19 and have £500pm to invest, what to do?

kidmugsy

steampowered wrote: »

it will take him 5 years to reach the average first time buyer deposit of c. £30k, so he has plenty of time to ride out any stock market slumps. It is very unlikely the Op would be behind over a 5 year period assuming the Op chooses to reinvest his dividends.

I do get fed up with the absurdly rosy picture people paint here of equity investment. It's referred to as a "risk" investment because it's risky. There's nothing in the history of the stock markets of, say, the biggest dozen or so developed countries over the past century-and-a-bit that persuades me that the risk of losing money over five years is negligible.

steampowered

ValiantSon wrote: »

You keep going on about deposits being a moving target, but then you brush over the very real risk of capital loss that exists with investments. Capital would ot be lost in a savings account, and if it took one or two more years to reach the target then so be it.

This is the key point.

If the Op was unlucky enough to face a market crash, he would simply have to invest for another year or two (all the time reinvesting dividends) while his portfolio recovers.

In exactly the same way that he will need to invest for another year or two if he keeps his savings in cash to catch up with rising property prices. The Op has zero certainty as to when his £500pm will be enough for a deposit.

You are focussing only on investment risk, while ignoring the very real risks associated with (1) cash savings being continually eroded by inflation, and (2) cash savings continually losing lose value given as compared to property.

Note that the average property price has increased from £170,355 to £226,906 today - an increase of 33%
- just as much of a risk to the Op's goals as investment losses on his £500pm.

In the context of a 19 year old putting some money aside each month over a several year timespan, the suggestion that he should not be taking any investment risk is bad advice IMHO. Overly conservative capital protection without considering the broader picture of other factors affecting the length of time it will take the Op to be able to afford a deposit.

steampowered

ValiantSon wrote: »

See the comments in this thread for another 19yo looking at an investment timeframe of 5-6 years, to see the caution raised by others for the same kind of issue (albeit where there is a lump sum): https://forums.moneysavingexpert.com/discussion/5867050/stocks-and-shares-isa-suggestions-for-19-year-old

...

This all comes back to the point I made about your lack of qualification to give financial advice.

So, in one sentence you refer to comments from a handful of strangers on MSE (likely none of whom are IFAs) to support your view.

Then a sentence or two later you try to use the fact that I am not a qualified IFA to disparage mine.

DrEskimo

Someone please correct me if I am wrong in my calculations....

£500 per month is £6,000 per year.

£4,000 a year in a cash LISA would total £20,000 (plus some merger interest) and a further £5,000 in government bonuses.
£2,000 in high interest savers over 5years would be around £1,000 (hard to calculate as would depend on stipulations of different current accounts and regular savers available)

So the total sum after 5-years by using a 100% safe cash LISA and current/savers accounts would be around £36,000; £30,000 capital and ~£6,000 interest.

In contrast, £500 per month invested in a S&S over 5years would need to return a constant >7% net return to return as much as £6,000 interest.

In my pretty naive understanding, expecting a >7% net return over 5yrs would be optimistic at best. Why risk your capital and the possibility of getting this decent rate of return, when you can guarantee it with none of your capital at risk....?

As above, LISA seems to be a no-brainer...

steampowered

DrEskimo wrote: »

Someone please correct me if I am wrong in my calculations....

This is a very reasonable question to ask, but you need to factor in that a LISA can be held in cash or it can be held in stocks & shares.

You still get the 25% bonus on a stocks & shares LISA.

In my pretty naive understanding, expecting a >7% net return over 5yrs

I don't think it is strictly necessary to address this point given that a S&S ISA qualifies for the 25% bonus.

However I would also point out that an average annual return of 7% is about what one would normally expect when invested in the stock markets (obviously some years will be more and others will be less or negative). This is roughly the return pension providers will assume when giving you projections as to what your pension fund might be worth on retirement.

For example the FTSE All-Share Index has returned an average of 7% a year since 1917. Returns on the S&P 100 and other indexes have been higher. The FTSE 100 has returned 5.4% a year ignoring dividends - FTSE 100 average annual returns have historically been well over 7% with dividends reinvested.

So the average scenario to take as a base case when considering a S&S LISA would contemplate a 25% bonus and roughly a 7% annual return. There is roughly a 50% chance the Op would do better than that and roughly a 50% chance he would do worse.

DrEskimo

steampowered wrote: »

This is a very reasonable question to ask, but you need to factor in that a LISA can be held in cash or it can be held in stocks & shares.

You still get the 25% bonus on a stocks & shares LISA.



I don't think it is strictly necessary to address this point given that a S&S ISA qualifies for the 25% bonus.

However I would also point out that an average annual return of 7% is about what one would normally expect when invested in the stock markets (obviously some years will be more and others will be less or negative). This is roughly the return pension providers will assume when giving you projections as to what your pension fund might be worth on retirement.

