Noticed some changes? You can read all about the improvements we've made on the Forum in our latest announcement. We also have a new set of Forum rules so please take the time to give them a read and familiarise yourself.

Is 100% equity a good strategy for me?

edited 30 November -1 at 1:00AM in Savings & Investments
33 replies 4K views
Pumpkin_KingPumpkin_King Forumite
12 Posts
edited 30 November -1 at 1:00AM in Savings & Investments
My savings strategy for the next 10 years:
1) Keep three months' living expenses aside as an emergency fund.
2) Put everything else into low-cost index trackers.

I realise 100% equity is generally considered high-risk, but considering the following factors I feel it is a good plan for me:
- I'm 31, so I won't be retiring any time soon. I can shift to a cash-and-bonds portfolio when retirement begins to loom.
- I intend to buy a home with my spouse at some point, but we have no particular timescale in mind. We're happy to wait for the right time - i.e. when property prices are down and our investments are up. Waiting several years for this situation to arise is not a problem. Given this, equity seems like a better way to save for the deposit than cash.
- I have no savings goals other than home-ownership and retirement. Although I'm married, we're highly unlikely to have children so don't need to save for that either. I have no desire to go on a round-the-world trip or buy a fancy car.
- As I work in an industry which is thriving, it's very unlikely that I'll be unemployed for a long amount of time, so I don't feel I need to put aside masses for that possibility.
- I will only invest in index trackers. So although my investment will go up and down, it's pretty-much guaranteed to go up in the long-term.

Given all this, is there any disadvantage with a 100% equity portfolio, in my particular situation?
«134

Replies

  • bristol_pilotbristol_pilot Forumite
    2.2K Posts
    ✭✭✭✭
    It is a very high risk strategy for the short term; you seem to be mixing up two goals of retirement and house purchase. Given your age, if the savings were purely for your retirement then 100% equities is IMO appropriate to your aims. In this case it may be better in a pension to benefit from employer contributions or (higher rate?) tax relief. However, for short-term savings for a house deposit I would go for a boring savings account or ISA. Stock market falls of 30% or 40% do happen and have happened twice in the past 10 years. For a house deposit one should SAVE, for retirement one should INVEST.

    Also, 3 months outgoings is too low for an emergency fund IMO. Although you have convinced yourself that you are indispensible in your line of work, life has a habit of throwing up nasty surprises like unexpected sickness or accident.
  • I have no doubt more experienced posters will be along shortly to comment. I am in a similar position to you and am 100% equities. My wife has a reasonable cash pot but due to the returns on cash I choose to put all my after tax savings into index trackers. I do have sufficient funds going into a pension on the side though.

    Within the 100% equity plan would you be apportioning this in some way between pension contributions and s&s isa?

    Fyi i opted for vanguard 100 via HL but have recently bought Blackrock Em mkts tracker through Cavendish for a bit more spice.
  • Bristol pilot:

    Thanks for your reply. I realise that stock market crashes happen, but if we're flexible about when we buy a home, what does it matter? The market tanked catastrophically in 2008 and a few short years later it was booming again. If we're happy to wait a few years after the crash, what's the problem? Buying up stocks in a crash would boost our returns and allow us to afford a better home when the economy recovers. Okay if we had another 1930s Great Depression our home-ownership plans would be messed up, but that's extremely unlikely, and I'm willing to take that risk. Every other crash has been followed by recovery within a few years.

    At the moment I'm not a higher tax payer and my workplace doesn't offer a pension, so for the time being S&S ISA works best for me.

    Yes maybe I should have a bigger emergency fund. I will consider it.

    alan5375: No pension for now, alas. I'm just aiming to max out my ISA. I use various HSBC funds plus the Black Rock emerging markets tracker you mentioned, all via Cavendish. At some point I intend to shift to Vanguard's SRI global tracker though (the only low cost ethical tracker I've been able to find).
  • WobblyDogWobblyDog Forumite
    512 Posts
    Tenth Anniversary 100 Posts
    ✭✭
    Although I'm an enthusiastic reader of www.housepricecrash.co.uk, I don't have much confidence that house prices will drop substantially in the next few years; there are too many people with a vested interest in rising house prices.

    The thing that worries me about your strategy is that many politicians will intervene with tax-payers' money to support house prices, but few will intervene to support equity prices.
  • TottonTotton Forumite
    981 Posts
    ✭✭✭
    Even within a 100% equity portfolio there are different levels of risk. Provided you understand and are willing to take on that risk then there isn't a problem so go for it.

    I would opt for 6 months cash but as your job is very secure then your 3 months is enough for now.

    Personally I don't think this is the right environment for index trackers but long term they should do you fine.

    Good luck,
    Mickey
  • jimjamesjimjames Forumite
    14.4K Posts
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    ✭✭✭✭✭
    I am also nearly 100% equities and have been for the last 15 years or so.

    As long as you are aware of the risks which it appears you are then there shouldn't be a problem. You might want to look beyond index trackers for some markets though as certain areas are not ideal for trackers.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • PrimrosePrimrose Forumite
    9.7K Posts
    Part of the Furniture 1,000 Posts Name Dropper I've been Money Tipped!
    ✭✭✭✭
    At 31 I think you should certainly be thinking about starting a pension. Don't forget that it's the payments made in earlier years that help to make your pension pot grow. And I would suggest six months emergency funds in cash. Delaying a house purchase for some years sounds fine in principle but don't forget that money paid in rent is completely wasted and could be going towards paying a mortgage off.
  • sabretoothtiggersabretoothtigger Forumite
    10K Posts
    Part of the Furniture 1,000 Posts Photogenic Combo Breaker
    ✭✭✭✭✭
    ) Keep three months' living

    Keep twelve
    money paid in rent is completely wasted
    money can be wasted buying a house too, depends how well its done.
    Liquidity is going to be a big with buying anything I reckon so thats why I think its ideal to have at least 12 months money ready.
    However savings rates are really bad so without risk thats not so easy
    Tokyo residential prices have gone from 4x London in 1990 to ¼ London in 2014
    Maybe this is one of those cases where you can’t go home again,
  • kidmugsykidmugsy Forumite
    12.7K Posts
    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭
    Keep some investment cash for buying shares when next they collapse. Instant-access Cash ISAs are good because you can transfer them into S&S ISAs whenever you want.
    Free the dunston one next time too.
  • kidmugsykidmugsy Forumite
    12.7K Posts
    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭
    kidmugsy wrote: »
    Keep some investment cash for buying shares when next they collapse.

    I add, quoting a commenter at Monevator: keeping a small percentage of cash pays big dividends so you're not forced to sell equities at the wrong time.
    Free the dunston one next time too.
This discussion has been closed.