Where should I save, ISA or investment funds?

grandplonker

Hi all,

My savings are modest. £150-250 a month circumstance dependant.

I have a cash ISA at 3% with the Newcastle Building Society, which takes 3 days to withdraw to my bank.

I aso have an Fund & Shares ISA which may make 7.5% with HL which takes 4 days to withraw. That's what the middle risk, 'Steady/Defensive' Master Portfolio made during the last five years. (Yes, it's an unguaranteed risk.)

Where should I put my savings?

jimjames

Is it a trick question?

Cash savings are needed for emergency funds to access very quickly.

Share & fund based investments are for long term but as you've pointed out can also be accessed pretty quickly.

Personally I keep very little in accessible cash and all my long term savings are in investment funds but that is high risk and I know for most emergency spending I have sufficient credit cards to pay for things.

Once you have emergency savings then investing may be worthwhile if you have a long time until you'll need the money

grandplonker

I'll borrow one of your imaginary bargepoles (signature) to check: nope, it isn't a trick question.

I live with my parents so there is less scope for unexpected cost and even if there is, I have credit cards. As my bank pay no interest I only keep there what I need for the month. £1,100 comes in at the end of the month; bills, expenditure and investments go out at the start of the month; anything left over before my next salary enters goes out to investments as well.

kidmugsy

grandplonker wrote: »

As my bank pay no interest .

You could start with that: look at the Lloyds group banks, Santander and Nationwide: all pay good interest on current accounts.

Eco_Miser

Both.
Save enough in cash to cover your expected spending (over what you spend from income), eg annual bills, birthdays, Christmas, etc), and the rest in the S&S ISA. You don't want to need to be selling from that when the market has dropped 30%.
Also consider moving to to a bank which pays 3% or better on a current account.

grandplonker

Thanks. It is rare, but not unheard of for, say, a portfolio of 3 funds to plummet simultaneously isn't it?

Porcupine

grandplonker wrote: »

Thanks. It is rare, but not unheard of for, say, a portfolio of 3 funds to plummet simultaneously isn't it?

Depends what the funds are, and what you mean by 'plummet'. Markets tend to move in sync on the day-to-day trends, so you can look at the graph for three different sectors and you'll see the same rough pattern. That means a bad day for one is often a bad day for all. But what's different is the long term trend: one may fall 10% while another falls 40%, while next week/month/year the first one may be up 20% and the second one up only 30%. It's the relative scaling between the two where sector A balances out sector B.

So the bottom line is, by relying on funds for 'must have it now' money, you take the risk that you might be selling on the 'bad day', when actually the best thing to do is buy not sell.

dunstonh

grandplonker wrote: »

Thanks. It is rare, but not unheard of for, say, a portfolio of 3 funds to plummet simultaneously isn't it?

Depends on the assets of the portfolio. If you had three UK equity funds then you will get general movement in the same direction with market events. If you have a UK equity fund, property fund and a fixed interest fund then clearly all three are very different in how they invest and will perform in very different ways.