Investment advice/Company share scheme

Mozz01

After years of earning good money and managing to live beyond it, after just turning forty i seem to have finally grown up and am looking at being sensible with my finances, i havent had a blow to the head, nor can i pinpoint why all of a sudden i am compelled to do this, but am determined to follow this path.

I have no lump sum, but a high surplus of spare cash every month, which i manage to spend each month, i sometimes get to having a few grand in the bank and ill be off to Vegas, or Thailand, or buying expensive electrical stufff that i dont need, in short i am looking at a grand every month to invest/save.

My company has a share scheme, which i have known about but never bothered with for over a decade,i can pay up to 10% gross every month with a 15% discount on market price, this looks like a no brainer and am awaiting an info pack to get started.

The way i see it, and i realise i could be way out is that i pay an amount, before tax which is a big saving on tax, ie 20 quid for every hundred put in???

Im also just under the 40% limit, so a quick look into it am i right in assuming that if i go 500 quid over the 40% limit every month with overtime, the 4-500 evey month i pay in will drop me back below the 40% limit, meaning i will be saving 40 quid in the hundred in tax, meaning for around 500 a month paid in will actually be costing me 300 as its tax saved, plus ill be getting 15% discount???????

So my intial thoughts are pay maximum into share save 400/500ish, 100 quid a month direct debit to premium bonds and the only other idea is buy a couple of gold soveriegns a month, my reasoning being if i just save save in a normal account i will get itchy fingers and be booking holidays and stuff i dont really need, i want to make it hard to spend, but not impossible to get hold of in an emergency.

Anyone any advise please, im clueless with saving and investing, its something ive never done, i looked at ISA earlier and again i may be way out but if you save 10 grand you get 200 quid a year intrest, doesnt seem worth it to me????

brasso

Not sure about your Sharesave tax position but I would make a couple of quick general remarks:

-- Yes, join the Sharesave scheme. The details vary from company to company, but they are usually a great way to save as the cash is taken from your salary, and you usually have to make a commitment over a longish period i.e. 3 or 5 years. Getting the discounted share price means you've a great chance of finishing with a valuable pot, and even if the share price has plunged you will be guaranteed not to lose your money.

-- Pension? Does your company have a pension scheme that you can pay into? If so, then use it to the max. This is free money. Usually a company scheme allows you to pay a certain amount (say 10%) of your salary into the scheme and they will then match that amount up to an agreed level. This tax-efficient, free money will help build up your pot which is then tied up until you are 55 or so. But if you change jobs you can transfer the pot to your next scheme. Pay in the max allowed to get the most possible free money.

-- Gold? Well, Your decision. I have some physical gold, bought Feb this year, which at the moment is showing me a loss of around 25%. Ouch. If you think it's hit the floor, then fine. If you think it has further to fall, then stay clear. Personally, I think there are better options.

-- Re other investments, Premium Bonds are not much better than cash in the bank i.e. given the law of averages you are likely to recoup in occasional winnings over a period of time about the same sort of gain as interest on cash savings. Yes, you might hit the jackpot, but that's statistically unlikely to happen.

-- If you're happy to commit to a monthly amount, great, but why not pay it into an ISA to ensure tax-free savings? Many people on this forum will advise a cash ISA but for reasons you state (poor interest rates), personally I much prefer stocks and shares ISAs which allow me to pick and choose which investments to put my money into. Your monthly £1,000 isn't far off the exact max that you can pay into a S&S ISA. Investing in stocks is a big subject but if you check out an online platform like Hargreaves Lansdown (others are available!) they will give you a fairly user-friendly summary of your options, which include funds made up of a basket of stocks. There is risk attached but I find it so much more interesting than boring old cash and the tiny interest rates.

chris_m

brasso wrote: »

-- Yes, join the Sharesave scheme. The details vary from company to company, but they are usually a great way to save as the cash is taken from your salary, and you usually have to make a commitment over a longish period i.e. 3 or 5 years. Getting the discounted share price means you've a great chance of finishing with a valuable pot, and even if the share price has plunged you will be guaranteed not to lose your money.

Looking at the OPs post, what they describe does not sound to me like a Sharesave scheme, but a discounted share purchase scheme.
As such, they get to buy shares at a discount but do not "get their money back" if the share price later tanks because the money has already been spent to buy the discounted shares each month.

