Cash or S&S for saving over a 6-8 year horizon?

pinkteapot

We never buy cars on finance. Instead we save £480 per month into a specific account which gives us enough to replace the cars every six years. In reality we usually keep cars longer (mine is 8 years old in September and I'm pretty sure I’ll have it for another 1-2 years) if they’re still in good shape, in which case we ease off the saving until they’re replaced, then start again. 

We’re currently using a cash savings account and the pathetic interest is annoying me compared to the growth my S&S ISA has had over five years (even despite the Covid tanking). So I’m wondering whether to move the car fund into S&S. 

But then if there’s another Covid-like event in the year we want to buy a car, we might have to wait for the market to recover...

I know with pensions the funds are shifted into cash years prior to retirement, so is 6-8 years too short a horizon really for S&S? 

(I know that’s a bit of a crystal ball question - I’m not looking for views on the market for the next 6-8 years, just general thoughts on the best strategy).

(I’m also very aware how much of a first world problem this is!)

csgohan4

ideally 10 years for S+S, but longer than possible would be best. 

If you need the money in short term , consider NS&I

bigadaj

car fund isn't appropriate for investment, though if you have enough funds you could put a portion into stovks and shares if you can be flexible.
Pensions also only move into 'safer' funds if they follow lifestyling, if you have a sipp or self manage your pensions then you are responsible for managing the funds and risk level, so may need to reduce risk as you approach retirement. 

AnotherJoe

Given the flexibility you have with timing I think investments would be fine. You have the flexibility to delay the purchase or bring it forward, and if there's a real downturn would you want to be buying a new car anyway? Or, maybe you'll buy a one year old car instead of brand new. Etc. 

So I think it's worth the very small gamble, since otherwise you are effectively making no growth  at all in real terms.

pinkteapot

Thanks all - food for thought... 

Separate to the car fund, we have 'general savings' which aren't for anything specific (long-term rainy day money). These are a mixture of cash and S&S (not all in S&S as I'd be too scared!). The S&S are in a relatively higher-risk fund as it's not a huge part of our money. If I did invest all/some of the car fund I'd choose a lower to medium risk option. We do have those general savings to fall back on if we desperately needed a new car and the money for it had crashed, though that wouldn't be ideal. As someone said though, in the event of a major downturn would we really be buying a new car? Though I bet at the moment you can haggle a better deal than usual!

kinger101

It really depends on your flexibility and attitude to risk.  Are you prepared to buy a more basic model or used if the value of your investment falls?  Or live with the old car a bit longer if it hasn't become a money pit?  

Albermarle

Just to put things in perspective - Medium risk funds have not 'tanked' during Covid . Most are approx. around where they were at the start of the year .

darkidoe

pinkteapot said:

We never buy cars on finance. Instead we save £480 per month into a specific account which gives us enough to replace the cars every six years. In reality we usually keep cars longer (mine is 8 years old in September and I'm pretty sure I’ll have it for another 1-2 years) if they’re still in good shape, in which case we ease off the saving until they’re replaced, then start again. 

We’re currently using a cash savings account and the pathetic interest is annoying me compared to the growth my S&S ISA has had over five years (even despite the Covid tanking). So I’m wondering whether to move the car fund into S&S. 

But then if there’s another Covid-like event in the year we want to buy a car, we might have to wait for the market to recover...

I know with pensions the funds are shifted into cash years prior to retirement, so is 6-8 years too short a horizon really for S&S? 

(I know that’s a bit of a crystal ball question - I’m not looking for views on the market for the next 6-8 years, just general thoughts on the best strategy).

(I’m also very aware how much of a first world problem this is!)

Interesting question.

If the typical lifecycle of your car is at least 6 years and potentially longer, investments will help likely help mitigate the inflationary risks. Perhaps you could create a mini-hedge fund and do 50% cash and 50% investments.

Its very easy to feel one way must be better than the other but then again, we can all be experts in hindsight. 

The fact that you don’t buy cars on finance is the crucial winning strategy.

MaxiRobriguez

AnotherJoe said:

Given the flexibility you have with timing I think investments would be fine. You have the flexibility to delay the purchase or bring it forward, and if there's a real downturn would you want to be buying a new car anyway? Or, maybe you'll buy a one year old car instead of brand new. Etc. 

So I think it's worth the very small gamble, since otherwise you are effectively making no growth  at all in real terms.

Agree with this. You have the ability to delay purchase, or buy a cheaper car. You may even find self-driving autonomous cars which you rent-by-journey become the norm in the near future too....