Please point me in the right direction!

Oh_No

Hi, I am looking for some general pointers on what I should be doing to save for the future as I feel that I am no utilising my income efficiently.


Some Background:

• 40 years old
• married with one child
• earn ~40k
• Wife earns ~12k
• current savings in current account 20k
• current savings in shares (in a single company) 20k
• Save into a sharesave £400 pm
• pay 7% into company pension scheme, if I input more my employer will not (as it is capped)
• overpay mortgage £350pm
• if I keep the overpayment up I should be mortgage free at 60, if i revert to the minimum I would be mortgage free at 69.

So, my current thoughts are that I need to spread the risk form the single share investment. This has been generated over time via the sharesave scheme I take part in. It is a three year cycle but I have three ongoing all the time so i get an annual offer to buy the shares (and only do so if it is profitable to do so otherwise I can take my cash back). The method of doing this I thought would be to buy the shares when the sharesave finishes and cash it in to make a quick profit, then use these funds to invest 'somewhere'.


It all feels like a little bit inefficient right now and realise that i am not getting any younger so need to act sooner rather than later to actually make investing worth it - if that is indeed what i end up doing.


Tried to get my head around SIPPs but have struggled and am not sure if i should do this or simply add AVCs to my company pension. What is the advantages of each?


So yea, any of you investment gurus have any advise? Any particular funds i should be looking closer at etc?

MaxiRobriguez

The £20k worth of equity in a single company is too much, especially given you work there. You could have the double whammy of company going under which will not only wipe out your equity but it'll wipe out your earnings too. Can you sell this without penalty and with limited tax implication? If so - look at global index trackers.

I would also consider whether overpaying mortgage is a necessity. If you have any sense, and it seems like you do, you're probably on an interest rate which should be sub 3%. If you decided to use that money to salary sacrifice more than the 7% you currently are you'd benefit from an immediate 30% tax efficiency boost. Doesn't matter that your employer won't pay in any more.

Have you also taken advantage of the marriage allowance considering your wife earns less than the personal threshold now?

Oh_No

MaxiRobriguez wrote: »

The £20k worth of equity in a single company is too much, especially given you work there. You could have the double whammy of company going under which will not only wipe out your equity but it'll wipe out your earnings too. Can you sell this without penalty and with limited tax implication? If so - look at global index trackers.

I would also consider whether overpaying mortgage is a necessity. If you have any sense, and it seems like you do, you're probably on an interest rate which should be sub 3%. If you decided to use that money to salary sacrifice more than the 7% you currently are you'd benefit from an immediate 30% tax efficiency boost. Doesn't matter that your employer won't pay in any more.

Have you also taken advantage of the marriage allowance considering your wife earns less than the personal threshold now?

Thank you for taking the time to reply.


I share your thoughts regarding my holding in the company I work for so will be looking to sell some of these shares. I can sell them right after receiving them penalty free (just a selling fee ofc), my issue was what to do with the money which is probably the biggest reason I haven't done it to date. I shall take a look at global index trackers. I do have an issue trusting any company that is only online / does not have branches - but that is my issue that i will need to get over I suspect.


I am aware that overpaying mortgage is not the most financially wise thing to do, but more a mental wellbeing issue. Similarly, it was a question regarding what to do with the money otherwise, which now sounds like putting it into a index tracker.


Upping my pension is something I think i will do, I can only do this in March of each year but that will come along before I know it!


Regarding marriage allowance, my wife's salary was only confirmed very recently so i have not done anything regarding this. Will look further into it.


Any particular index tracker I should be looking at? I do not want to tinker with it, just put money in over a period of time (probably an annual amount rather than monthly) and not have to think about it. Happy with a medium risk type thing.

MaxiRobriguez

Vanguard do a range, which seem relatively well liked on here. The concept of the tracker is that your money is spread across the entire world in multiple companies - if one company goes bust then it'll barely make a dint on your investment - and you don't really have to think about it, you can just fire and forget. You probably have to realise that we're at quite frothy equity prices at the moment after a long time of cheap money, so there's a possibility (probability) that your investment goes down in the near future, but at 40 years old you should be looking to keep the investment for 20 years - so plenty of time to recover from any losses that might occur over the next five years.

I understand why some people would want to pay off the mortgage first even if it might not be the best action financially on paper, especially if you don't plan to move again.

Albermarle

I do have an issue trusting any company that is only online / does not have branches - but that is my issue that i will need to get over I suspect.

