long term advice

dd95

so after some brilliant advice received on here of which i told one of my friends about, she has recently bought their first home and is wondering how to invest for the future. like myself she wants to save as much as possible to move into her forever home in around 15 years time.

My advice to her (which is what i would do), would be to split her savings of approx 700 a month half into a stocks and shares isa (to hopefully reap rewards in 10-15 years time) and to put the other half in an easy access saver with good interest rate just incase there are some minor emergencies etc

this would result after 15 years in around 60k in saver (excluding interest) and an invested 60K (excluding dividends and capital value) in the s and s ISA

is this a viable strategy? Any other thoughts appreciated as ever

dd95

.... i have also explained that using a s%s ISA her holding could also go down but this tends to happen shorter term

steampowered

The first priority is to ensure decent pension contributions are being made - at least enough to get the max matched contribution she can get from her employer.

The next priority is to build up cash savings of 3 months expenditure to cover emergencies.

After that, I'd put the whole lot into a S&S ISA.

Apodemus

As steampowered says, that is way more than I would want to hold permanently as cash (although I currently have about that amount, half will be in a SIPP by the end of January). A cash buffer is a good thing to have, but you don’t need it to be too big.

ec9wrr

Agree pension should be a big consideration. Also your 50:50 split will end up resulting in more than I’d want in cash.

tacpot12

steampowered wrote: »

The first priority is to ensure decent pension contributions are being made - at least enough to get the max matched contribution she can get from her employer.

The next priority is to build up cash savings of 3 months expenditure to cover emergencies.

After that, I'd put the whole lot into a S&S ISA.

I would recommend that the amount of cash savings she hold should align with the Income Protection Insurance and any entitlement to Statutory Sick Pay that she has. Income Protection policies usually have a deferred period of 13, 26 to 52 weeks, and get cheaper the longer the payout is deferred. SSP will pay about £400 pcm.

If she is looking to save for more than 10 years, putting the remaining amount in a Stocks & Shares ISA is good advice, providing she is contributing enough to her pension.

Thrugelmir

dd95 wrote: »

.... i have also explained that using a s%s ISA her holding could also go down but this tends to happen shorter term

Might happen in 15 years time when the money is required. Only ever risk what you can afford to lose.

fiisch

For getting a "forever" home, I would simply focus on overpaying the mortgage and building up equity in current home as fast as possible. If they have just bought first home, it is advisable to get a Loan-To-Value of >60% as quickly as possible to get best interest rates.

Personally, I view S&S ISA as a separate pot, outside of our home equity. What you suggest is a possible strategy but prone to backfiring - situations change, and it is difficult to plan when someone will want/need to buy their "forever" home. What if the need arises to move quickly, yet money is tied up in equities which have recently fallen in value?

Notepad_Phil

Your friend needs to firstly make sure that she has an emergency savings pot of at least 6 months expenditure and that her and any partner's pension contributions are sufficient for the kind of retirement she/they want.

From there I'd be realistic about the cost of the purchase of this forever home - 15 years is a long time in the future, what is the likely cost of that house when she/they come to start looking and what price will the current house bring in? Can she save/invest enough to purchase this forever home and what kind of returns will she need to get to the kind of sums she'll need?

This will give an indication of how much needs to go into investments rather than savings/paying-down-the-mortgage, though as you indicate, investments can drop as well as rise, so in many people's opinion (including mine) if you are investing then it should be for a minimum of 10 years, so if it were me then I wouldn't put any extra into investments once I got to within ten years of the likely purchase of the forever home.

With interest rates at what they are, she will likely be better off putting the majority of any cash savings into paying down the mortgage rather than just holding it in low paying savings accounts. But she'll need to look at what the rates are to confirm.

Eco_Miser

What sort of 'minor emergencies' require £60k cash?

I'd suggest using the whole of her surplus to build up a sensible emergency fund - the emergency might not wait until she has built a fund slowly, then switch to investing.

dd95

notepad phil - her house purchase was for 200k, i think she has sights on her "forever home" to be around 600k mark given the type of house and its location. She has 700pm to save currently but expects to add a few hundred more if she gets a promotion

profanely best then to put her savings into higher interest saver (Marcus?) as opposed to s and s ISA? then once/if she purchases the forever home she can start the investing?