Investment newbie confused already

Hudson1984

Hi all, I've posted in the homeowners section but thought i'd ask here too.

I won't bore you with long details but in essence next year i'll be buying my first home and deciding whether tpo have a short mortgage (5 years) or spread the payments leaving lots of money that could be invested i.e roughly £10k/year.

I do get a bonus quarterly so I use that for holidays and things and i'm still in a position to have a good amount to spend each month.

My main query is what the hell do I invest in!! the whole thing confuses me and I really want to make my money work for me. I am looking long term and mainly for retirement (yes even at 28 i'm looking at retirement - don't think there will be state pension when I get there lol)

really i've always thought buying a house to rent is a safe choice but wondered if my money would be better elsewhere.

I'm sure there would be more information required for you to make a fully informed piece of advice but at this stage it's more "food for thought" i'm looking for so please don't think i'll be jumping into anything and moan if it all went belly up lol

I would be looking long term say 25 years however at this length I would want to commit to around £5000 a year rather than the full £10k, the remainder would be saved in a standard ISA, whilst the returns would be low I would at least have access should my life change in circumstance.

any advice really would be appreciated as I know next to nothing about investing.

dunstonh

I am looking long term and mainly for retirement (yes even at 28 i'm looking at retirement

Looking at retirement at age 28 is a late start. Not too late but already it will be hitting your pocket compared to if you had started 5-10 years earlier

I would be looking long term say 25 years however at this length I would want to commit to around £5000 a year rather than the full £10k,

Why have you chosen 25 years?

the remainder would be saved in a standard ISA

What do you mean by standard ISA and how long would you expect that money to be in there for?

whilst the returns would be low I would at least have access should my life change in circumstance.

You always need some short term cash and emergency funds but you need to be careful you are not heavy in cash for medium to long term as you replace investment risk with shortfall risk and inflation risk. Investment risk is what may happen. Shortfall risk and inflation risk will happen.

I think you need to look at your objectives more closely before you go looking for solutions. It isn't really clear what your objectives are.

Hudson1984

oh definitely, I have been putting a nominal amount in pension fund for the last 5 but I've only just gotten to a position where I can start long term retirement plans - hindsight is wonderful isn't it!

ah take 25 years with a pinch of salt, it's more of a tongue in cheek timescale, it's what my mind conjures when I think long term - once I get things moving etc I'd be 55 in the remaining 25 years which would be a fantastic retirement age.

Sorry, to clarify, by standard I mean Cash ISA rather than S&S mainly because i'd rather this portion of fund to be very low risk. With regards to duration it would depend on the Investment advice I get. If it was wise to leave it in the ISA until a set figure is reached say £25k then move it to some other form of investment then it would be in there for a relatively short period of time however if not then it would not be touched other than in the event of a significant life changing event. I do save a seperate amount for contingencies and those impulse moments so really this side of my finances is purely for long terms goals

and to your final point, that certainly is food for thought I assumed it would be sensible to continually acrue a cash figure whilst using the other amount to invest elsewhere.

and sorry for being unclear in goals - really the goal is to retire early if at all possible. I'd like to get to a point whereby my investment/savings could support me without the need for a career income. Which is why i've only ever really looked at houses as by the time I got to 55 I would have properties bringing in a rental income whilst still maintaining the asset that could be sold (albeit possibly a loss at that point - can't tell where house prices will be then) should the need be there.

Sorry if i'm being unclear I find it a bit tricky to get my goals/situation into a coherant block of text

droopsnoot

Hudson1984 wrote: »

Sorry if i'm being unclear I find it a bit tricky to get my goals/situation into a coherant block of text

I share that difficulty - goals, attitude to risk, all of that is stuff that I find very hard to define and has given me all sorts of difficulty in deciding how to invest. When I first put money into an S&S ISA I couldn't think forward to what things would be like in ten years time, and yet here we are now and I have no more consistent investment plan, nor any idea of my goals or attitude to risk now than I had then.

Hudson1984

droopsnoot wrote: »

I share that difficulty - goals, attitude to risk, all of that is stuff that I find very hard to define and has given me all sorts of difficulty in deciding how to invest. When I first put money into an S&S ISA I couldn't think forward to what things would be like in ten years time, and yet here we are now and I have no more consistent investment plan, nor any idea of my goals or attitude to risk now than I had then.

