What would you do?

justme111

Eco_Miser wrote: »

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

I am sure more advanced in investment topic board users will explain it in more detail later. In my understanding investments should not be sold because one "needs to" but in a planned manner or not sold at all but inrerest used for income

Eco_Miser

justme111 wrote: »

I am sure more advanced in investment topic board users will explain it in more detail later. In my understanding investments should not be sold because one "needs to" but in a planned manner or not sold at all but interest used for income

Bur TakeCareOfThePennies said

f you think you might need to sell investments in the future in order to fund expenses , then that money really should have been in a cash savings pot instead, because that's not what investments are there for.

Nothing about selling in a planned manner, but an absolute prohibition on investing to fund future expenses. So I wanted to understand the reasoning behind that. Especially in relation to funding care home fees in thirty years time.

brasso

TakeCareOfThePennies wrote: »

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.

You're moving onto another subject here -- whether people should invest without any knowledge of what they're doing. Answer, of course, is no.

But the earlier discussion was about keeping a lot of money in cash...

I'm not sure in what circumstances I would suddenly need to get my hands on 50K in cash -- paying a ransom to kidnappers perhaps? -- but if I had that need, yes, I would dip into my investments.

Maybe you've had your fingers burnt in the past, but you seem to think that having money "in the markets" makes it inaccessible. Unless it's locked up in a pension fund, where it's untouchable until you're 55, you can sell shares to get some hard cash within a matter of hours, even minutes.

Apart from some cash in a current account to service my daily needs and standing orders etc, plus 2K or so in a standard bank savings account in case I need to top up the current account, pretty much all my money is invested in S&S ISAs, a SIPP and a normal stocks and shares account.

Over the course of an average year I expect that lot to make a decent return far greater than I would if I had 12 months' salary just lamely sitting in a cash account earning next to nothing. I really see no advantage whatever in having tens of thousands tied up like that.

On the subject of cliched advice, I also disagree with the bulletproof law, often trotted out on MSE, that you shouldn't consider investing unless you have at least a 5 year horizon. I won't hijack the thread by talking about that but suffice to say I think it's too general and too cautious to be useful -- and it certainly doesn't suit me and my needs.

What the hell, here are two more cliches: your mileage may vary, and horses for courses. Both appropriate here though.

guitarman001

I just do not see where you can put £40-50k and get a good return, but being able to keep it in cash. No way I'd risk mine all in shares. 20% is in shares, that's it.

It's getting down to the bone now... In 10 days I'll be sitting on a similar amount but have no idea where to put it (123 account is full, I have the 3 BoS accounts etc).

edinburgher

3 months income is a joke.

For example, what happens if your employer decides to go on a cost-cutting exercise and show you the door ? In the current employment market are you absolutely 110% sure that you'll be able to get yourself into another job within the space of 3 months ? What if you temporarily had to take a lower paid job?

I think I'm probably quite representative (married, mortgage, one child on the way, average salaries). For our circumstances, 3 months emergency fund is fine.

1) I don't think it's a reasonable assumption that everyone needs 100% of their current income. If we cut our budget to the bone, we could live on 40% of our current monthly income
2) An emergency fund isn't our only asset, we could live off investments at the figures stated in #1 for another 8 months, this duration rises every month
3) My wife also has a job, we've never been unemployed apart from two short occasions when it was voluntary due to one of relocating for a higher wage
4) If we were both made redundant, we'd both have some redundancy monies and JSA on top of the 11 months we'd currently cope for.

Like so many other areas of financial life, living within your means seems to be the key.

KGriff

I don't want to be over complicating the issues about how much emergency funds I need. I would personally begin my saving and investing in a simple way.

If I was in my 30’s or early 40’s and had £45,000 available, i would first of all open up the Santander 123 account and pay in £20,000 which would earn 3% before tax and that would act as my emergency fund too.

I would be risk-adverse with my next bundle of cash and put £15,240 into the Santander 2 year fixed ISA and take the low rate of 2% tax free savings but effectively sheltering this money under a tax umbrella for the future. There are slightly higher rates with other providers, but having it under the same Santander umbrella helps to keep things simple and it's easy to watch the savings grow.

There are other current bank accounts with higher interest and you may want to separate your cash out into small bundles of £2000 to £3000, but personally I couldn't be bothered as it begins to become a nuisance to manage particularly moving deposits in and out if these accounts with standing orders just to keep in with the terms and conditions of some of these accounts.

So that would leave me with £9,760 which I would invest in the stock market. I would open up my own TDWaterhouse trading account (or similar broker account) and begin to invest in stocks and shares and managed funds ... Initially outside an ISA wrapper, but then as my funds grew, over future financial years, I would open up their trading ISA account and do the same type of trading inside an ISA wrapper. Such brokers have advice documents and people at the end of a telephone to advise, but the decisions are left to yourself.

If the shares or funds go down (and some will) I would hold my nerve and perhaps even invest more in them whilst they were low, then sell them when they return high .. The good days. I would aim personally for 7-10% return on each book cost, after fees tax and charges and each tax year, as I got older, I would move certain funds out to more secure risk-adverse areas.

