Buy to let is for amateurs

bowlhead99

MatthewAinsworth wrote: »

If you merge all my pots together, as I do in my head, as they are all held under me, it all looks very different, overwhelmingly in our house, our equities need to increase

Per your 'balanced' post last month you literally had only £1k cash savings to your name together with £1k equity-based ISA which you said you see as some sort of emergency fund even though its purpose is to buy you son a house.

With only £1k of cash to your name it is a nonsense that 'overwhelmingly' your equities need to increase. Your cash (which can easily deliver guaranteed interest of 5% via a regular saver account) needs to increase before you worry about increasing the ISA.

I take on the point of there should be more large cap, but a lot of the sipp I don't even plan on drawing at all, its also there as an inheritance pot for my boy, so its even longer term than my retirement, perhaps 30-40 years longer

So really the wife's plan is the isa is our age 57 retirement pot, to tide us over till our dB+state pensions come in

A few posts ago your SIPP was the method of funding your and your wife's early retirement before state pension kicks in. That is very efficient as your lack of employment or state pension or work pension at that time means you are not using your annual personal allowance and the pension can probably be drawn entirely tax free in those years having got the tax relief and tax credit boost now.

To instead decide to burn through your ISA in those years when the ISA - unlike the SIPP - could instead be drawn tax and penalty free alongside your salary when working if needed for yourself or son, or alongside your state pension and DB pension in later years) seems a strange way to do it.

- with that in mind growth makes sense.

As explained in post #86 there is no shortage of growth opportunities in the midcap and largecap space and emerging space and venture space etc but you seem to be obsessed with smallcap providing the best returns and ignoring the other 95% of the market. This is not a healthy and open-minded attitude for a newbie investor to adopt.

We need to not allow cash+isa balance grow too much, as if we get switched to universal credit in the future it'll be loss making. Note that wifi's contribution to the isa now is increasing the rate of that

Well if means-tested benefits are a concern, the ISA which you intend to be used to make your son a millionaire (or to get him onto the property ladder, or avoid living in poverty/damp digs, or help sidestep other challenges that life throws his way) can simply be saved in a JISA in his name rather than in your own adult ISAs where it impacts benefits and is not safe from creditors etc etc.

Alternatively given the ISA is only increasing slowly it's quite possible that you will never hit the point at which it becomes 'loss making' due to benefit clawback on capital balances. You don't plan to live on tax credits forever, surely? Within the next few years you can improve your status at work or your wife can go to work after packing the son off to school.

Wife is kind of against us using the isa to help our boy onto the property ladder, and wants him to fend for himself

In earlier posts when I asked what your wife thought about your crazy plan to use one niche asset class for your family pension money, you were happy to say that your money was your money and it wouldn't be her business as it's your income, your savings that paid the house deposit etc etc.

But now there seems to be some acknowledgement that you and her have different ideas about how the family finances and investments should be used. Perhaps you are on a path towards some mutual agreement after all and would benefit from discussing a holistic view of the family finances, investments and future plans - rather than merging everything together as your personal assets ruled by your personal plans 'because they're all held under me'.

I'm trying to liberate that isa from that assignment and make my boy a millionaire
When it comes to giving him money, I'd prefer giving him a pension in case he ever gets divorced

You are probably jumping the gun here if you are worried about your son's divorce when he is one or two years old and does not even know if he ever wants to get married to a girl (or to a boy for that matter).

But even if he does, it is jumping the gun to say the marriage to the toddler of his dreams is going to end in divorce.

And even if it does, given a pension is often the most valuable asset in a couple's relationship (it's very often either that or the matrimonial home) it is very unlikely that giving him a pension rather than a house is somehow going to allow the assets to sidestep a divorce settlement. Whether you give him a house or a pension it is all fair game. So please don't make a 20-50 year plan for your son's future built on the wrong assumptions.

If you are paranoid about him losing things in a divorce, then follow your wife's advice and don't give him cash handouts or free property or material possessions. Spend your money on getting him education, experiences or skills (e.g. a useful degree or work opportunities, travel, driving lessons) which can't be taken away from him.

