how to split money between cash savings and investments?

user1168934

Hi folks.
I could use some advice. For the last several years I was saving to buy a property which I bought around 18 months ago and after that I was saving to build up some cash reserves which I think I now have.
I have also been buying and selling stocks and shares from an ISA account for the last several years but this was more of a "buying when dirt cheap and selling if I can make decent money" approach to increase my house deposit.

Now that things have sort of settled down I want to plan for long term. So the questions are

1. How do I split my monthly savings into cash and stock and shares? How do you guys do it? like every month 25% in cash and 75% in investments or something else?

2. The only investments I have done to date are stocks and shares in an ISA account. Like I said I have done this for a couple of years so I am a bit comfortable with it. Is there any other kind of investments I should be looking into. The shares I have at the moment are paying decent dividends too.

3. How much cash asset shuold I keep? How much of cash do perople normally keep? I am using various current accounts with decent interest rates for my cash.

Some info which might be useful ... I am in early 30s working full time. I can save something between £1200 - £1500 each month. I don't have any immediate plans for anything. I do plan to move to a bigger property in the next 7-8 years if I can - no rush though. No real debts apart from 0% on a credit card which I can clear immediately. I make small mortgage overpayments each month.

Basically I am looking for a savings and investment strategy to follow for the next 5-10 years. Any ideas and suggestions are much appreciated.

Sam_J12

It is a personal thing that depends on what you are most comfortable with. I think a not bad way of doing things is to keep as much in cash as you can get a decent rate of interest on (in my eyes 4%+) and put everything else into stocks. I personally keep in the region of £10k in cash, as I don't think I will need anything more than that in the near future and can get 4%+ on all of it, and invest everything else into my S&S ISA.

Linton

1) First amass enough cash as an emergency fund to pay all your living expenses for 6 months and add to that enough for any known/expected major expenditures in the next 5 years. Once you have that cash pot anything else can (and should?) be invested.

2) As a small investor better/safer to go for broad funds rather than individual shares. Individual shares can permanently collapse in value or even go bust leaving you with nothing. This is almost impossible with a broadly invested fund. To invest in shares you really need enough money to hold reasonable quantities of perhaps 15 different shares so that one going bust doesnt cause major damage. And even then you would be highly linked into the UK markets rather than investing across the world

3) See (1)

What about a pension? You should be paying into your employer's pension scheme sufficient to maximise their contribution alongside saving and investing outside the pension.

atush

i agree with the above.

After you have 6 months outgoings saved in cash, then 25% into invesmtents and 75% into cash. until you have enough to pay for upcoming spends such as car, holiday, essential maintence etc.

And I agree, investments shoud be in funds, not shares (at least until you have over 50k to play with say).

But you dont mention a pension. Which you should have. And some of the investment dosh could go that way.

Sam_J12

I disagree with the other two posters - I think individual shares can be a useful addition to a portfolio. An intelligent and diligent amateur investor can be very successful with individual stocks.

As an example, can anyone say that Berkshire Hathaway is anything but a slam-dunk purchase right now? It is trading well below any reasonable estimate of its intrinsic value, is cash rich and has made its name on fostering excellent corporate governance.

user1168934

Thanks guys.
I do have a pension at work which also has employer matching contributions so I pay the maximum my employer can match into the pension. Since this is not included in my take home sum I did not include it here. It happens in the background by itself.
I also get a lumpsum death in service benefit and health insurance as part of my job.

I have to admit I have never invested in funds, only in individual stocks and shares mainly because of my (stupid?) strategy of buying when they apprear good value. In the pas I have thought about funds but high management charges for funds have always put me off. I could invest in index trackers but then I thought these will still have some administrative charges so why not pick the companies I want from the index and buy their shares. Plus for individual companies I can easily do research and have a good feel for them. But I take your point I should start researching seriously into some funds. I assume buying shares in funds will be the same process as buying individual shares? Any funds you could recommend so I can research them?

One more important question - Is it ok to consolidate all stocks and shares / funds via a single platform provider? I am using SVS at the moment, I think they are ok, no management fees and low dealing charges. Do you think I should go with some other reputable broker like H&L or someone else?

Sam_J12

A single platform for funds and stocks is fine, as everything remains in your name so if the platform goes belly-up your assets are still yours.

bowlhead99

Sam_J12 wrote: »

As an example, can anyone say that Berkshire Hathaway is anything but a slam-dunk purchase right now? It is trading well below any reasonable estimate of its intrinsic value, is cash rich and has made its name on fostering excellent corporate governance.

Not to drag this thread off topic, but if it was a slam dunk purchase, wouldn't institutional investors have gone and slam dunk purchased it, resulting in an increase to is price? That is after all how markets work. How did you come up with your reasonable estimate of intrinsic value - reading their latest published accounts and guesstimates of what they will do for Q4? They're a big conglomerate whose market capitalisation is some positive multiple of book value, right? What's their "real" value per share?

Linton

Sam_J12 wrote: »

I disagree with the other two posters - I think individual shares can be a useful addition to a portfolio. An intelligent and diligent amateur investor can be very successful with individual stocks.

As an example, can anyone say that Berkshire Hathaway is anything but a slam-dunk purchase right now? It is trading well below any reasonable estimate of its intrinsic value, is cash rich and has made its name on fostering excellent corporate governance.

You have some money to invest in your small portfolio, you believe you are low on US and can only afford to buy one investment. You have the choice of Berkshire Hathaway or a broad fund, could be S&P500 tracker or perhaps a US Small Companies fund. Why go for the individual share?

Perhaps you have some knowledge that has escaped the rest of the market that B-H will outperform the S&P500. Seems unlikely. But who knows. What about risk? Well both the S&P500 and B-H will rise or fall with the economic situation. But B-H has extra risks. One obvious one is that Warren Buffett is 85 years old. He is likely to die in the next few years. What will happen to B-H's price in that eventuality? Why take the risk when the gains over the broader indexes are unclear?

grey_gym_sock

user1168934 wrote: »

In the pas I have thought about funds but high management charges for funds have always put me off. I could invest in index trackers but then I thought these will still have some administrative charges so why not pick the companies I want from the index and buy their shares.

so far as costs go, there are also costs when buying individual shares, and today these are likely to be higher than the costs of buying a tracker fund, unless you are investing very large amounts.

work out your total costs for buying and selling a share again, as a percentage of the amount you'd usually invest in 1 share. that includes dealing commissions, stamp duty, and bid-off spread. divide that by your estimate of how many years you expect to hold each share, on average. that gives you an annual percentage cost.

now compare that to a tracker fund, which might cost about 0.1% per year. my guess is that your costs are higher than that.

another reason to use trackers, or other funds, is to get access to a broad range of overseas markets. you can buy individual shares in some overseas markets, but it tends to be more expensive than buying UK shares, and you'd have to buy a huge number of shares to get good diversified exposure to global markets.

enthusiasticsaver

OH and myself are less than 5 years off retirement so we invest around 65% of our monthly savings into immediate access cash (high interest currents and regular savings) and 35% in a stocks and shares isa (lifestyle fund). That reflects our overall position as well roughly.