Stocks and Shares ISAs

Steve123456789

My wife and I are in our late-20s and have a mortgage. Mortgage should be paid off by the time we're 32 so we are overpaying at the maximum we're allowed.
The rest of our money (other than an emergency fund) is going into our stocks and shares ISAs. Reading on here some think they're really risky, but from all the research and blogs that I've read, if you leave the money alone for long enough, you're pretty much guaranteed to make money.


My question is, is this sensible? Is there something else we should be doing instead?

ColdIron

Pension? Are either of you higher rate tax payers? Do either of your employers offer salary sacrifice?

MaxiRobriguez

Depends what you're invested in within your S+S ISA as to whether it's risky or not as the S+S is just a vehicle which holds the underlying investments. If you're invested in a single global index tracker then yes, over the long run you're likely to come out a winner. If you're invested in single companies then the answer is more complex as companies can and do go bankrupt.

However, if it was me I would redirect your overpayments and S+S ISA contribution to pension. More tax efficient (especially if higher rate tax-payers and/or company offers salary sacrifice so you avoid NI too) which means you have a bigger starting capital to grow your investments over time. You can always revisit this in 10 years time if you have specific priorities or goals which mandates some flexibility rather than just going down the most financially efficient route.

Regardless of which vehicles you use, you should ensure your investments are diversified across geographies, sectors and capitalisation sizes so you've not got all your eggs in one basket. True in a S+S ISA, true in a pension.

Steve123456789

I should have added that we're paying the minimum pension that our employer will match. So mine will match up to 6% so I pay 6% but no more.


To be honest, we have no intention of working long enough for our pensions to really be worth anything. Hence S&S investment.


Obviously I have a lot to learn, but want to get to the point where It's making a noticeable and useable amount of money each month.


It might sound far-fetched or like a stupid impossible dream, but we'll be mortgage free on a 4 bed house by early 30s so expenditure will be really low after this.

Albermarle

Reading on here some think they're really risky,

Some of the occasional/one off posters are very risk averse and are frightened/suspicious about stocks and shares etc . On the other hand some invest in bitcoins or speculate on forestry plantations in Bolivia etc
The regular posters are pretty much all heavily invested in stocks and shares and similar , either in their pensions or elsewhere . However everyone has their own risk tolerance and some will be 100% in equity funds /trackers and some with more of a mix of investments .

if you leave the money alone for long enough, you're pretty much guaranteed to make money.

Although history shows this to be the case , it's best to avoid the word 'guarantee' when talking about financial products . There are 'guaranteed' products out there but inevitably they are nothing of the sort and often outright scams.

Steve123456789

Apologies, my reply there didn't include hald the info you asked for...


We're on £63k between us and we earn about half of that each. Not in high tax bracket.


In terms of investment, we both have a S&S ISA and only recently opened them. I'm working on diversifying across different sectors and countries. I'm planning on only touching index funds.
Currently I have two of the "life strategy" funds with Vanguard and also VWRL.
With Hargreaves Lansdown, we only have the one index fund.


It's a work in progress, but what you've described is my plan. Diversification across sectors and geographical areas.

MaxiRobriguez

Steve123456789 wrote: »

I should have added that we're paying the minimum pension that our employer will match. So mine will match up to 6% so I pay 6% but no more.


To be honest, we have no intention of working long enough for our pensions to really be worth anything. Hence S&S investment.


Obviously I have a lot to learn, but want to get to the point where It's making a noticeable and useable amount of money each month.


It might sound far-fetched or like a stupid impossible dream, but we'll be mortgage free on a 4 bed house by early 30s so expenditure will be really low after this.

Pension access will kick in at 58 for you most likely, which means you have the ability to draw this down for 30+ years of living to fund. Even if you stopped working today your S+S ISA is only funding 30 years to your pension access age if you're late 20s. So all else equal the contributions split should be 50/50.

I suppose you need to calculate whether 12% of your salary contributed for say 10 years with investment gains applied for 30 years will give you what you need...

Albermarle

To be honest, we have no intention of working long enough for our pensions to really be worth anything. Hence S&S investment.

This does not really make sense . If you put the money you are investing in S&S ISA into your pension instead , then you would have actually more money due to the tax relief .

MaxiRobriguez

Albermarle wrote: »

This does not really make sense . If you put the money you are investing in S&S ISA into your pension instead , then you would have actually more money due to the tax relief .

The OP wants early retirement which mandates some sort of S+S ISA provision, but is ignoring the fact that DC pension is still going to make up the bulk of income over the total retirement period.

In order, Op needs to:
1) Work out how much they would need from age 58 to say 100 and make sure the pension contribution receives the funding required to meet that.
2) If any additional extra, put in a S+S ISA.
3) Work out from S+S ISA contributions what age that would allow them to retire.

Op's generally right in that they need a S+S ISA but has the priorities backward because they're likely to have more years after 58 than there is between their current age and 58, and this likelihood just grows the longer they leave it to retire.

Steve123456789

Albermarle wrote: »

This does not really make sense . If you put the money you are investing in S&S ISA into your pension instead , then you would have actually more money due to the tax relief .

Yeah, but I can't access pension until I'm at a certain age. ISA money is mine whenever I want it.


I haven't decided on my plan yet and it depends on many factors that I can't see.
Do I want to completely stop working ASAP?
Do I want to go part time as soon as my mortgage is gone, and my outgoings are less than half?


I know that given my mortgage Is only at 2%, that I should be putting any overpayment money straight into my ISA as the return will be greater than the mortgage interest, but there's something nice about being 32, not having a mortgage and having the potential to not work anywhere near as much. I don't want to sound spoilt and like I want something for nothing, because I'm only in a decent situation through my hard work alone, but working... I really really really hate it.

Steve123456789

MaxiRobriguez wrote: »

The OP wants early retirement which mandates some sort of S+S ISA provision, but is ignoring the fact that DC pension is still going to make up the bulk of income over the total retirement period.

In order, Op needs to:
1) Work out how much they would need from age 58 to say 100 and make sure the pension contribution receives the funding required to meet that.
2) If any additional extra, put in a S+S ISA.
3) Work out from S+S ISA contributions what age that would allow them to retire.

Op's generally right in that they need a S+S ISA but has the priorities backward because they're likely to have more years after 58 than there is between their current age and 58, and this likelihood just grows the longer they leave it to retire.

This makes sense. I will have to look into this. Thank you for explaining.