Bet way to invest c £20k cash - or just throw into pension?

asapdebtfree

HI everyone.

tl;dr? Do i put my salary for the next 6 months 100% into my pension and live off savings, or do i invest savings in a more traditional way?

I find myself with almost £20k in cash in my savings account. This is terrible as of course I earn effectively no interest on it. I'd like to do something worthwhile with it. I've been considering the following which I think are the more obvious option

1. ftse tracker in an ISA
2. something more exotic - maybe a foreign markets tracker or some kind of commodity? (I dont really understand commodities so I'm worried)
3. gilts/bonds (again something I'm a little unsure about)

There is also a 4th wild card option. I'm lucky enough to have a pension which i get salary sacrifice contributions to. And I just about scrape into the higher tax band so the relief on that is 40%. Sooo.. I was thinking I could just put 100% of my salary into the pension and live off my £20k savings for the next 6 months or so. It would'nt (as best I can tell) take me anywhere near my lifetime limit, i dont think it would hit the annual one either. I think its a good idea as it means I get the tax relief so that in itself gives me a better return than i'd get anywhere else, now feels like a good time as the pension unit prices are low (it's basically a tracker), it means I dont have to faff about with new accounts or new charges and my pension is doing between 5-8% a year so i think thats ok?

That said, my good ideas usually have a flaw somewhere I've missed so I'd welcome thoughts - particularly if i've missed a big risk or downside.

Happy to answer any questions that would help analysis and thank you in advance..

ColdIron

You will only get 40% tax relief to the extent that you have been taxed at 40%, so only that portion that you 'just about scrape into', the rest will get 20% relief. That said, with salary sacrifice it's not a bad idea anyway

El_Torro

Remember, your employer has to pay you at least minimum wage, so you can’t salary sacrifice 100% of your salary.

Is this £20k your emergency fund? If so then investing it all is a bad idea, even if it is earning little to no interest. Stick it all in Premium Bonds if you want a better return. Doesn’t have to be PB, just somewhere where the money is secure and hopefully gives some return.

asapdebtfree

thank you both -thats actually really helpful. I did realise i only paid 40% above the threshold, but for a stupid reason thought all the tax relief on the pension was 40%..doh.

The 20k is part of what started as my emergency fund - but has thankfully grown due to overtime and the recent lack of anywhere to go or spend  - so its the bit that i think i can happily 'tie up' for a few years. i'd still have 8k accesible which is equivalent of 6 mths living costs (not salary). I'd not thought about premium bonds, i didnt think they did give a return. I was looking at some 'high interest' (LOL) savings accounts but for the 1% it didnt feel worth it. if you had any reccomendations they'd be gratefully recieved

thank you both again

El_Torro

Premium Bonds give an average of 1.26% return, could be more, could be less. So they’re currently better than most savings options, still not stellar though.

if you are willing to invest for at least 10 years then stocks and shares can’t really be beaten. Either in an ISA or in your pension. Which one you choose depends on your circumstances.

Which fund you invest in is important too. A single multi asset global fund, with a percentage of bonds that you are happy with, tends to be a good idea for people who are not very familiar with investing and aren’t prepared to potentially lose it all by investing in individual stocks. Your pension is probably already invested in a multi asset global fund.

If you are going to put it in an ISA and not just add to your pension I’d suggest reading up on how to invest. Monevator is a good website for starters, though there are other good ones out there. Books too.

Albermarle

 it means I dont have to faff about with new accounts or new charges and my pension is doing between 5-8% a year so i think thats ok?

The money in a pension , is invested in funds within the pension. It is how well these funds do that matters . You can usually choose these funds your self , or in many workplace pensions if you make no choice the money goes into a medium risk default fund..

Because these funds are linked to financial markets they will go up and down and you hope that in the long terms the trend is up .However you can not just say it grows by 5 to 8% . It might and it might not . Due to a certain well known virus it will probably have gone down a bit in recent times. 

On the other hand if you had investments in a S&S ISA , you have exactly the same issue, except you do not get the benefit of tax relief. 

https://www.moneysavingexpert.com/investments/

dunstonh

ftse tracker in an ISA

Which FTSE would you be tracking?  (and please do not say FTSE100)

Do i put my salary for the next 6 months 100% into my pension and live off savings, or do i invest savings in a more traditional way?

You appear confused.   A pension is a tax wrapper in which you place your investments.     Just the same as if you use an ISA, unwrapped or other tax wrappers.     So, what do you mean by more traditional way?

something more exotic - maybe a foreign markets tracker or some kind of commodity? (I dont really understand commodities so I'm worried)

Single sector investing is bad investing.  It doesnt matter what sector you pick.

gilts/bonds (again something I'm a little unsure about)

You are jumping all over the risk scale. One minute extremely high commodity funds and the next minute gilts.    Bonds can mean anything and you can have bonds that cover almost every tier on a risk scale.

asapdebtfree

Thank you all for your replies. I've mesed up quoting to reply twice now so i'll just put pertinent bits here

@El_Torro

I'm considering PB for my "emergency fund" - it's sitting doing nothing so even just the chance of a win is better than the miniscule interest its getting currently.

My pension fund is pretty varied and has 36% global varied markets. I cant post links (im too new) but its with TPT.

And I'm definately going to look at learning more - Monevator is open in another tab! - I've got a little while before I can retire (im 45) so if there are things I can do to help that now is probably the time to start making any changes. I have a good NHS pension of nearly 15 years and now this fund I've been in for 5 so i think im ok (i hope)

@Albermarle

Yes, agree with all you say. My plan has been up between 5-8% annually for the last 5 years. This year to date its down 1.8% from April 1 - it was 4% last month so they've done something good I guess?  I'm hoping if I'm buying the 'blocks' at a lower price this will help mitigate it.

@dunstonh

I'm gonna put it in the pension - as you correctly identfy I am confused. I was actually thinking ftse 250 for more variety of companies.  Agree with your point on risk too - i guess i want it all - lots of return for no risk, of course if I could manage that we'd all be doing it by now...

thank you all again for your helpful comments and observations. I'm going to ask my work to start putting 60% of my salary into the pension. That should work through the lump by the end of the year. It's slow enough that if something does go wrong I haven't just tied up a huge amount of money.  In the mean time I think Premium Bonds for the emergency money and I'm going to try and learn a bit more and set up a 'trial' trading account where I can pretend I've bought shares/funds and see how I go with that.

AnotherJoe

36% global markets most likely means you have what's classified as a medium risk mixed fund, Most likely your employers default fund, and for a long term investment that's probably not  good idea.  Better to have a higher %. Much higher. Mine is for example close to 100% and has been for the last 20 years, when I realised that mostly investing in the U.K. gave  a poor return simply because it omitted many industries and economies. 

Look to see if they have anything that's marked asa global index fund (because that would mean it's likely to be lower cost) and consider moving into that.
IMO thats a bigger issue for you, longer term, that what to do with your £12k (assuming you retain £8k as an emergency fund). 

csgohan4

AnotherJoe said:

36% global markets most likely means you have what's classified as a medium risk mixed fund, Most likely your employers default fund, and for a long term investment that's probably not  good idea.  Better to have a higher %. Much higher. Mine is for example close to 100% and has been for the last 20 years, when I realised that mostly investing in the U.K. gave  a poor return simply because it omitted many industries and economies. 

Look to see if they have anything that's marked asa global index fund (because that would mean it's likely to be lower cost) and consider moving into that.
IMO thats a bigger issue for you, longer term, that what to do with your £12k (assuming you retain £8k as an emergency fund). 

what platform did you use to invest in your stocks?