How should I invest £700 a month?

Oliver1191

Hi all,

a bit about me:
- I have a house worth about £300, 000 with an outstanding mortgage of £154k + 53k equity loan. I'm paying capital + interest with 26 years outstanding - 1.74% fixed interest rate.
- I have a Teachers' Pension with a current value of approximately 9.5k annual income on retirement. Having been convinced on another thread, I am remaining in the TP scheme.
- Other main investments include a SIPP at 14k, LISA at 1k, S&S ISA at 3.5k, and a local Government Pension at £400 per annum at the age of 60.

In the next couple of months, I will be in the position of being able to invest / save £700 each month (on top of my current mortgage and TP payments).

My question is - how would you invest this? I'm conscious there's no easy right or wrong answer, but sometimes different perspectives gives a really helpful way of moving forward.

I would like financial independence, so that one day I am less reliant on having to work.

Possible options include:
- maxing out the LISA. I'm very interested in that bonus! But I can't access it until 60. I think it's in my interests to pay into the LISA before contributing more to the SIPP as I can withdraw it all tax free. A lot of my wealth is already in pensions,
- Overpaying on the Teachers' Pension.
- Overpaying on the mortgage. I'm conscious that if interest rates go up, i'll be stung.
- Investing heavily in my S&S ISA.

So, what would you do?

Thanks :-)

kidmugsy

I'd see if I could get the timing right to save all or part of the £700 into two or three Regular Saver accounts that will mature in time to let me contribute to an 18/19 LISA. 5% p.a. (say) followed by a 25% boost in the LISA would be attractive and leaves open the decision to subscribe to the LISA until the last moment, which you may find attractive.

Are you a higher rate taxpayer? Do you have an adequate cash "emergency fund"?

Is there any way that extra payments into the TPS could be compatible with a cost-effective early retirement or swap of career to a different line of work? If not I'd be leery of throwing more money into TPS.

Oliver1191

Thanks Kidmugsy.

My only issue with regular savings accounts is that the interest rates are so low. 5% PA is far less than how my funds have grown, though I suppose that's a guaranteed rate.

I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).

Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.

The problem with the TP is that if you retire early you have it reduced in value...I think by 25% if I retire at 55. I wanted to keep the options open (hence the SIPP) to be able to retire early, but not call on the TP unless I had to.

Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?

Oliver1191

That said, I like your idea of 'pooling' the money in a savings account before investing it. I'm quite used to monthly investments by standing order / dd.

Eco_Miser

Oliver1191 wrote: »

I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).

So put enough into your SIPP so that none is at 40% tax.

Oliver1191

It automatically goes into the TP.

TheShape

I'd use the full LISA allowance this tax year and from next year pay into the LISA each month an amount that uses the full subscription for the year and split the remainder between SIPP, S&S ISA and/or a regular saver if you don't have much of a cash/emergency fund.

Oliver1191

So take the bonus...but is waiting until 60 an issue - I might be able to get financial independence before that?

Equally, with channelling it into S&S ISA / SIPP / savings account, do I run the risk of getting really stung if mortgage interest rates go up?

ValiantSon

Oliver1191 wrote: »

Thanks Kidmugsy.

My only issue with regular savings accounts is that the interest rates are so low. 5% PA is far less than how my funds have grown, though I suppose that's a guaranteed rate.

I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).

Putting money into pensions will be more tax efficient. It doesn't matter how much tax you pay at the higher rate, you are a higher rate tax payer. Pension contributions will reduce your tax bill, so they are an efficient form of investment for your future. If you don't want to access TPS flexibilities, then you can always increase contributions into your SIPP.

Oliver1191 wrote: »

Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.

I'm not convinced that sounds like an emergency fund. You shouldn't be dipping into it on a regular basis: it's meant to be for emergencies. Any spending that could reasonably be planned for should be separate, e.g. new tyres on a car. Emergencies are immediate and unexpected demands on your finances, e.g. your boiler breaks down, or, more importantly, you lose your job.

Oliver1191 wrote: »

The problem with the TP is that if you retire early you have it reduced in value...I think by 25% if I retire at 55. I wanted to keep the options open (hence the SIPP) to be able to retire early, but not call on the TP unless I had to.

Don't expect to be able to retire at 55. From 2028 the age for early retirement will be 57. You won't be able to draw on pensions (not just TPS) before this age. If you want to retire at 55 then you will need to fund that from other savings or investments. A LISA will be no use as you can't draw that until you are 60. An S&S ISA would be fine, but you'll need to think about how you structure your investments to reduce risk as you get nearer your planned retirement date. One ready made option is a Vanguard Target Retirement fund.

Don't guess what the actuarial reduction would be on the TPS. The formulae are published and can be accessed by you. 25% is not correct.

Oliver1191 wrote: »

Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?

If anyone tells you that TPS is an intrinsically bad investment then they are either a liar or a fool. Ignore anything such a person has to say. DB pension schemes (particularly on terms like TPS) are better than pretty well anything else out there. I thought that we had already established that on you previous thread.

The scheme may change again before you reach retirement, but it may not. Life is inherently uncertain, but your benefits accrued to that point will be protected, and your pension is underwritten by the government of the United Kingdom: it doesn't get much safer than that.

aj23_2

Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.

kidmugsy

Oliver1191 wrote: »

Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?

Because of the Actuarial Reduction for early retirement. In itself it offers excellent value to the teacher and lousy value to the taxpayer.