Saving/investment for 30 year old

energy1x

Spend a lot of time on the site and these forums reading other opinions and strategies.

I have a mortgage (60% LTV)
I have a £50k job
I have a generous pension (DC) 6% me, 12% employer
I have over £20k cash and similar in shares/funds but mixed performance due to poor choices few years ago, but more recent choices doing far better.

My question is, what strategy would you adopt for the future?

I am tempted to pay off up to £20k cash on my mortgage and invest the rest, with a small cash savings account for emergencies. What do you guys suggest or advise otherwise?

Shall I focus on paying off the maximum overpayment on the mortgage every year or find an investment to beat the interest rate, currently fixed for 5 years at 1.9%.

Zorillo

Increase your pension to 10% if you can, you'll pay less tax.

eskbanker

It's generally recommended to size your emergency fund at 3-6 months worth of outgoings (some say income), so keeping your existing £20K in available cash makes sense.

If you only have a similar-sized pot of investment, it would generally be worth holding this in a very small number of funds (maybe even just one) rather than dabbling in shares and trying to pick winners, which isn't easy as you've found, so consider streamlining your investments to something reasonably simple and reliable. You'd be very unlucky not to beat 1.9% in a global multi-asset fund over a 7+ year period but five years is generally considered too short a timeframe over which to plan to invest....

Having said that, in your shoes, I'd probably be tempted to make regular mortgage overpayments with future savings.

DrEskimo

I am in a very similar situation as yourself (30, earn around £50k a year and have around 55% LTV mortgage).

I was looking at S&S ISA to put away a small amount each month, just to build savings in the background for 10/15/20yrs time. However the overwhelming advice I got was to use additional funds towards my pension instead. This was largely due to the tax relief due to being a HRT.

Now I'm slightly different in that I pay a bit more per month towards a DB scheme, and there is a lot of discussion around the current USS scheme that I am in, so I am not doing any AVC just yet, but I most likely will in the near future.

I personally pay an additional £500 per month towards the mortgage as it reduces the term to something I am more happy with. I could just get a mortgage with a shorter term, but I like the flexibility.

I then put a small amount into my S&S ISA, and the rest in a high interest savings account (opening an account with Nationwide) depending on my income that month. It does vary as majority of my income is from FT employment, and part is self-employment on top.

Between me and my partner we have about the same in cash savings, and aim for around £6-£10k as emergency funds.

Have you thought about other investments, such as moving up the housing ladder, renovations to your current property, or further education to get ahead career wise?

Presumably it goes without saying that you've paid off any high interest debt already?

ValiantSon

energy1x wrote: »

Spend a lot of time on the site and these forums reading other opinions and strategies.

I have a mortgage (60% LTV)
I have a £50k job
I have a generous pension (DC) 6% me, 12% employer
I have over £20k cash and similar in shares/funds but mixed performance due to poor choices few years ago, but more recent choices doing far better.

My question is, what strategy would you adopt for the future?

Increase your pension contributions. 6% is not all that much, even with your employer's 12% contribution. As a minimum I'd aim for 10%, but 15% would be better. Doing so won't cost you as much as it first seems because you will benefit from tax relief at 40% (as you are a higher rate payer). I assume that these payments are via salary sacrifice, so you will also pay less NI. The upshot will be you pay less tax and get a much better pension.

eskbanker

ValiantSon wrote: »

Increase your pension contributions. 6% is not all that much, even with your employer's 12% contribution. As a minimum I'd aim for 10%, but 15% would be better. Doing so won't cost you as much as it first seems because you will benefit from tax relief at 40% (as you are a higher rate payer).

Paying 15% employee contribution to the pension may well take OP out of higher rate tax, in the context of a £50K salary, although obviously there could be all sorts of other factors affecting this, such as other earnings or reliefs, whether the income from the savings and investments is sheltered in ISAs, etc....

Alexland

eskbanker wrote: »

Paying 15% employer contribution to the pension may well take OP out of higher rate tax, in the context of a £50K salary, although obviously there could be all sorts of other factors affecting this, such as other earnings or reliefs, whether the income from the savings and investments is sheltered in ISAs, etc....

I assume you mean employee contribution but otherwise yes I agree it's all relative to your tax free allowance if you claim professional memberships, unreimbursed business mileage, etc.

Alex

aj23_2

Increase your pension contribution, but I would clear some of your mortgage. You more you pay off the more you will save in repayment interest. I'd rather be mortgage free sooner, then have 100% of my money to save or do what I like with.

Don't forget, your house is the biggest investment you have.

Fatbritabroad

Personally I'd do pension and stocks and shares isa than the mortgage.you're already at the best mortgage ltv.fix it for as long as you can and invest the rest and clear a lump off when it comes up.

Jaymie_kate

Always focus on paying your mortgage the soonest. Increasing your pension contribution is okay but not being able to pay your debt would just put you in the same situation.

ValiantSon

Jaymie_kate wrote: »

Always focus on paying your mortgage the soonest. Increasing your pension contribution is okay but not being able to pay your debt would just put you in the same situation.

To be fair, it doesn't sound like the OP is in any difficulties managing their mortgage repayments. While a mortgage is a debt, it is not comparable to borrowing on credit cards, overdrafts, or even personal loans. Increasing pension contributions will have a dramatic impact on their finances in future years, and the mortgage is completely manageable as it is. With respect, overpaying the completely reasonable and manageable mortgage when the pension is not really being funded to an appropriate level is not a good idea.