Finding the Motivation to Invest Again...

Drucifer

I've posted here a few times before regarding my situation and my plan regarding my personal finances, things were on track and going as planned however things have changed.

Back in March my partner was diagnosed with rheumatoid arthritis and she was out of work until November, when she was initially diagnosed, it panicked me and prompted me to sell my investment with Vanguard (as much as I hated doing it), "just in case I needed the money". I did have an emergency fund in place before investing of course (had 7 months worth of expenses), but after the diagnosis it didn't feel like it was enough anymore.

Now it's December and it turns out, I've never actually had to use the investment money, or any of that original 7 month emergency fund for that matter.

Nevertheless, I've been aggressively saving cash and not investing anywhere. All the money I have in the world (except the pension) currently sits in my emergency fund, which is now large enough to cover the bills for around 2 years.

At this point, I don't see the use in saving more cash when I KNOW it can be better utilised investing, but at the same time, there's always a "more cash is handy, just in case" feeling, there's a lot of hesitation to start investing again, I'm used to the "safe" feeling of having cash in the bank (despite inflation eroding it's value). I'd be beginning investing again with £0 and that's also very demotivating.

I'm just not sure what the best decision is anymore, chase the best rates of interest that I can and continue saving cash, or begin investing again with a 2 year emergency fund in place? Think I'm just looking for some guidance at this point, everyone I know in person isn't really knowledgeable in respect to personal finances. It just feels a little bit trickier to plan with my partner having her condition and I think some perspective outside my own head might be useful.

Thanks.

AlanP_2

2 years cash is more than most carry and you recognise the impact inflation could have.

I don't know your ages and total circumstances but think of yourself as one of the many people who ask a similar "should I start investing" question on here and look at the answers they get.

Objectives and timescale considered in the context of your overall situation is the simple summary of the general advice given.

Why would you not invest now if you were happy to before? In terms of financial planning what are the possible impacts of your partner's health situation and how can you mitigate them? The cash might have done that already.

bowlhead99

The level of risk with which we're comfortable, and what money we need on the sidelines to support us 'just in case' is different for everyone.

You mention you got through wife's unemployment without using the emergency money, which implies that you can survive the 'emergency' of just being on one income without recourse to any savings. Though perhaps you didn't have any big expenditures come around in that time such as a boiler replacement, new car requirement that didn't have a dedicated savings plan to replace the old one, fix the roof, bail your son out of a Turkish prison, etc etc.

Put simply, an emergency that burns through several months-worth of normal expenditure at a time when you lose the family income due to accident or unemployment is generally how you find out your X months expenses is not enough for actual emergencies.

In your case, you have proved that you can break even rather than go into the red if your wife is out of a job for half the year. Maybe with a chronic condition you should assume there will be other times she's going to be out of a job in future and so to be prudent you could consider yourself a one income family.

And therefore your issue is: do you have enough in the cash reserve to cover day to day expenses and necessary big capital items (car, roof, boiler etc) for the longest reasonably expected time you, the breadwinner, might feasibly be out of work if your employer gets into difficulties or you accidentally do something that gets you sacked.

For some people that might be six months, for others much longer. The longest time you might reasonably expect to be out of work doesn't have to be the longest time you could possibly be out of work, because you're not proposing to spend or throw away any excess money above that amount - you're proposing to invest it. And investments can be sold in a true emergency; we just have to accept that it could be expensive to do so because the markets might be low when we're forced to sell. Thus the mantra of not investing money we can't afford to lose. But that doesn't mean you have to be hyper cautious and nervous to invest full stop until you have years of ready cash.

Really when you look at your life's objectives, "can't afford to lose investment value when cashing out in a massively unexpected emergency" needs to be balanced with the fact that you can't afford *not* to invest because if your family's wealth creation doesn't include some long term investments, it will require a lot more employment income over your lifetime, to make up the shortfall in potential.

