What would you do?

KGriff

jimjames wrote: »

I don't disagree on proportions, it's entirely down to each person what they are comfortable with having in each element.

The part that I don't think makes sense is to keep investments unwrapped as a starting point. It just seems far more logical to me to have investments inside the ISA as soon as possible rather than cash. You're then protected from both CGT and income tax over the long term. With cash you have no worries on CGT so you only get the income tax benefit which will soon be marginal for most people.

Ok we can agree on proportions, but in my risk adverse first year strategy, I chose the cash ISA and to use all the annual allocation to begin with, to effectively build a secure base on which to build. So obviously it's not then possible to deal in stocks and shares inside an ISA in that first year, but I indicate in my first post that the investor would then go onto deal in shares later inside the ISA wrapper.

My approach is that the new investor would ALWAYS have the cash both in their 123 account and their cash ISA to fall back on.

In your more risky scenario, if their shares fall dramatically, bearing in mind they can ALL fall, the safety cushion could be considerably smaller.

If you are a young person then that doesn't matter quite so much, but later in life, that can be extremely difficult, to the extent it produces a similar effect to someone who has chosen to invest in their later years.

It is good for an investor to see and understand fees and CGT etc as they buy and sell and then when they deal with it inside the S&S ISA they will appreciate the difference.

Anyhow in simple terms we disagree. I accept mine is a more cautious approach in comparison to yours.

At the end of the day it is for the investor to choose themselves, which path they want to follow.

brasso

TakeCareOfThePennies wrote: »

You're entirely missing the point....

...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.

I'm not deliberately misunderstanding you. The thing you said that sparked the most debate was the need to have 6-12 months worth of salary in cash. I strongly disagree with that. Part of this can be explained by you being far more risk-averse than me (which is fair enough), but even taking that into account, it's not good advice.

TakeCareOfThePennies wrote: »

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

What if there is no crash? What if there is no trading halt? You can't go through life in fear like that. Crashes are few and far between, and we always recover from them. While you're warning me about a cataclysmic crash in which I lose the shirt off my back, you assume that your pile of cash will remain perfectly safe. You're also assuming that someone would need to cash in all their investments at the precise moment of a devastating crash -- which seems unlikely, to put it mildly.

TakeCareOfThePennies wrote: »

You also assume your broker will give you immediate settlement.

Credit where it's due. I had no idea that there was such a thing as settlement time. Checking my online broker, I can sell immediately but the cash isn't available for 2 days. The reason I was unaware of this is that over 15-20 years of investing I've never cashed in any investment, voluntarily or otherwise.

I come back to the point of why you would ever be in desperate need of a large sum of cash right now, this moment. Even if you lost your job and received no redundancy money and had nothing whatever in the bank, you would surely be able to stay alive for 48 hours somehow while your online broker was getting your cash ready.

But there's a bigger point that you are not seeing, which is that the reason I like to stuff as much as possible into a range of diversified, low-cost funds and trackers, is that I expect them to earn me a decent chunk of profit every year -- unlike the 6-12 months worth of salary sitting in cash. The idea is that when the very occasional major crash does come, as long as you don't need to liquidate all your investments right now, you can ride out the storm for a while until things pick up again. The gains you make over the decade or so should far exceed the usual 20-30% drop during a crash.

Eco_Miser

TakeCareOfThePennies wrote: »

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.

So you're advocating living off the income from investments, and never drawing down any of the capital - even though I will have no use for the capital when I'm dead, but plenty of use for spending a little extra.

I'd better not buy accumulation units or growth stocks then.

I'll repeat, So, what are investments for, if not to fund future spending?

TakeCareOfThePennies_2

Eco_Miser wrote: »

I'll repeat, So, what are investments for, if not to fund future spending?

Income
Capital Growth
or a mixture of the two

I also repeat my point that investments are not there as a substitute for cash. You should have sufficient cash to cover both emergency expenses and immediate expenses.

Thus. You have cash pot. You spend money out of cash pot. Income from investments tops up said cash pot. Rinse and repeat. That is the holy-grail of income investing.

If you start selling investments to fund your expenses, then you're both eroding your capital and reducing your future income. Obviously if you must, you must, but it should be a last-resort option, not a regular concept.

