% salary split between cash and investments

u0362565

Hi all,

I know this is probably a difficult question to answer as its a matter of opinion and attitude to risk but i'm asking anyway

I'm trying to figure out of my disposable income each month, how much should be saved as cash and how much should be invested. Initially i was thinking to split it 88% cash, 12% investment (not sure how i came to this figure). Bearing in mind that i don't own a house yet and feel that i probably should buy at some point (the cash i'm currently saving is building my deposit and i'm probably 2 years away from the deposit value i'm aiming for, if i don't invest at all. By investing for the future i'm reducing the amount going towards my house deposit and extending the time it will take to raise it. So at this stage in my life i don't think i should be investing too much. Once i have a house i'd consider increasing the percentage going to investments. The argument against this is the more i invest now the bigger difference it may or may not make to the total returns in 20-30 years time say.

Just wondered if anyone had an opinion on this, as everyone has to decide how much of their pay packet is invested, granted everyone is in a slightly different financial situation.

Thanks!

PenguinJim

Maxing out those bank accounts that pay 5%-6% interest is a perfectly good alternative to investing for your situation, I think. Guaranteed growth, extremely safe, and wonderfully liquid. Play the banks game for a couple of months - open up new accounts, pick up any bonuses for opening accounts, and don't be afraid to close accounts when you've got the bonuses so that you can "invest" in another account. (Just make sure you've satisfied the T&Cs)

I've seen a few people say that you must have enough emergency cash saved to last you three months if you lost all of your revenue streams tomorrow. I've also seen a few people say six months. As more of your money is diverted to savings and investments, this may well increase to a year, but if you've maxed out decent-interest bank accounts by that point, the money may well be better off elsewhere.

You don't say what kind of investments you're interested in - do you mean shares and index funds? They're easy to buy and sell, but you may expose yourself to loss in the short-term that won't be recovered if you need to quickly sell to finance your deposit.

If you've never invested before, you might want to set up a dummy account with The Share Centre to see how it works. If all of your shares go up, and you're constantly kicking yourself for not investing real money when you had the chance, then investment may not be for you. But it may be a good rehearsal for steeling your heart against those nagging could've-beens.

Edit: didn't realise I'd typed so much! TL;DR: exploit banks accounts to the max rather than investing - easy access to safe money for your deposit. But it might be a good idea to start learning about investments now.

CLAPTON

as you don't have a property I would save 100%of your available money and avoid stocks and shares for now

if you have a work based pension I'ld take full advantage of that

u0362565

I'm thinking of index tracking funds and my aim really is to generate interest higher than an isa can give me right now. I have never exploited savings accounts, i still have the first account i ever opened from about 17 years ago, realise its a savings dead end. I've always thought it too much effort to constantly keep switching banks but now i'm more aware of my money and have more motivation. I always set up a cash ISA each year but the interest on that is also barely worth the effort these days.

I think the only reason i'm thinking about investing now is because i'm consciously aware that had i started investing when i was 20 i would be in a better place now financially and so feel i should start as young as possible to see any future rewards in the long term. Waiting one to two years though shouldn't make a huge amount of difference, heck i've waited 29 years already!

Thanks both for the advice both.

guitarman001

Same situation. I currently have 10% in stocks, 90% cash. I was thinking of upping it to 20% stocks but can't bring myself to do it - but cash ISAs are so poor and one has just run out (so was tempted to transfer to my stocks ISA).

u0362565

I think i will just do a very uneven split, even if its just £100 into the Stocks ISA each month, that doesn't detract too much away from the cash ISA but its something at least. One down side to drip feeding my stocks ISA at least is that i'm charged £5 commission for each deal, so really need to build up lump sums before investing otherwise i'm defeating the purpose. I'm using IWeb i think they're cheap on the whole but don't know if others charge commission per transaction.

vectistim

If you're starting from scratch and only putting in £100 per month then use a percentage based provider - pretty much the most expensive one will charge you 0.45% per year so that's 45p per year for each contribution.

N1AK

Have a sufficient cash pot before worrying about investing. It only takes a couple of overdraft fee payments, few months interest on a credit card debt etc to dwarf the returns you'd have got on a small investment pot.

What a sufficient cash amount will vary from person to person. If you're remotely inclined to buy property in the next 10 years then I would expect that keeping almost everything in cash of some kind would make sense.

PenguinJim

u0362565 wrote: »

I think i will just do a very uneven split, even if its just £100 into the Stocks ISA each month, that doesn't detract too much away from the cash ISA but its something at least. One down side to drip feeding my stocks ISA at least is that i'm charged £5 commission for each deal, so really need to build up lump sums before investing otherwise i'm defeating the purpose. I'm using IWeb i think they're cheap on the whole but don't know if others charge commission per transaction.

You're losing 5% on your money instantly (10% loss if you withdrawn it in the short term). Don't do that!

At the very least, don't make monthly deposits. Already you're down to a 2.5%/5% loss if you do it bimonthly, or 1.7%/3.3% if you do it quarterly. You could be doing productive things with that cash during those three months - for example, using it for high-interest bank accounts, or as a transfer fund to meet monthly pay-in requirements.

I'd again suggest pushing your bank accounts to the max first. You can easily drop a £500+ lump sum into your stocks ISA after you've got loads of cash, with only 1% or less lost to charges (again, bigger lump sums are better!).

IWEB doesn't have an annual charge or inactivity charge, so they're best for people who make occasional larger investments (£400 as a minimum, IMO). If you want to make tiny monthly payments, vectistim is right - use another platform. However, be aware of inactivity fees, annual fees, dividend reinvestment charges and limitations of which funds you can buy.

jamesd

iWeb is not cheap for what you're doing. So don't use them. Pick a place that has a percentage charge with no fee instead, at least for your regular investments. Or invest in periodic lump sums so that the average cost is reduced.

For your situation if you have no flexibility about timing the standard advice is to use savings, not investments, because you would not have time to recover from a downturn. If you are willing to accept that risk, which does overall favour a positive outcome, then you can do some investing.

What I suggest you do is consider either the Invesco Perpetual Distribution or Invesco Perpetual Monthly Income Plus fund. They are fairly similar but with a difference in the percentage of shares rather than bonds each uses. Monthly Income Plus also has a somewhat higher risk profile than Distribution. Both pay out as interest and will be untaxed if held within a stocks and shares ISA. Because of their substantial bond holdings the will be less vulnerable to a downturn in the main stock market than a typical equity tracker fund, limiting your downside risk over your short timeframe.

Because of the cost of trading, if you use a place that charges per trade I suggest that you use a savings account initially then after accumulating money for three months, make a single trade. Alternatively, your use case appears to be one for which a number of providers that have no trading cost for funds and no annual charge would be suitable. Even the very well known Hargreaves Lansdown with their 0.45% platform charge would work well enough for your purpose if you don't batch up your transactions. I don't recommend HL for this. A batched up single transaction at a place with no annual fee will serve you better.

What I did was switch heavily into investments, accepting the uncertainty of timing of my purchase.

u0362565

Thanks for the advice. I'm already signed up with IWeb for a Stocks and shares ISA so i think i'm stuck with them for the financial year now, i didn't think you could change ISA provider inside the financial year unless this is allowed through a transfer.. could be a cost associated.

I can just make sure i only make lump sum investments but this may take a while so will look into new savings accounts.