If you think about some of the most respected financial institutions do not normally have branches : Standard Life, Aviva; Legal and General etc etc .
In any case if you had any concerns you could always ask on here.

Upping my pension is something I think i will do, I can only do this in March of each year but that will come along before I know it!

Normally you can also add lump sums directly into the pension as well . Also most workplace pensions allow a choice of where the money is invested .This would avoid having to have a new seperate investment account and you get tax relief on pension lump sums as well ( up to a limit)
If you have not already done so then ask to get direct access to your works pension online and have a look around or give the pension provider a call , usually they are quite helpful.

atush

Move the 20K shares into a S& isa. Then sell the majority if not all and invest in funds or ITs.

Stop overpaying mtg, and open a separate pension for you, up your pension anyway or contribute more to OHs pension. possibly a regular saver too.

What are your pension totals to date?

DrSyn

Like you, I am for overpaying the mortgage providing it is not going to cause hardship in other areas.

For the tax relief, more into your pension is worth considering. What type of pension it is by the way DB or DC.?

Having £20k in the company you actually work for, is unwise for the reason stated in post 2.

If you do hold funds or ETF's best hold them in some type of pension or S&S ISA rapper, aviods tax complications.


You could take a look at the following two ETF's:-

https://www.hl.co.uk/shares/shares-search-results/v/vanguard-funds-ftse-all-world-etf-usdgbp

https://www.hl.co.uk/shares/shares-search-results/h/hsbc-etf-plc-msci-world-etf-gbp


Or you might like one of these passive index multi-asset fund

Vantage Life Strategy
HSBC Global Strategy
L&G Multi Index Funds
Blackrock Consensus
Architas Passive


Whatever you decide, I suggest watching these two:-

http://www.kroijer.com/

https://www.ifa.com/indexfundsthemovie/

short_butt_sweet

is your employer's pension a "salary sacrifice" scheme (a.k.a. "smart pension")? if it is, then paying extra into it is especially attractive (even without any more employer matching), because you save 12% employee NI as well as 20% income tax on your contributions.

if it isn't, then any extra pension contributions you make will only attract 20% income tax saving, which is something, but not a huge win, considering that you will probably pay tax when you eventually draw a pension. the minor win is that you can take 25% of the pension as a tax-free lump sum.

but note that your wife can also get 20% tax saving on pension contributions even though she's not paying income tax! she can open a personal pension / stakeholder pension / SIPP to do this. if you will both get the same 20% tax saving on pension contributions, and your wife has less pension provision to start with, it is better for her to contribute, rather than for you to contribute more, because she will probably have a lower income in retirement, and hence pay less tax (or none) when eventually drawing a pension.

Oh_No

Thanks All. I will try to address all questions:


My work pension is a smart DC pension scheme which is worth about £60k right now (I have no idea if that is ok, bad or good).


atush - How do I go about transferring my shares into an ISA? They are all currently held on a share portal called signal shares. I thought that if I wanted to move them I could only sell them?


DrSyn - I looked at the ETFs you linked, they look a bit like individual shares. Is that how they work? I just buy what I want but they are in fact a 'share' in a fund?


I took a look at Vanguard and the HSBC options you mentioned. I like the HSBC 'Dynamic' option. Is a fee of 0.48% per annum competitive? Vanguard quote ranges but its difficult to tell how much it would cost me if that makes sense?


I watched the Lars Kroijer videos you linked. Very good easy to understand. Basically, don't try to be clever, invest in a passive fund and forget about it, all you need to decide is what % you want between bonds and equities.


Short butt sweet - I hadn't thought of opening a pension for my wife to save on future income tax. I think that will form stage 2 of my growing plan.
Stage 1 being - get my shares in my company sold. Use the money to open a global strategy portfolio but open that within an ISA. Also contribute more to my company pension when I am allowed.


Stage 2 - open a SIPP for my wife.

Oh_No

Afterthought, it also sounds like it would be better for me to contribute more to my company pension than bother with a SIPP for myself. Would I have that correct?

cloud_dog

OP, by 'saving for the future', I am assuming you mean retirement.

How old is your wife? If under 40 you may want to consider a LISA account. For a BRT payer a LISA wins over a pension (excluding the possibility of salary sacrifice) as any income / withdrawals (from age 60) will be free from any tax. Note: you need to be younger than 40 to open one and can contribute until 50. The Government gives contributions up to £4k per year a 25% boost.