Gadfium

MatthewAinsworth wrote: »

I'm trying to liberate that isa from that assignment and make my boy a millionaire
When it comes to giving him money, I'd prefer giving him a pension in case he ever gets divorced, but more immediate help may be needed, I wouldn't want him living in a damp ridden flat like I used to

Long -term planning is one thing, but that's taking it to a crazy degree. Whats your plan for if he decides to be a Buddhist monk? Or any other of a billion possibilities.

bowlhead99 wrote: »

And even if it does, given a pension is often the most valuable asset in a couple's relationship (it's very often either that or the matrimonial home) it is very unlikely that giving him a pension rather than a house is somehow going to allow the assets to sidestep a divorce settlement. Whether you give him a house or a pension it is all fair game. So please don't make a 20-50 year plan for your son's future built on the wrong assumptions.

Clearly the OP hasn't heard of pension sharing, pension offsetting or pension earmarking...
https://www.pensionwise.gov.uk/divorce

System

I didn't realise that about pension sharing, I suppose he'd still be protected against bankrupcies, but the beat protection would be to keep it in my name and let him inherit it

Yes, a sipp would be much more efficient to cover 57-68, but I can't convince the wife on that yet and the isa is as far as she's prepared to go, it'd be better for her if she had a 2nd pension herself, but she won't. I do plan to use the sipp myself, hopefully there will be enough to cover both needs

Cash wise I forgot about the joint account we had and the wife's money, between the two of us we have about £4k cash, add to that what's in the isa now and we're precariously close to the 6k universal credit threshold, I can dump my own money into the pension, but joint money would have to go into the mortgage or something. The wife likes to sit on a pile

A jisa is a good idea, I just need to get the idea past the wife. Also I worry that he might squander it or take it for granted, maybe a trust fund?

And we do need separate accounts as well as the joint to avoid arguments, her food bill is far higher than mine, she buys homeware and too many clothes and cushions, etc

bowlhead99

MatthewAinsworth wrote: »

I didn't realise that about pension sharing, I suppose he'd still be protected against bankrupcies, but the beat protection would be to keep it in my name and let him inherit it

Well, then you protect it from his hypothetical divorce but not from yours. Your wife could divorce you and take half or more of your pension as a settlement, and then spend it on 'homeware and too many clothes and cushions' leaving nothing for him to inherit.

Given your son will be a grown adult in less than two decades time and fully capable of being responsible enough to save for his own retirement, you should not need to 'protect' him by keeping the money in your own name and letting him inherit it when you die.

When that happens when you're 90+ and he's 60+ he will have had to make it through the main bulk of his life without having any of that money available to improve his standard of living or life choices. And he will not have been able to factor it into his own retirement planning because while you hang on to it he doesn't know if you would eventually need to spend it on care homes etc to improve your own quality of life in your latter years.

Yes, a sipp would be much more efficient to cover 57-68, but I can't convince the wife on that yet and the isa is as far as she's prepared to go, it'd be better for her if she had a 2nd pension herself, but she won't. I do plan to use the sipp myself, hopefully there will be enough to cover both needs

She is right not to put more money into a pension when pensions can't be accessed for several decades and you only have a very small amount of cash savings which would not properly cover a reasonable period of unemployment, a decent car, the upgrade to the next family home etc etc.

Your allocation of spare money as pension to cash or ISA at a ratio of 3:1 only makes sense while you are able to get extra benefit from pension credit which can be lucrative, but to put yet more money away in pensions at the expense of solvency can be self-destructive.

Cash wise I forgot about the joint account we had and the wife's money, between the two of us we have about £4k cash, add to that what's in the isa now and we're precariously close to the 6k universal credit threshold, I can dump my own money into the pension, but joint money would have to go into the mortgage or something. The wife likes to sit on a pile

There is nothing wrong in having a pile of cash as insurance against the unexpected. It's what most sensible people do. How are you ever going to move to a better house as your family grows, change location for better job prospects, buy a new roof for the house or generally save for cars, holidays or improve your family living conditions if you refuse to save another £1000 because the government would reduce your benefits by £4 a week? Find another way to save the £4.

A jisa is a good idea, I just need to get the idea past the wife. Also I worry that he might squander it or take it for granted, maybe a trust fund?

Well, you could always educate him well and to be respectful and not blow your hard earned money for which you made years of sacrifices, on crazy stuff. Is that beyond the capabilities of you and your wife? You have 16 years to work on it. If he blows £10k on booze and crack instead of a house deposit it is him that will learn the valuable lesson from it.