As I arrived at retirement I would hope to see a large pot of cash still working for me mainly tax sheltered inside cash ISA's or managed 'cautious' stocks and share ISA's and my stock market trading account would be minimal and more for fun rather than it affecting my future lifestyle.

That's what I would do, but I prefer to select my own stocks and shares, both in and outside an ISA wrapper, but some may prefer managed S&S ISA's instead, where managers select the funds etc on your behalf and take a commission.

This is just my opinion of what I would do in my own personal circumstance and it may not be for everyone. Some people may want to expose more of their capital to risk whilst others may want to be less risky.

A couple if things to add, watch you don't get to a point where in future years you hold more than £85000 in one institution as then you run the risk of your 'pot' not being entirely covered by the FSCS.

Always remember that investments associated to the stock market can go down aswell as up and always stick to the financial and ISA rules and regulations.

Oh and try to keep saving and investing fun, simple and as you move towards retirement move your funds from A to B to C:

AGGRESSIVE - High risk equities, stocks and shares
BALANCED - Managed funds & longer term investments with some guarantees
CAUTIOUS - Cash inside a tax wrapper

Then live happily ever after.

Disclaimer: This post is not for the financial advice of others, it is just an opinion of what I would do in my own circumstance.

TakeCareOfThePennies_2

Eco_Miser wrote: »

So I wanted to understand the reasoning behind that. Especially in relation to funding care home fees in thirty years time.

If you're working towards funding care home fees out of your investments, then you should be working towards a portfolio that eventually generates an income through dividends.

Having to pay for your care home fees by selling your investments is not position you want to be in.

That's the point I'm making, and feel free to replace the words "care home fees" by "any sort of expenses" since my point is not just made in the context of old age.

TakeCareOfThePennies_2

brasso wrote: »

Maybe you've had your fingers burnt in the past, but you seem to think that having money "in the markets" makes it inaccessible. Unless it's locked up in a pension fund, where it's untouchable until you're 55

You're entirely missing the point.

No I have not had my fingers burnt in the past.

You are deliberately misunderstanding my point. I will state again, money "in the markets" is there for investment. If you need to sell the money to get hold of emergency funds then it should not be in the markets in the first place. Remember, stocks can go up and down. Cash in the bank gives you stability and liquidity like nothing else.

you can sell shares to get some hard cash within a matter of hours, even minutes.

Yes dear, whatever you say dear.

Even in a crash ?
What if your shares become illiquid for some reason ?
What if there's a trading halt ?
What if....

You also assume your broker will give you immediate settlement. Most online brokers will fill transactions at T+3. So you can sell all the shares you like, but the cash won't be available for withdrawal until three days later. If they're not operating at T+3, they'll very likely be doing T+2. Many offline brokers will probably operate the same way as it makes back-office life easier.

I'm not sure if anyone will give you immediate settlement, especially as a retail investor. I suspect its a market limitation that T+1 will be the minimum.... in a normal market, and depending on your broker you might pay a premium for that and perhaps even need to kick up a fuss to even get T+1.

And remember, this is business days we're talking about, so if you sell on a Friday, you could well be looking at at least Wednesday of the following week until you get cash out. Assuming the Monday is not a bank holiday of course !

Good luck in convincing a broker to give you the cash on credit terms during the settlement period.

gregj2209

TakeCareOfThePennies wrote: »

Is that all the money in the world you've got ?

Out of interest, how old are you and what do you do for a living? I'd love to have £50k stashed away in the bank, but frankly life doesn't really allow me to do that (for reference I've got zero debt apart from our mortgage and we save every month). I've got a decent amount that would become an emergency fund if required. Outgoings could easily be cut - Sky, fibre broadband, type of food we buy etc. etc. Even logically things like petrol goes down if you're not working.

The reason I ask about how old you as is I was having a conversation about house prices with my parents not too long ago and I pointed out that their house has roughly trebled in value since then bought it in the 90s, despite the crash. In that time salaries haven't anywhere near done that, hence I couldn't afford to buy that house now but I'm fairly confident myself and my wife earn either more or close to what my parents did at their earnings peak. My point is having a massive savings stash can depend hugely on how old you are (and I don't just mean because you've been able to save for longer) given the various factors that come into play there.

Granted, I'm not particularly savings savvy, hence a query I've asked on this forum but I take issue with your response to that original poster.

TakeCareOfThePennies_2

gregj2209 wrote: »

Out of interest, how old are you and what do you do for a living? I'd love to have £50k stashed away in the bank

None of your business, and if you care to re-read my posts, I never said put all £50k in the bank, I just said "make sure you have a sufficiently large chunk of that in the bank and not just a couple of thousand" or words to that effect.

In the end, it's tiamaria's £50k, and I don't really care what tiamaria does with it. All I'm saying is that if I were in their shoes, and all I had was £50k, I wouldn't be sticking all of it into the markets, or P2P or whatever else you care to mention. I would ensure I had a sizeable chunk in cash and then, maybe, think about doing something with the remainder as long as it was not too risky (e.g. a tracker fund or something of that ilk).

Investing is not the silver bullet many think it is, and irrespective of age or financial position, a healthy cash position is not something to laugh at.