For example the FTSE All-Share Index has returned an average of 7% a year since 1917. Returns on the S&P 100 and other indexes have been higher. The FTSE 100 has returned 5.4% a year ignoring dividends - FTSE 100 average annual returns have historically been well over 7% with dividends reinvested.

So the average scenario to take as a base case when considering a S&S LISA would contemplate a 25% bonus and roughly a 7% annual return. There is roughly a 50% chance the Op would do better than that and roughly a 50% chance he would do worse.

I guess the question is whether the OP minds potentially waiting to access their money for stocks to recover, should she happen to want to buy during a time when they are down. Understanding whether that flexibility exists is quite important I feel.

Personally I feel like the OP has suitably managed the risks of inflation eroding the value of their money through the use of a cash LISA, and negates the need to risk their capital over what can be considered a relatively short time scale in investment terms.

ValiantSon

steampowered wrote: »

This is the key point.

If the Op was unlucky enough to face a market crash, he would simply have to invest for another year or two (all the time reinvesting dividends) while his portfolio recovers.

In exactly the same way that he will need to invest for another year or two if he keeps his savings in cash to catch up with rising property prices. The Op has zero certainty as to when his £500pm will be enough for a deposit.

Whatever. I'm tired of arguing this with you. You are a deterined investment zealot who refuses to accept that it is not always the best option, and who brushes aside the very real risks involved. I consider this to be both disingenuous with regards to the fortunes of others, and callous.

You have absolutely no idea how long any recovery would take, and your bandying of recovery periods based on previous crashes is cavlier to say the least. You have a habit o picking and choosing which stats suit your argument, as has been shown.

I've explained clearly why investments are not appropriate in this instance, and how your approach is very high risk, without you having any knowledge of the individual's circumstances and attitude to risk. You keep assuming that everyone does - or should - have the same attitude as you do. Fortunately they don't.

steampowered wrote: »

You are focussing only on investment risk, while ignoring the very real risks associated with (1) cash savings being continually eroded by inflation, and (2) cash savings continually losing lose value given as compared to property.

No, I'm not. You are making assumptions about my thought processes, hich are not borne out by what I have written. I have not once denied the effect of inflation, but it can be militated aganinst by choosing the best paying accounts, and at £500 per month, the OP can easily put each year's money into 5% regular savers. The balance of these can then be moved into a mixture of interest paying current accounts, e.g. TSB at 5% on £1,500 and Nationwide at 5% on £2,500 and fixed rate savings, which can reasonably be expected to pay around 2%. For the most part, with careful planning, it is possible to keep pace with current inflation, and even beat it. I know it is, because I am doing it, and on a bigger sum than we are talking about here. (For the record, I also have investments, so I ma not opposed to them, but don't believe that they are the pancea that you seem to think they are).

steampowered wrote: »

Note that the average property price has increased from £170,355 to £226,906 today - an increase of 33%
- just as much of a risk to the Op's goals as investment losses on his £500pm.

No, not, " just as much of a risk". The rise in house prices will occur at an unknown rate, but assuming it remains similar to the five year period you have indicated, then the risk to the OP's ability to purchase is actually exacerbated by using an investment vehicle, because it adds another level of risk. Not only is there the possibility that they may not have enough for a deposit because prices have outstripped capital growth in savings, but there is the added risk that when they want to access the money their investments will be down. If we accept your (spurious) timeframe of roughly two years for investments to recover to their pre-crash level, then the housing market could well have increased further in that time, and so they still won't have enough then either!

steampowered wrote: »

In the context of a 19 year old putting some money aside each month over a several year timespan, the suggestion that he should not be taking any investment risk is bad advice IMHO. Overly conservative capital protection without considering the broader picture of other factors affecting the length of time it will take the Op to be able to afford a deposit.

Yeah, I don't agree with you because I don't share your overly rosy view of the stockmarket.

steampowered wrote: »

So, in one sentence you refer to comments from a handful of strangers on MSE (likely none of whom are IFAs) to support your view.

Then a sentence or two later you try to use the fact that I am not a qualified IFA to disparage mine.

Missing the point, I fear, or deliberately conflating two unrelated comments. I wasn't saying that these people were IFAs, either, but rather I was pointing you to the fact that your views are in the minority camp.

Anyway, as I say, I can't be bothered going on with this. Hopefully the OP (and any other inexperienced investor) will have seen enough debate to raise enough caution within them to not go in gung-ho on investments because of an ill-considered minority view on an internet forum.

