5 years as a rough estimate because who knows, i might fail uni and need the money for living (doubtful but at least i can rest assured i have access to some money when i leave uni)

The money i earn while travelling will probably go into safer investment strategies as that money will be for my retirement, but right now this £5k isn't really needed and if i lose 50% in 5 years, ill just keep it in there till it does some good.

gadgetmind

MrJaiga wrote: »

In five years time i would have hopefully gained my degree and be off to travel and work so needing it for property or anything substantial will be very remote.

Fair enough but remember that plans can change.

The money i earn while travelling will probably go into safer investment strategies as that money will be for my retirement

Wrong way around! As retirement investing is across multiple decades, you can invest more in volatile assets such as equities because time is on your side. This generally gets better returns as you're paid a "risk premium" for taking on something that bounced around in value rather than paying a steady income.

if i lose 50% in 5 years, ill just keep it in there till it does some good.

That's the right approach. The main way people lose from equities is from selling at the bottom, either because they panic or because they need the cash.

bsms1147

MrJaiga wrote: »

I don't mind locking this away for the next 5 years while im studying as i won't be needing it due to have student loans.

Slightly OT, but make sure you're not leaving yourself short; for most people their student loans only cover rent (and sometimes are not even sufficient for this), living expenses have to be funded from another source.

MrJaiga

bsms1147 wrote: »

Slightly OT, but make sure you're not leaving yourself short; for most people their student loans only cover rent (and sometimes are not even sufficient for this), living expenses have to be funded from another source.

im very good with money and have never been left short, mainly due to the fact i live a very frugal life, only things that come out of my account is rent, travel & food & and the odd treat.

I can work online to make approx £100-200 per month so ill use that as my food/living expenses.

Loans should hopefully cover the rest.

I think my plan looks ok. Ill have plenty of money in my instant ISA's that i can use for emergency.

This £5k can be invested with relative peace of mind that I won't need to touch it i think.

Now is the hard part, i guess my options are :

build a portfolio

or

just sticking with one fund such as FTSE UK Equity Income and keep it simple

My brain is telling me option 2 seeing as this will be my first time investing any money, what option would you choose?