TESP & monthly saving options...

rentnewbie

After a bit of advice/opinion. I have been saving £25 a month for the past 10 years in an LV Tax Exempt Savings Plan. It matured a few weeks ago and paid out £4122 which to me seems like a fair return given the ups and downs over the past decade.

Question is, I'd like to continue to put a monthly sum away now I'm in the habit and wondered if there is scope for getting a better return on my money than through opening another TESP, happy to up the amount to £50 a month if that gives more options and also happy to tie the money up for 10 years.

Any thoughts or pointers? :beer:

jimjames

Plenty of options. I'd certainly say a TESP isn't one of them. You'll do far better with a S&S ISA that has much lower charges and transparency than a tax savings plan that doesn't actual save any tax for the average person.

masonic

TESPs are typically very expensive in terms of charges. You'd almost certainly be better off taking out a S&S ISA with a low cost platform, such as Charles Stanley Direct, and contributing a monthly sum into a multi asset fund, such as L&G Multi Index or Vanguard Lifestrategy.

Head over to Monevator for more information: http://monevator.com/vanguard-lifestrategy/

rentnewbie

Thanks for the advice... is there a way of comparing how a S&S ISA would have performed over the same period?
I appreciate a TESP isn't a great product but 6.1% return annually over 10 years actually seems pretty good given the low interest rates?

masonic

rentnewbie wrote: »

Thanks for the advice... is there a way of comparing how a S&S ISA would have performed over the same period?
I appreciate a TESP isn't a great product but 6.1% return annually over 10 years actually seems pretty good given the low interest rates?

Very difficult as you'd need to compare like for like and you were drip-feeding over 10 years. Had you instead invested monthly into a S&S ISA, you would have got better than the market return, since you would have been buying at very low prices in 2007-8 and since then would have benefited from quite a strong and consistent bull market thereafter.

Over 5 years, Vanguard Lifestrategy 100 has delivered 13% per year and Vanguard Lifestrategy 60 has delivered 10% per year, so I guess your returns would be at least a few percent higher than you achieved in the TESP (which makes sense if you consider the difference in charges).

planteria

i'm an LV member, but i don't choose them for our TESPs.
i don't really think of them as comparable to ISAs, and invest in them both.
a TESP will steadily build, relatively risk free, with a low 'rate', but paying returns on funds not yet invested. whereas S&S ISAs are 'money purchase', hopefully achieving a higher rate of growth, but at higher risk, and returns being based upon money invested so far.
you may find this thread useful: https://forums.moneysavingexpert.com/discussion/4671765

masonic

planteria wrote: »

i'm an LV member, but i don't choose them for our TESPs.
i don't really think of them as comparable to ISAs, and invest in them both.
a TESP will steadily build, relatively risk free, with a low 'rate', but paying returns on funds not yet invested. whereas S&S ISAs are 'money purchase', hopefully achieving a higher rate of growth, but at higher risk, and returns being based upon money invested so far.
you may find this thread useful: https://forums.moneysavingexpert.com/discussion/4671765

They are not relatively risk free - the main risk being that the saver needs to access the money early or cannot keep up payments, in which case they will face significant penalties that could more than wipe out their gains.

The whole concept that returns are being earned on funds not yet invested is a marketing gimmick - all they are doing is paying income forward in order to make the product appear generous at the beginning. Charges are also being deducted from every payment and in the first year these charges can be very high indeed.

As you say, plenty of analysis in the thread you linked above, especially towards the end of it. Unfortunately, with interest rates falling yet further, there will be a tendency for more people to be drawn towards products like this, but regular saver accounts still offer an attractive, lower risk, alternative.

planteria

TESP and other Friendly Society investments are less risky than most stock market funds, such as those that are most popular for S&S ISAs. i invest in these sorts of funds.

i save with Regular Savers too.. currently have four running. with 4 to 6% available i'll take that:) again though, different purpose and outcome.

i don't agree with some of your interpretation: with a TESP the whole idea is that the investor commits to invest for the full term, and the bonuses being paid on the sum assured is very real. we only commit to contributions that we are very confident we can continue with. £25/m is not a huge amount for a lot of working people.

masonic

planteria wrote: »

TESP and other Friendly Society investments are less risky than most stock market funds, such as those that are most popular for S&S ISAs. i invest in these sorts of funds.

There are stock market funds that cover the whole spectrum of risk. Multi-asset funds have become increasingly popular and these may be composed of a similar blend of assets as is underlying in a Friendly Society investment. However, the Friendly Society products have very high charges that result in their risk adjusted returns being lower. Over a minimum period of 10 years, and when drip feeding, an appropriate multi asset fund will deliver better risk adjusted returns with a negligible difference in absolute risk. The death knell rang for those Friendly Society products when it became possible to invest as little as £25 per month into a S&S ISA or general investment account and gain such diversified exposure at any desired risk level through a single fund.

i don't agree with some of your interpretation: with a TESP the whole idea is that the investor commits to invest for the full term, and the bonuses being paid on the sum assured is very real. we only commit to contributions that we are very confident we can continue with. £25/m is not a huge amount for a lot of working people.

As you say above, the final returns are not commensurate with getting a free lunch. Therefore the forward paying of bonuses is of no substance. What is given in the early years is taken away from the later years and through charges deducted from each monthly contribution.

I agree that £25 per month is not a huge amount for a lot of working people, but these policies are designed for and marketed to those who do not have much that they can put away each month. People who can comfortably invest more than this each month have much more attractive options open to them - even other with-profits options, should that be what they desire.

planteria

i'm not suggesting a free lunch, but consistent, solid bonuses paid upon the Sum Assured - which can be above the total value that will be invested over the period of the policy.

and yes, there are differing levels of risk available, but the general pattern with S&S ISAs is 'money purchase', in that you are earning returns on the money you have already invested - as it normal.
some Friendly Societies are growing steadily, and have paid a bonus to their investors every year for many many years.

to each his own, of course, and i like the way we are discussing something completely different in another thread:)

i'm comfortable investing in TESPs and RSPs alongside ISAs and Pensions, and Cash regular savers. the Friendly Society investments operate differently, and that's good imo. i've got something very solid to sit alongside far riskier investments, including investments in individual shares. my Amazon shares are likely to have beaten pretty much all With Profits funds, but Amazon are still only growing on a 'money purchase' basis and aren't providing me with Life Assurance and a guaranteeing me a positive return.

Jayp7541

And don't forget these TESPs also give you another Direct Debit for those high interest-paying current accounts that demand active DDs.

Not to mention I've picked up 35GBPs love2shop vouchers from applying also !!