How to invest £40 a month?

bowlhead99

planteria wrote: »

as discussed elsewhere, i am investing in Friendly Societies on similar terms. 10 year minimum, guaranteed not to lose capital.

I suppose the key problem was already highlighted in the first response, post #3.

Risk free (preservation of capital after inflation) just doesn't really exist.

With a cash deposit product you're guaranteed not to lose capital but you're unlikely to match inflation and very very unlikely to beat it.

With a shares-based or multi-asset-based investment fund, you're not guaranteed to preserve capital but you're likely to beat inflation if held for long enough. And depending on the level of risk accepted, the outperformance over inflation can be substantial over a long enough time. These can be done as funds or investment trusts and either inside or outside an ISA depending on whether that's useful from a tax perspective.

With a hybrid product (guaranteed equity bonds, friendly society plans) you are taking lower risk - in terms of risk to the original headline amount of your capital. But this can still be hit by inflation to leave you less in real terms if it performs poorly (return of zero but negative after inflation). And the potential to beat inflation by a significant amount is reduced, because you are paying extra in fees or insurance to cover the downside risk.

So, no easy answers. But once you're happy to extend the term to 10-15 years rather than 5 years to allow you to handle more risk, the options do open up, probably to a confusingly large set of options for a newbie.

Personally I wouldn't use the Friendly style plans as the tax benefits are limited in what you can put in to all TESPs to £25pm. For now, £25 might seem enough, but £25pm will not seem very much in x years time as your salary or general inflation grows. So £50pm into an investment trust, ideally an ISA if no more expensive than non-ISA version, and increasing every year or two if you can afford it, should get you to a good place in 10-15 years.

N1AK

Maddy25 wrote: »

Hi

I would like to invest £40 a month, for the next 5 years.

I'm not sure about investments and stuff, but I know that one of my family members invested in a 10 year "thing" and this year she got approximately £20,000!

I want something which;
- is risk-free,
- at least keeps up with the rate of inflation,
- does not allow early withdrawals,
- trustworthy and worry-free company.

Risk free means covered by FSCS and basically means savings or an ISA. Based on that you won't be seeing it turn into £5k, let alone £20k anytime soon.

The best you can do and match your criteria is get an ISA or other account that gives around 3% interest and you'll have ~£2,600 in 5 years time.

If your family member turned a small monthly payment into £20k then it wasn't without risk and guaranteed to beat inflation if we could all print money on trees like that reliably then life would be far easier

planteria

bowlhead99 wrote: »

I suppose the key problem was already highlighted in the first response, post #3.

Risk free (preservation of capital after inflation) just doesn't really exist.

With a cash deposit product you're guaranteed not to lose capital but you're unlikely to match inflation and very very unlikely to beat it.

With a shares-based or multi-asset-based investment fund, you're not guaranteed to preserve capital but you're likely to beat inflation if held for long enough. And depending on the level of risk accepted, the outperformance over inflation can be substantial over a long enough time. These can be done as funds or investment trusts and either inside or outside an ISA depending on whether that's useful from a tax perspective.

With a hybrid product (guaranteed equity bonds, friendly society plans) you are taking lower risk - in terms of risk to the original headline amount of your capital. But this can still be hit by inflation to leave you less in real terms if it performs poorly (return of zero but negative after inflation). And the potential to beat inflation by a significant amount is reduced, because you are paying extra in fees or insurance to cover the downside risk.

So, no easy answers. But once you're happy to extend the term to 10-15 years rather than 5 years to allow you to handle more risk, the options do open up, probably to a confusingly large set of options for a newbie.

Personally I wouldn't use the Friendly style plans as the tax benefits are limited in what you can put in to all TESPs to £25pm. For now, £25 might seem enough, but £25pm will not seem very much in x years time as your salary or general inflation grows. So £50pm into an investment trust, ideally an ISA if no more expensive than non-ISA version, and increasing every year or two if you can afford it, should get you to a good place in 10-15 years.

all fair bowlhead. you make a valid point re. inflation.

a friend of mine recently started to save a £60/m with a Friendly Society of which I am a member, using £25/m in a TESP and £35/m in an RSP, so it can be done. there will be no tax to pay when the policies mature.