That's exactly what i'd like to avoid!! I certainly feel for you there, to be honest that's what held me up the last ten years. I've only now got myself out of debt and turned things around from having things reposessed and racking up loads of debt. On the up side it taught me a harsh lessons and now with my spending diary and budget planner I tend to stay well within my means

I just don't want to get to 50 and look back and think christ I could've done that better :rotfl:so hoping to start now and be happy with decisions.

for example if I didn't invest in anything other than buying a house outright I could go on a 5 year mortgage and be done with it. rent the thing out and move up without selling. Fine with that really just want to be sure it's the right thing to do and not just do it because it I know more than nothing about it

atush

oh definitely, I have been putting a nominal amount in pension fund for the last 5 but I've only just gotten to a position where I can start long term retirement plans - hindsight is wonderful isn't it!

Hiow much is a nominal amt? What is it worth today? What % of your income is going in? Is there any employer's contrib?

You seem to have not exactly read Duns post- cash is NOT low risk in today's environment. It is Guaranteed to suffer from both inflation and shortfall risk. Therefore, you should possibly only hold in cash what you need as an emergency buffer, and money you may need to spend int he next 3 or so years?

Hudson1984

atush wrote: »

Hiow much is a nominal amt? What is it worth today? What % of your income is going in? Is there any employer's contrib?

You seem to have not exactly read Duns post- cash is NOT low risk in today's environment. It is Guaranteed to suffer from both inflation and shortfall risk. Therefore, you should possibly only hold in cash what you need as an emergency buffer, and money you may need to spend int he next 3 or so years?

3% from me 3% from employer to start and now on 5 and 5. but totals I couldn't say as they are from a couple of jobs in different locations (currently looking to join them all in one location) but not a huge amount it must be said.

ok again back to my lack of education on this front - In what way is it at risk in an ISA? surely my invested amount is protected? is it just the interest I that is at risk? see, confused! I was under the impression that money saved in an account would be quite safe as i'm not buying anything only saving. I'm guessing i'm wrong in that sentiment?

it's not that I didn't read, it's more lack of understanding - this is why i'm here

JohnRo

In a cash account the relationship between interest and inflation matters because whatever the buying power of that cash amount is today, it needs to be at least maintained to have it "worth" the same in future.

It's highly subjective because inflation is very much a personal thing but especially when looking at essentials the present interest and inflation equation just doesn't stack up in favour of holding any more cash in an interest paying deposit account than you absolutely need to.

atush

The VALUE of cash is at risk. The purchasing power of your money.

Say inflation (ie your personal inflation) is 5%. That means cash in the bank earning 2% is losing 3% value each year that goes by. Obv your rates may differ, but pretty much no deposits these days are delivering above inflation.

Second, w/o any growth (or negative growth in your case) you will most likely suffer a shortfall at the time you need to spend this money (for instance, 5K in an ISA today may be enough to buy a second hand peugoet, but you may not have enough to buy a secondhand peugoet in 5 years time as the money didn't grow enough to beat inflation).

At 28, you should be investing (roughly) 14% into a pension unless you have a substantial pot built up already. I suggest you actually find out about your pensions, what they are worth, what they are invested in, and the charges as the First part of your retirement planning.

Then, is 5% the max your employer will put in? If they will put in more if you do, the do put in more.

as to the investing/vs home thing, how long your mtg is for, and if you should invest alongside, can depend on what % your mtg rate will be.

Hudson1984

thanks to both of you very useful information. I'll look at the pensions but yes 5% is the max my company will match which is why I only went up to 5% myself which as you say still puts me 4% below where I should be so maybe I should be looking at upping that before looking into other aspects of my finances.

thank you for the explanation on VALUE of my money I see your point now so it does seem that saving to a level is useful but too much is actually creating a loss.

things to work with for sure so thank you for the advise.

atush

It depends on what other goals you have with yoru money. You could leave the contributions as they are now (but increase with every pay rise) and save into S&S isas when your Cash Isas hold enough for your emergency pot and short term spending needs.

Revisit once your house purchase is done, and you know your mtg rate etc?

But do review your pensions as described. You can even post here what you have.