A trust fund is way too expensive for your level of income and assets and the potential size of the trust. You are not millionaires or a high income couple with tax planning problems. Whereas a JISA, which restricts the child's access until he is an adult and allows several thousand pounds of contributions a year, was perfectly conceived for the exact scenario you are in where you want to get the money off your books because of a means-test limit and intend for it to be a long term investment to support your family in the future.

Your wife would still be wise to be cautious though, because if you put the money into a JISA it will be unavailable for the next 16 years, during which time you will struggle when your expenses rise due to having a second child to feed and clothe and house etc and you want a better house or car.

It might be better for the child's standard of living for you to be able to access the money in the short and medium term as you currently can, and it would not be sensible for every pound you earn to go either into a SIPP or a JISA, because that leaves no pounds actually accessible for the next few decades.

I only mentioned JISA because you were worried about headroom on means-tested benefits. But as mentioned above, the benefit reduction threshold should not be seen as an uncrossable barrier. It is a merely level at which benefits begin to taper away - they do not disappear until you get a lot more than £6k of capital (or start to bring in better income). You would quite possibly be better off with more solvency and financial security than having slightly higher levels of benefit.

System

There is a cost of solvency, you could say, of forgone interest. I was wondering once whether insurances could cover it, but not really I suppose

We'd like a 2nd one but we had a scary medical experience first time so we'd wait till the doctors give the go ahead. I'm not sure we would upsize, even if we had a 2nd, or at least not in a hurry as the house we're in is quiet, new and roomy, I could just partition the lounge like other houses on our street. But there are the feeding & nappy costs, etc.

I'm not sure we will stay on tax credits though, as wife wants a full time job when little one(s) are at school, for her own benefit. The moment we fall off the benefits cart this sipp thing is much less rewarding and I would cease to prioritise it much over isa, I'd just aim for enough to take a tax free income from 57-68, i.e. £110000 at todays threshold and then go from there

For personal reasons I won't go into, wife won't run off with money, at most wanting a fair settlement. We both want things to work, and although her spending is beyond her means, she doesn't burn through her cash pile so I don't think that would endanger the inheritance

I do worry about care home costs and was considering gifting, when I reach 57 I might begin that

Jisa would outperform mortgage, but I suppose mortgage more useful if we ever did upsize

Giving to his pension would mean he could retire at 57, it'd be a great gift, though I know all the costs are when you're young, with house, wedding, eco, I'm sure he will save with our encouragement

I'm trying to build up credit rating a bit so I have credit on hand for liquidity - of course not ideal but I suppose it has to be weighted against the cost of liquidity (benefit loss and foregone return

bowlhead99

I guess this thread has run its course but a few last observations:

I'm not sure we would upsize, even if we had a 2nd, or at least not in a hurry as the house we're in is quiet, new and roomy, I could just partition the lounge like other houses on our street. But there are the feeding & nappy costs, etc.

Jisa would outperform mortgage, but I suppose mortgage more useful if we ever did upsize

I'm trying to build up credit rating a bit so I have credit on hand for liquidity - of course not ideal but I suppose it has to be weighted against the cost of liquidity (benefit loss and foregone return

Both credit and cash can be good sources of liquidity and ready access to both of them is very useful. Maximising return (and, to an extent, maximising benefits) is not the only thing to focus on. There is no point having a good return that's locked so far away you can't use it, or forcing your two teenage kids to live in a partitioned living room because you want to get every last pound out of the government.

I do worry about care home costs and was considering gifting, when I reach 57 I might begin that

You might have different views if you are used to living below the benefit threshold, but it strikes me that if you are concerned about the high cost of comfortable and good quality later life care, the very last thing you should do is give up work a decade before state pension and then start giving away your money.

So again, this is one of your views on which your first opinion may not turn out to be your best and last.

System

The high cost of care homes is a threat to my plans to pass on inheritance, the quality for my sake wasn't really a consideration, I just assume that anywhere too bad would get shut down

If the fund does really well, the dividends could potentially pay for care without threatening the pot itself

System

I think when the wife starts working full time she'll put into the mortgage, and ill put in an equal amount for fairness, she's not likely to set up an isa, but I wouldn't say its impossible. I kind of see the isa as a potential moving fund too