How to fall in love with saving money

atush

No it doesn't! You still get pound cost averaging if you only invest every four months.

Well, some PCA but it is reduced markedly as 4 months can be a long time in investing. Monthly is best because most people are now paid monthly- not weekly or daily.

As for costs, that is something you can use to choose the platform you'll use. Someone who charges a set % which would mean the same cost to invest on one or 4/5 different funds/trackers.

cathybird

I probably really need to do a ringaround of the promising ones and ask them what they would charge me. That would clarify it for me.

Thanks, Eco Miser and atush - you're both being remarkably helpful.

Porcupine

cathybird wrote: »

Thanks also, Eco Miser, for the post from bowlhead, which answers the other question I was puzzling over - everyone says buy bonds, but is there a reason to when yields are so low, in many cases lower than you could get for longer-term deposits in cash? ... I know you don't keep fixed income for the return but cash is safer (at least in the lowish amounts I'm currently looking to invest) and the rate in many cases rather higher.

I'm staying mostly clear of bonds for this reason, and have a mix of equity and cash. I do hold some high yield bonds, which give higher returns (8-10%) for a much higher risk of default. Also there are 'high dividend' funds that pick funds for a high dividend yield rather than having a high bond yield. Riskier, but at the moment bond prices are almost certain to drop sooner or later. OTOH these funds also have the potential for capital growth.

The other type of bonds that could be handy is short-dated bonds. If you know you're going to get the ticket price back for them when they expire in a year or two, there's much less range the price can fluctuate.

Bonds also lead the economic cycle - they're expensive now because lots of people are risk averse. If the economy improves they'll get cheaper (because everyone will throw risk to the wind and make lots of juicy equity investments instead). So now is a good time to sell them if you have some, and later on they'll be cheap when the economy looks like it's doing better. So my strategy is cash for now and switch to bonds when the prices have come down a bit.

Regular investing ISAs tend to offer a rate of about £1.50 on transactions, where if you just put in a lump sum the going rate for a transaction tends to be around £5 at the cheapest, so if I'm going to use a portion of monthly income it might be worthwhile to go the regular investing route. If I have accurately understood what is meant by "regular investing".

Those are the fees for share investing. For fund investing there are often no transaction fees if you pick the right broker. I'd stick with fund investing to start with as a beginner.

cathybird

Porcupine wrote: »

I'm staying mostly clear of bonds for this reason, and have a mix of equity and cash. I do hold some high yield bonds, which give higher returns (8-10%) for a much higher risk of default. Also there are 'high dividend' funds that pick funds for a high dividend yield rather than having a high bond yield. Riskier, but at the moment bond prices are almost certain to drop sooner or later. OTOH these funds also have the potential for capital growth.

The other type of bonds that could be handy is short-dated bonds. If you know you're going to get the ticket price back for them when they expire in a year or two, there's much less range the price can fluctuate.

Bonds also lead the economic cycle - they're expensive now because lots of people are risk averse. If the economy improves they'll get cheaper (because everyone will throw risk to the wind and make lots of juicy equity investments instead). So now is a good time to sell them if you have some, and later on they'll be cheap when the economy looks like it's doing better. So my strategy is cash for now and switch to bonds when the prices have come down a bit.



Those are the fees for share investing. For fund investing there are often no transaction fees if you pick the right broker. I'd stick with fund investing to start with as a beginner.

Thanks for the link, Porcupine. I have read the Monevator articles on cheapest brokers but remain a bit bemused.

I'm not a complete beginner - I've owned stocks and shares before - I had a modest portfolio back before I left Oz. And in fact I had money in funds back then too. I've never gone down the drip-feeding route though, which is the bit that I am finding opaque now, in trying to work out how it would work and what the costs would be.

Thanks for your info on bonds too - I know you can get short-dated or higher-risk bonds but the general point of bonds in the portfolio (as I understand it) is to lower the risk (and because they traditionally don't correlate with equities etc etc.). Most of my reading on the issue seems to recommend government bonds only, but the rates on those are pitiful (and the rates on corporate bonds are not much better).

