What would you do?

noggin1980

This is a good response to I have a chunk of money what should I do with it imo.

http://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment

TakeCareOfThePennies_2

bowlhead99 wrote: »

It depends how cautious you are. If you look at the stats for 'average' savings around the country, many don't have anything approaching 3 and 6 would be a dream.

Trouble is that its an undisputed and well accepted fact that people in the UK don't save nearly as much as they should.

Thus there is no need for people to become another statistic, they should aspire to save more.

Whichever way, investing should come right down the bottom of the pile, after peoples savings and pensions. If you think you might need to sell investments in the future in order to fund expenses (or you might be forced to do so to cover emergency expenses), then that money really should have been in a cash savings pot instead, because that's not what investments are there for.

People really should not underestimate the liquidity and stability of pure hard cash. Yes (potential) investment returns look more attractive, but that's not the point, and its no excuse for not building up a cash fund.

Borrowing more on credit IS NEVER acceptable as a source of emergency funds. Afterall, you're making a huge assumption that the line of credit will still be there for you. Cash is cash. You can't replace it with any other source of funds in an emergency !

Herbalus

TakeCareOfThePennies wrote: »

Borrowing more on credit IS NEVER acceptable as a source of emergency funds. Afterall, you're making a huge assumption that the line of credit will still be there for you. Cash is cash. You can't replace it with any other source of funds in an emergency !

Credit can be an acceptable source of emergency funds. That's one of the reasons I have credit cards (so I'm using existing lines of credit, not seeking new credit when unemployed). It's the equivalent of cash, because you can access it from an ATM, which isn't ideal because of costs, but you are having an emergency.

But then you're getting into what constitutes an emergency, and whether credit will be suitable. You can't pay a builder on a credit card for example if your roof falls in, but I think most would agree in a choice between hungry kids and buying food on a credit card, credit is acceptable. I agree it'd be better to have savings than credit when in an emergency, but I wouldn't write credit off so readily.

lawriejones1

The problem with hard cash is that it's not doing anything. I appreciate the volatility of the market, but your money isn't doing much and I think 3 months is adequate for that purpose.

Doomsday scenarios aside for one second, I earn a decent amount and keep anything from £2 - £4,000 in cash (I run a business, so it fluctuates), but that's anywhere between 3 - 5 months of household expenditure. That's enough for me. I guess it's a personal thing, but advising someone to keep 12 months earnings in a low-interest paying current account isn't money saving, it's poor advice.

TakeCareOfThePennies_2

but advising someone to keep 12 months earnings in a low-interest paying current account isn't money saving, it's poor advice.

Your are entitled to your opinion of course, but to call it "poor advice" is misleading and inaccurate.

Poor advice would be to advise people who don't know their backside from their elbow in investing to put 12 months of earnings into the markets !

Thus I maintain that if "40-50K" is all the money in the world for you, then a hefty chunk of that must be left in cash, not just a couple of thousand ! Cash may pay little interest, but a fool can easily loose a lot more of their capital in the markets !

People continuously underestimate the value of cash, and unfortunately many people prefer to learn the hard way ! Investing is not a substitute for cash holdings, end of story.

jimjames

TakeCareOfThePennies wrote: »

Thus I maintain that if "40-50K" is all the money in the world for you, then a hefty chunk of that must be left in cash, not just a couple of thousand !

TakeCareOfThePennies wrote: »

Borrowing more on credit IS NEVER acceptable as a source of emergency funds. Afterall, you're making a huge assumption that the line of credit will still be there for you. Cash is cash. You can't replace it with any other source of funds in an emergency !

I disagree, it really depends on so many factors that can't be summed up in simply saying you have to have 12 months salary as an emergency fund.

TakeCareOfThePennies wrote: »

In which case, your first priority should be to establish a decent cash stash (equivalent of 6 to 12 months worth of your salary or 5 to 10% of your investment portfolio, whichever the higher ), which will be your rainy day fund for any flood, fire, tempest or other act of god which may impact on your life.

Totally agree that emergency fund is essential. I don't agree with the amounts and how you calculated. Living expenses is the key in my view not salary. You need to be able to pay your mortgage not have surplus that you would have put into savings or investments or optional spending.

Of course attitude to risk is one element, but you also need to consider job security and any job benefits as well as access to other money. If you have a job that pays sick pay for 12 months and low outgoings then it would be massive overkill to keep 12 months salary, you may want 12 months expenses but even that is potentially on the high side.

Being able to access credit is perfectly legitimate as emergency in my view, if you have a card with balance available and clear it every month then being able to pay for something while other funds come through is entirely feasible.

Investments can be accessed if needed - obviously pension can't - so if you're prepared to take that risk then as long as you know what you're doing then I don't see a problem.

If it were money that the OP wasn't expecting and until now they had no savings or investments then it would make sense to use that to make a life changing opportunity which keeping £50k of cash is unlikely to do.

noggin1980

. 10 char ...

enjoyyourshoes

Ask myself...


'what is my goal in life?'


and then


'how can this money assist in me achieving this?'

justme111

Indeed , what constitutes emergency. . If there is a bank run or other apocalypse that money is not going to help.. If one earns living as a postman and loses his legs in an accident how much money is going to help ?.. So it is a personal decision.
Replying original question - I am very unimaginative so probably would chuck it into mortgage

Eco_Miser

TakeCareOfThePennies wrote: »

If you think you might need to sell investments in the future in order to fund expenses (or you might be forced to do so to cover emergency expenses), then that money really should have been in a cash savings pot instead, because that's not what investments are there for.

So, what are investments for, if not to fund future spending?