TakeCareOfThePennies_2

brasso wrote: »

I come back to the point of why you would ever be in desperate need of a large sum of cash right now, this moment. Even if you lost your job and received no redundancy money and had nothing whatever in the bank, you would surely be able to stay alive for 48 hours somehow while your online broker was getting your cash ready.

And I come back to my point that you should not be in that position in the first place.

Unless you're facing an extraordinarily large and unexpected expense you should not need to sell your investments. You should have a sufficient cash buffer to cover both reasonable emergency expenses as well as living expenses for 6-12 months.

If you start selling to fund expenses, then not only are you eroding your capital, but you'll be hit for CGT taxes and broker commision, and you may be forced to sell at a loss, thus further eroding your capital.

Yes cash is boring, yes you don't get much in the way of growth these days. But its a necessity.

noggin1980

TakeCareOfThePennies wrote: »

Unless you're facing an extraordinarily large and unexpected expense you should not need to sell your investments. You should have a sufficient cash buffer to cover both reasonable emergency expenses as well as living expenses for 6-12 months.

This is a massive softening of your original position and if you'd led with this you wouldn't be involved in a debate. No one is going to think this unreasonable, perhaps a little safer than they chose but it's a perfectly reasonable and logical position and no one would have been arguing with you.

This is very very different to the suggestion you should have a years worth of income in cash before investing.

TakeCareOfThePennies_2

noggin1980 wrote: »

This is a massive softening of your original position

I thought I would test the English literacy of the forum and see if anyone would bring up that point in response to my tweaked language.

However, I suspect you will find that by the time you add up .....

noggin1980 wrote: »

emergency expenses as well as living expenses for 6-12 months.

You will probably find it comes to about the same amount as 6-12 months salary if you are being serious, realistic and cautious in your calculations. Especially if you have dependents to support.

Sure you can say you can trim back the household expenses .... but how quickly ? For example do you know what your contractual commitments are ? Can you suddenly change your mobile or satellite packages, or are you on a long term contract ? etc. etc.

But each to their own and their Excel spreadsheets.

noggin1980

TakeCareOfThePennies wrote: »

I thought I would test the English literacy of the forum and see if anyone would bring up that point in response to my tweaked language.

However, I suspect you will find that by the time you add up .....



You will probably find it comes to about the same amount as 6-12 months salary if you are being serious, realistic and cautious in your calculations. Especially if you have dependents to support.

For some people it is (though mostly the ones who can't afford to save or invest), for others (probably the majority of people on this sub forum) it's not even close especially if you take expenses to mean essential expenses (which is the relevant thing when planning for an emergency) and not the total amount you spend each year, the 5k a year you usually spend on holidays is not relevant to an emergency fund.

Your new comment is fair and reasonable, your change in language is not irrelevant, it completely changes the quality of the advice for large numbers of people.

Each to your own you say, that doesn't seem to be your belief from your posts since you've been here, you've pretty much been beating people with your stick of my way is the right way.

TakeCareOfThePennies_2

noggin1980 wrote: »

you've pretty much been beating people with your stick of my way is the right way.

There is a carrot attached to the end of my stick, I'm merely trying to lead people in what will inevitably be the right direction of thinking ...

I'm not saying "my way is the right way". Its just having read quite a few posts in this forum its more than slightly worrying that some people don't seem to fully appreciate the risks of investing, don't keep anywhere near enough cash, and in some instances see investing as an alternative to cash because of the "lousy returns" on cash.

noggin1980

TakeCareOfThePennies wrote: »

Sure you can say you can trim back the household expenses .... but how quickly ? For example do you know what your contractual commitments are ? Can you suddenly change your mobile or satellite packages, or are you on a long term contract ? etc. etc.

This is money saving expert you would hope most people here know their contractual commitments, you are leaving alot of money on the table and paying well over the odds if you don't.

The vast vast majority of people here who are saving/investing could make very large cuts to their expenses right away if muck hit the fan, even if you are tied into a sky contract you can cancel the movies and sports and save £30+, you can massively cut food and drink bills, you go out much less, you buy less clothes, treats, gifts, starbucks, you can stop going on holidays, just because you might not be able to instantly cancel everything doesn't change the fact that for the vast majority here saving and investing expenses are significantly higher than essential expenses.