Nobody can tell you what the right amount of savings is. If your wife's health is shaky but yours is fine, how about saying 9 months of normal expenditure (instead of 6 if you were both in good health) plus an additional £X for nonroutine emergency capital expenditure during a period of unemployment? Maybe 12-18 months expenses, in total, could be sensible. Then invest the remaining surplus 6+ months of money that's sitting in cash at the moment.

By restarting your investments from 6 months money instead of from scratch, your investment balance will not look so demotivating. And it's not like you couldn't sell those investments if you really really had to. But you would still have over a year of normal expenditure on the sidelines earning some nominal amount of interest (about half the rate of inflation probably) which seems easily prudent enough for most families even if they have a sole breadwinner.

Of course, if you are a £25k annual income family, as some here are, the number of months' income you need to cover emergencies is quite different to what you might need if you had joint income of £150k, as some here do.

billy2shots

Depending on what date you withdrew your investments you could actually buy in at a much better rate today.
Alternatively you could continue to hold off as the bull market appears to be running out of steam. Unfortunately many great men have tried to time the market and failed.
A happy medium could be to invest 50/60% and keep the rest in cash ready to buy if/when we get a decent drop in stock value.

Of course everything depends on your age and the actual amount £ we are talking about.

Thrugelmir

Do you have a mortgage to repay?

fiisch

You seem very risk adverse - if you had 7 months savings, why on earth did you sell the investments before using the 7 months?


If you're to start investing again, I think you need to be wholly honest with yourself - will you feel a feed at any point to touch the money within the next say 5 years (minimum). If you think the answer is yes, then you're probably better going off going down the route of cycling multiple regular savers than locking the money up in longer term investments, especially when some may have you believe that we are on the verge of another crash.

MaxiRobriguez

Nothing wrong with building an even greater cash buffer at the moment in my opinion.

Markets are quite rocky across the board, the more cash you build up now, the more you can use to pick up cheaper equities, bonds, commodities or whatever you choose when the inevitable bear market comes.

Linton

The best motivation for investing is for you to have an important long term objective. Early retirement given your wife's circumstances? Saving in cash is not a satisfactory substitute as it loses out to inflation.


If you are going to invest again I suggest you start now. If you dont feel happy starting now would you be more likely to start when/if the economic situation looks gloomier?

kidmugsy

Drucifer wrote: »

I don't see the use in saving more cash when I KNOW it can be better utilised investing

You can't know any such thing. The future is uncertain. But there have been plenty of occasions in the past when accumulating cash and eschewing investments would have been a grand policy.

If you want to diversify go right ahead, but don't kid yourself that you KNOW.

DrSyn

It's safe to say that investors differ in age, circumstances and risk tolerance.

You have an emergency fund of 2 years. I know of someone who is cautious by nature and wanted to invest. After having the risks of investing explained to them, they still wanted to invest. They did, but only after they had built up a 5 year emergency fund and expanded their knowledge of investment.

Only invest when you are sure that is what you want to do so.

Good luck on whatever you decide, just remember that:

1. No one can foretell the future.
2. Don't go above your risk tolerance.
3. If it looks to good to be true, it probably is.
4. The higher the return the higher the risk.

Drucifer

I appreciate the responses from everybody and have read through all the replies a couple of times.

I've been thinking about my situation for quite a while and after reading through the responses here, I'll start investing again. I think it may be best to take some risk and use my age to my advantage while I can (I'm 28), rather than doing nothing, waiting until I'm older and saying "I wish I invested earlier instead of worrying too much about what might happen". I could always earn more money but I can't reverse time I suppose.

As Bowlhead99 pointed out, I could always sell my investment again if I really really had too and that's a good point, and with a 2 year emergency fund in place and my regular income, I'll have that security behind me.

I tend to overthink things from time to time and stress myself out, like I did before I sold my investment originally. I've always read that emotion and investing doesn't mix, at least I've experienced that first hand now and can learn from it.