Advice on best way to invest long term - 20 year old

medicookie

Hi all. Im 19 years old and have managed to save 6-7k over the years (im in university and will be for the next 6 years). I have a help to buy and deposit £200 monthly into there. In short, i want to buy a flat in around 6 years time so im looking to invest the 7k - i just dont know the best route. Its sitting in a savings account with hardly any interest on it. Apologies if i sound silly here, but should i: put it in an ISA, buy gold with it, buy stocks and shares etc..?

If the latter, can someone please explain HOW i buy shares. The actual process of purchasing them. No rude replies please, i know im absolutely clueless in this situation. Just need some guidance

Thank you

grumiofoundation

You are better posting on the savings and investments forum. Although no-one will (well should) give you advice on what you should do/should invest in but will be able to help you with any questions you have and explain various products, input on your aims and strategy. 
https://forums.moneysavingexpert.com/categories/savings-investments

I recommend doing some basic reading yourself, even as basic as what a share is, what a bond is, I found this really makes it easier to understand more detailed articles (included some links below but are many,. many more!). Also have a read of some threads on the above forum, might be useful for you.

Investing in stocks and shares over 7 years obviously carries a risk of losing money. You need to be prepared to see your money drop in value, perhaps dramatically - could be 50% drop. Over 7 years you would likely (based on historical data) to not make a loss but obviously not guaranteed. The issue with investing money you are saving for a deposit is sudden drops you might experience in that time, as you come closer (2 years if not more) from buying a house you should look to move to cash (no risk to capital).

Buying individual shares is not recommended for beginners (riskier and needs more research) or for small amount of money (transaction costs can significantly cut profits, if any).

Diversification is key to reduce risk unless you feel confident investing in individual shares.
Diversification around the world (for example dont just invest in the FTSE 100!), different sectors, and different asset (shares (also called equities), bonds are the main 2). Generally a multi assest funds, with higher equities being higher risk - i. e. for the longer term. Providers such as vanguard, HSBC, legal and general, blackrock offer such funds through various platforms (see mse link).
https://www.moneysavingexpert.com/savings/stocks-shares-isas/
https://investor.vanguard.com/investing/how-to-invest/diversification
https://monevator.com/investing-for-beginners-why-do-we-invest/

General 'rule' is more shares = greater long term gain, but will drop and rise more.  
As you get closer when you withdraw you would want to reduce volatility buy reducing the amount of shares you have and increasing bonds/cash (see link to vanguard target retirement funds which explains the concept)
https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds

You may also want to look at cashback sites/referral offers for different providers - for smaller amount can give you a nice headstart on investing - for example nutmeg, wealthify, legal and general have offers currently I believe. 

These providers are often more expensive than cheaper platforms but the cashback will more than make up for that and after the minimum investment term required for the cashback (could be 6 months, could be 2 years) you can look at moving to a cheaper provider. 


As you are saving to buy a house have you looked at a lifetime ISA? Allows more to be deposited each year (therefore higher bonus) than HTB bonus - although is less flexible - pay a penalty to get money out so need to be sure you want to use it to buy a house in UK - if you aren't certain of his might not be right product for you. Can get cash and stocks and shares. 
https://www.moneysavingexpert.com/savings/lifetime-isas/

 

macman

You have £7K to invest in addition to your HTB ISA? Keep going with the £200 per month until you have reached the maximum investment of £12K. For which you will receive £3K bonus. No other savings product can come near to that, so you've made the best possible start.
As a non-taxpayer, ISA's are not really worth considering, as rates are currently so low. The most you will get in short-term savings accounts is 1.3% at present. 
You should be able to get a return of at least 3% in relatively low-risk investments, but, as wisely pointed above, they are not no-risk. No investment is. It all depends on your attitude to risk.

medicookie

grumiofoundation said:

Thank you so much for all of this information!! I will be sure to take time out to look over all the links.

I have indeed looked into the LISA. I dont like the look of the 25% penalty, though. Although you're right, it probably would give me more in return compared to my help to buy. I will spend some time calculating how much more i would get if i had a LISA. I guess i have become too comfortable with my help to buy

Once again, thank you very much for your time. I appreciate the fact that it takes time for one to educate themselves on how finances work and me, as a science student, am absolutely clueless about it all! I will certainly get to work on reading the links.

medicookie

macman said:

You have £7K to invest in addition to your HTB ISA? Keep going with the £200 per month until you have reached the maximum investment of £12K. For which you will receive £3K bonus. No other savings product can come near to that, so you've made the best possible start.
As a non-taxpayer, ISA's are not really worth considering, as rates are currently so low. The most you will get in short-term savings accounts is 1.3% at present. 
You should be able to get a return of at least 3% in relatively low-risk investments, but, as wisely pointed above, they are not no-risk. No investment is. It all depends on your attitude to risk.

Hey macman! Yes, i have 7k sitting in my savings and currently around 2.5 in my help to buy. I will certainly be continuing my monthly £200 in there, but as grumio said, i might also take a look at the LISA. If the LISA works out better despite the 25% penalty, i might have to switch over.

My mum also agreed, ISA's seem to be very low in interest. 

In terms of the low risk investments, i think that might be the best option for me. You see, if i was working and had a stable income, i would be the high-risk type of person. Since im in university for 5+ more years, my savings are all I've got! Low risk over 6 years might be an ideal option.

Thank you so much for your time. (once again, im clueless about this all so its heart-warming that people are willing to help me out)

grumiofoundation

BriAn said:

Couple of points:
"Long term" investing is considered to be over 10+ years. 
Buying individual shares is basically gambling. Its not - but its also not recommended (unless you are willing to put the time and effort to research in (or prepared to risk loosing a lot of your money)
It's worth using a "Shares ISA" because all profits are exempt from captial gains tax. I assume you'll be earning income/salary & if your investments do well, & you want to take profits, they'll be exempt from CGT.
Pensioncraft.com are an excellent resource for learning the basics about investing in various markets & how best to go about it. It appears to be an american website so not the best for a UK money saving site.
(I have no affiliation with them.)
My investing approach is to use my ISA allowance each year to invest in passively-managed cheap index funds.
There are various ways to combine asset allocations in a portfolio (e.g. a 60% Bond/40% Shares(equity) mix is common), using index-tracking funds.
There are even single funds from Vanguard that do asset-allocations for you.
My strategy over the last 8 years is based on "The All-Weather portfolio" Ray Dalio - also american? Can we assume you affiliated with him then as you haven't added this clarification? Assuming the portfolio you mean is the 30% stocks, 55% bonds, 15% commodities this is very bond heavy for the current climate (where bonds are generally not expected to offer as good returns as have in the past for the next few years). By its very definition this portfolio will be middle of the road.
My SIPP (self-invested pension) has achieved ~8.2% annualised. Since when - without a time frame this is literally meaningless. Since we have been in one of the biggest bull markets in history last 10 years unlikely to be anyway representative of next 10 years.
My ISA has achieved 7.5% annualised. As above.
This is net of all charges. 
Good luck with whichever strategy you go for.

Advice generally sensible but maybe an american twist - probably better to use websites that are aimed at UK consumers.

BriAn

Pensioncraft is run by Ramin Nakisa who lives in Amersham, Bucks.

This info is available on their site & if you checked their material on YouTube you would see they are obviously not from the US.

I have also indicated in the original post the timeframe over which I have adopted this strategy.

Note the subject matter is about "long-term" investing hence your comment regarding the "current climate" misses the point.
Also, projections into the long-term future regarding market indices are largly meaningless.