Mozz01 - as well as this discounted purchase scheme it would be worth seeing if you company does also offer a Sharesave scheme because, as brasso says, those can be very lucrative but, if not, you do get your money back at the end of the term if you decide not to take the shares.
If they do run that as well, you can put up to £250/month in over 3 or 5 years usually - so, if that would also interest you, remember to hold that amount back (i.e. don't commit it to anything else) to use when the next sharesave starts.

Linton

Although it is probably worth while taking part in the share scheme, if you put too higher % of your wealth into it and the company goes bust you lose both your job and your life savings. So I suggest you put the majority of your savings elsewhere.

jimjames

Linton wrote: »

Although it is probably worth while taking part in the share scheme, if you put too higher % of your wealth into it and the company goes bust you lose both your job and your life savings. So I suggest you put the majority of your savings elsewhere.

Very true. There are a few people on here that had big sharesaves with RBS & Halifax and got hit very badly by their falls.

For the sums you are looking at you may also want to investigate S&S ISAs as they will allow you to build up a long term investment portfolio over a number of years all tax free.

Also bear in mind that if you are a 40% tax payer any pension payments will get 40% relief. It doesn't matter if you are only £1 over the limit you get 40% relief on the payments into your pension.

Gentoo365

You need to look at the tax situation. If you are purchasing discounted shares there may be tax benefits, however if it is a 'save as you earn' then the payments are made after tax.

Regardless they are often good schemes. If the shares drop in value you usually just get your money back. I also believe (please check) that if you really do need the money you can take the money out early, but you just get what you put in (no gain).

As someone said above. The 'gains' are linked to the share price. So until the plan 'matures' ignore the current value of the plan. As you may only get your money back.

That said, there are not many investments around where you get your money back if the shares fall in value.

Gentoo365

jimjames wrote: »

Also bear in mind that if you are a 40% tax payer any pension payments will get 40% relief. It doesn't matter if you are only £1 over the limit you get 40% relief on the payments into your pension.

..and given the current public witchhunt against anyone earning large salaries this 40% relief may not last much longer. It may just be 20%.

Personally I am always rather concerned about personal pensions. As the money is locked away and if regulations change you cannot get it out.

There is always the risk that people with personal pensions are (in the future) considered 'fat cats' and hence the funds are at risk of being taxed in some way.

You really have to trust future public sentiment to have an investment locked up for that long.

EDIT - Although, given the tax relief, a pension is still among the best ways of saving for retirement, and everyone should still have one. If only because most employers contribute some money for free.

bigadaj

Gentoo365 wrote: »

..and given the current public witchhunt against anyone earning large salaries this 40% relief may not last much longer. It may just be 20%.

Personally I am always rather concerned about personal pensions. As the money is locked away and if regulations change you cannot get it out.

There is always the risk that people with personal pensions are (in the future) considered 'fat cats' and hence the funds are at risk of being taxed in some way.

You really have to trust future public sentiment to have an investment locked up for that long.

EDIT - Although, given the tax relief, a pension is still among the best ways of saving for retirement, and everyone should still have one. If only because most employers contribute some money for free.

I save into a pension from a higher rate tax and can understand the logic of limiting the tax relief, but like anything I play by the rules as they are currently and would review with any changes.

For mos people the answer is to diversify though, assets split between property, pension, isas, cash etc. it often surprises me how overweight people are frequently particularly in property and sometimnes other assets.

Mozz01

Thanks for the replies all, the company share scheme is actually called an ESPP, there is a one year holding period, and contributions are taken from gross monthly salary, thats all i know untill i get further info.

I believe if the price goes down, i lose the money, but historically unless its a global recession or the like it doesnt happen, the company is one of the biggest in the world and has been a success year after year.

Regarding pension, im in a final salary, not sure what if any more i could put into it?

Someone at work was talking about AVCs, i havent a clue what that means??

I will explore the option of share/ISAs, i also like the idea of the premium bonds/gold, yes it doesnt attract interest, but its money saved i cant spend at short notice on a whim, ie log into betfair/ buy a new tele online etc.

MummyRivett

Our Company has a sharesave scheme, I joined it saving £250 a month for the last five years. the scheme I was in finished on 10th November. I put in £15,000 over 5 years received a bonus and interest. The price of the shares 5 years ago where held at £2.02. was able to buy back 8,251 shares and today the current share price is £5.11. So worth doing.

xylophone

http://www.pensionsadvisoryservice.org.uk/different-types-of-uk-registered-pension-schemes-and-related-benefits/workplace-pension-schemes/avc-and-fsavc

http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm
might be worth a look.