You aren't here to offer advice, but you may offer suggestions. I would ask, however, that you take a little more care over how you present these and who you present them to. Young, completely inexperienced potential investors need balanced information, which takes into account their personal circumstances and attitude to risk, and I maintain that this is not what you have provided.

steampowered

The common theme flowing through your post, again, is that you talk about "risk" when you in fact you are only talking about "investment risk".

All the while you still do not seem to put much weight over the very real risks associated with inflation and with rising house prices.

Fundamentally our disagreement that is that I put a lot more emphasis on the latter set of risks than you do.

The risk of house prices continuing to increase at least in line with inflation is very high, whereas the statistical likelihood of making capital investment losses in the context of a regular pound averaged investment made over 5 years is pretty low (even before the 25% bonus available through a S&S LISA has been considered).

ValiantSon wrote: »

Not only is there the possibility that they may not have enough for a deposit because prices have outstripped capital growth in savings, but there is the added risk that when they want to access the money their investments will be down.

So your concern is around house prices increasing significantly during a recession? Think about whether that is likely.

What about the possibility of the economy doing well and house prices continuing to increase above inflation for several more years? Where do you think that leaves the Op if he is keeping his savings in cash?

I'll tell you where it leaves him - many more years of saving £500pm before he can even dream of being able to afford a deposit.

Young, completely inexperienced potential investors need balanced information, which takes into account their personal circumstances and attitude to risk, and I maintain that this is not what you have provided.

When people are young - that is precisely the time to take risk - both in life and in investing !!! The Op is only just starting off his working life and has plenty of time to ride out market volatility, but not a lot of flexibility to ride out rising house prices.

Telling a young person to take the most conservative option because they are "young and impressionable" is both patronising and incorrect.

As I say, the average base case for returns on a S&S LISA is a 25% bonus plus the average long term performance of stock markets, historically in the region of 7-9% per annum.

Meaning that if the Op goes for a S&S LISA there is roughly a 50% chance the Op will do better than that, and roughly a 50% chance he will do worse, on any given £500pm payment. That is the trade-off the Op needs to consider.

ValiantSon

steampowered wrote: »

The common theme flowing through your post, again, is that you talk about "risk" when you in fact you are only talking about "investment risk".

All the while you still do not seem to put much weight over the very real risks associated with inflation and with rising house prices.

Fundamentally our disagreement that is that I put a lot more emphasis on the latter set of risks than you do.

The risk of house prices continuing to increase at least in line with inflation is very high, whereas the statistical likelihood of making capital investment losses in the context of a regular pound averaged investment made over 5 years is pretty low (even before the 25% bonus available through a S&S LISA has been considered).


So your concern is around house prices increasing significantly during a recession? Think about whether that is likely.

What about the possibility of the economy doing well and house prices continuing to increase above inflation for several more years? Where do you think that leaves the Op if he is keeping his savings in cash?

I'll tell you where it leaves him - many more years of saving £500pm before he can even dream of being able to afford a deposit.


When people are young - that is precisely the time to take risk - both in life and in investing !!! The Op is only just starting off his working life and has plenty of time to ride out market volatility, but not a lot of flexibility to ride out rising house prices.

Telling a young person to take the most conservative option because they are "young and impressionable" is both patronising and incorrect.

As I say, the average base case for returns on a S&S LISA is a 25% bonus plus the average long term performance of stock markets, historically in the region of 7-9% per annum.

Meaning that if the Op goes for a S&S LISA there is roughly a 50% chance the Op will do better than that, and roughly a 50% chance he will do worse, on any given £500pm payment. That is the trade-off the Op needs to consider.

You have written nothing that alters my view. I consider your "advice" to be reckless and based on a shaky understanding of macro economics. As I said previously, I have lost the will to engage because of your intransigence.

Terry_Towelling

Now the arguments have stopped perhaps OP would like to re-engage. The start was a bit vague with the use of the phrase 'currently working full-time' - which seemed to hint that they might not be at some point. That was then cleared up but in slightly wishy-washy fashion OP suggested they would like to save for a house. Again, the invitation was issued to firm up - 'would like to' or 'definitely want to'. No response to that but more questions about investing.

My take is that OP has no real intention of saving for a house purchase (but might if the fancy takes later on) but just wants a piece of the investment action - and like the rest of us has the hope of significant short-term gains over the long term.

Perhaps the LISA and H2B ISAs are a bit scary to one so young due to the restrictions on how/when you can use the cash. Maybe the perception is that you don't have full control or ownership of the money and, psychologically, that may outweigh the benefit of a 25% Government bonus. I don't know, I'm only guessing and unless OP comes back to tell us we'll never know.

No, it seems OP is determined to invest in the markets regardless, and if that leads to a handsome gain and the option of a house purchase then, wonderful, but if it doesn't, well, 'nothing ventured' and all that rot.

Come on OP, you lit the blue touch paper and stood well back. Time to come clean now.