DealFan

Saving money is never as exciting as buying something - but saving brings peace of mind for the future. So you have to get excited about increasing your peace of mind! The larger the safety net, the happier you become to enjoy the more long-lasting pleasures in life: choice and security.

atush

Well, if like me you started off decades ago investing 50 quid per month, it can be VERY exciting to open up the annual or semi annual statements!!!

YoungBusinessman

Atush hopefully I can say that once I'm getting on a bit aswel holiday pay for 2 weeks and 2 weeks pay coming in next Friday, will be saving the whole lot, should be around £2,400ish as don't earn as much in winter. Starting to make great progress although I'm watching my money that badly I'm putting off the gfs Xmas until very last minute!! On Saturday it's a year since we bought our first house together, we have overpaid that much this year that instead of being down a year to 19 left, there's "only" 17 years and 3 months left now! Bring on more overpayments!

Porcupine

cathybird wrote: »

I'm not a complete beginner - I've owned stocks and shares before - I had a modest portfolio back before I left Oz. And in fact I had money in funds back then too. I've never gone down the drip-feeding route though, which is the bit that I am finding opaque now, in trying to work out how it would work and what the costs would be.

Generally it's fairly straightforward. You set up a direct debit to take out £xx per month. You give the broker to invest that into one or more funds or shares (usually £50pm minimum for funds). When the DD day comes around they buy the investment for whatever the price happens to be that day. They may take a fee like £1.50-2 per fund, but I'd steer clear of those brokers if you're only putting in small amounts (<£300pm say).

Thanks for your info on bonds too - I know you can get short-dated or higher-risk bonds but the general point of bonds in the portfolio (as I understand it) is to lower the risk (and because they traditionally don't correlate with equities etc etc.). Most of my reading on the issue seems to recommend government bonds only, but the rates on those are pitiful (and the rates on corporate bonds are not much better).

The studies on cash v bonds v equities are usually based on what institutional investors can get. So for them they get 0.5% base rate on cash, 1.x% on government bonds and a higher number (sometimes) on equity. Meanwhile we can get 3-5% on cash by playing the retail special offers. Since the yield of a bond is connected to its price, if bond yields were to increase the price would go down - which means there's a capital risk with bonds which there isn't with cash. Hence I can't see why retail investors would buy (government) bonds in the current climate, except for wrapper reasons (the money's in your S&S ISA/SIPP/whatever, so you can't withdraw it to play current account games).

cathybird

well, there was a book sale at work yesterday and I'm afraid I didn't resist ... I knew I shouldn't go and look, but I did, and I bought eight or so books. On the plus side, two will be presents and were nice and cheap, and I can sell one or two of the others on Amazon and probably cover my costs for the rest. So, a bad side to it and also a good side.

cathybird

Porcupine wrote: »

Generally it's fairly straightforward. You set up a direct debit to take out £xx per month. You give the broker to invest that into one or more funds or shares (usually £50pm minimum for funds). When the DD day comes around they buy the investment for whatever the price happens to be that day. They may take a fee like £1.50-2 per fund, but I'd steer clear of those brokers if you're only putting in small amounts (<£300pm say).



The studies on cash v bonds v equities are usually based on what institutional investors can get. So for them they get 0.5% base rate on cash, 1.x% on government bonds and a higher number (sometimes) on equity. Meanwhile we can get 3-5% on cash by playing the retail special offers. Since the yield of a bond is connected to its price, if bond yields were to increase the price would go down - which means there's a capital risk with bonds which there isn't with cash. Hence I can't see why retail investors would buy (government) bonds in the current climate, except for wrapper reasons (the money's in your S&S ISA/SIPP/whatever, so you can't withdraw it to play current account games).

Thanks Porcupine. This was more or less the understanding I'd arrived at too (that there is no real point).