investing/saving

Aceace

george4064 said:

Aceace said:

raycali said:

I'm in my mid thirties and would strongly advise investing over saving at nearly any age. Unless you are less than 3 years from retirement, you have everything to gain from making good investment choices and little to lose. Even if you're closing in to retirement age you can still make some good income that will supplement a superior and healthier lifestyle.

Considering how poor returns are for savings and pensions, investing is a far better choice for the short term and long term. It's not about chasing the "big bucks", it's about getting your money to work for YOU, not a bank or the government. Nor is it about wild risk-taking - there is plenty of good material out there that can help you make good choices. If you're scared as hell, the most secure mutual funds provide better rates than the best ISAs, which themselves can hardly keep up with inflation.

I currently earn £200 a month from investments, or "passive income". Compared to all you big shots, that is not a lot of money at all. But my plan is to turn that into £1k a month by 40, and 10k per month by 50. I'm still relatively young but wise enough to know that saving alone is NOT the key to wealth - investing is.

A tenfold increase in ten years sounds a tad ambitious! 

Don’t crush his/her ambitions!

Sorry, but an XIRR of 25.87% for 10 years is quite an expectation. 

K_W_the_Second

eskbanker said:

K_W_the_Second said:

I'm sure there's some sound advice here. Except for premium bonds. The so-called interest rate of 1.4% may seem attractive, but it's spurious. And it's falling to 1.0% in December in any case. Read Martin on premium bonds before buying. My take on it is that over 80% of the "interest" goes to two £1m winners each month. Most people get 0% of course. But of the winners, 98% get just £25, and that's 0.002% of the "interest". (My calculations from Martin's figures.) Maybe buy one for the fun of it. Not sure about two.

King Weasel

I think you've misunderstood quite a bit or have a broken calculator....

Nobody disputes that the headline 1.4% rate is distorted by the very small number of very large prizes, but the top few tiers of those large prizes make up no more than 5% of the prizes by value, not 80%.  The concept of a median return rather than a mean average is more useful to represent expected returns with average luck, and 90% of the notional rate is a sound estimate of average expectations, so 1.25ish% just now and 0.9% from December, which is still very competitive with standard savings accounts, especially when the tax-free status is factored in.  However, returns are highly variable, especially for small holdings or small duration, so buying one or two is a complete waste of time!

The broken calculator is me! Stupid mistake I would have spotted if I hadn't been rushing, so thanks for pointing it out. The fact remains that the most likely return for an individual in any month is zero and if they are lucky the most likely prize is just £25. I'm with Martin on this. Premium bonds are about fun and not getting a return on your money.

King Weasel

AnotherJoe

K_W_the_Second said:

eskbanker said:

K_W_the_Second said:

I'm sure there's some sound advice here. Except for premium bonds. The so-called interest rate of 1.4% may seem attractive, but it's spurious. And it's falling to 1.0% in December in any case. Read Martin on premium bonds before buying. My take on it is that over 80% of the "interest" goes to two £1m winners each month. Most people get 0% of course. But of the winners, 98% get just £25, and that's 0.002% of the "interest". (My calculations from Martin's figures.) Maybe buy one for the fun of it. Not sure about two.

King Weasel

I think you've misunderstood quite a bit or have a broken calculator....

Nobody disputes that the headline 1.4% rate is distorted by the very small number of very large prizes, but the top few tiers of those large prizes make up no more than 5% of the prizes by value, not 80%.  The concept of a median return rather than a mean average is more useful to represent expected returns with average luck, and 90% of the notional rate is a sound estimate of average expectations, so 1.25ish% just now and 0.9% from December, which is still very competitive with standard savings accounts, especially when the tax-free status is factored in.  However, returns are highly variable, especially for small holdings or small duration, so buying one or two is a complete waste of time!

The broken calculator is me! Stupid mistake I would have spotted if I hadn't been rushing, so thanks for pointing it out. The fact remains that the most likely return for an individual in any month is zero and if they are lucky the most likely prize is just £25. I'm with Martin on this. Premium bonds are about fun and not getting a return on your money.

King Weasel

That's a misreading /misunderstanding of the statistics and what the article reports. 

It doesn't matter what the most likely return for an individual is because there's such a difference between individuals holdings. Maybe I have £100 in bonds and you have £50k. To average our expected returns is meaningless and misleading. For me the odds are close to zero in any month, for you, you can reasonably expect to get the average return of 1.2% (knocking off the 0.2% that the few higher prizes represent) 
The article actually points out that with the maximum holding that's what you'd expect. 

eskbanker

K_W_the_Second said:

eskbanker said:

K_W_the_Second said:

I'm sure there's some sound advice here. Except for premium bonds. The so-called interest rate of 1.4% may seem attractive, but it's spurious. And it's falling to 1.0% in December in any case. Read Martin on premium bonds before buying. My take on it is that over 80% of the "interest" goes to two £1m winners each month. Most people get 0% of course. But of the winners, 98% get just £25, and that's 0.002% of the "interest". (My calculations from Martin's figures.) Maybe buy one for the fun of it. Not sure about two.

King Weasel

I think you've misunderstood quite a bit or have a broken calculator....

Nobody disputes that the headline 1.4% rate is distorted by the very small number of very large prizes, but the top few tiers of those large prizes make up no more than 5% of the prizes by value, not 80%.  The concept of a median return rather than a mean average is more useful to represent expected returns with average luck, and 90% of the notional rate is a sound estimate of average expectations, so 1.25ish% just now and 0.9% from December, which is still very competitive with standard savings accounts, especially when the tax-free status is factored in.  However, returns are highly variable, especially for small holdings or small duration, so buying one or two is a complete waste of time!

The broken calculator is me! Stupid mistake I would have spotted if I hadn't been rushing, so thanks for pointing it out. The fact remains that the most likely return for an individual in any month is zero....

....except that's not a fact at all!  Someone with the maximum holding currently only has a 13% chance of not winning a prize in any given month, and even with half that holding it's still more likely than not that they'd win.

K_W_the_Second said:
 I'm with Martin on this. Premium bonds are about fun and not getting a return on your money.

You're not with Martin then, as he, or rather the MSE staffer who actually writes the stuff he puts his name to, offers a more nuanced analysis highlighting that they are a worthwhile product that will outperform savings for many.

[Deleted User]

Hello all. Its me again. I hope you all had  a lovely weekend.
So ....its quite expensive this investing malarkey! I've had a look at Hargreaves and they charge 0.45% plus a dealing charge plus another charge which i didnt understand. That seems like a lot of money to me. For, say, a £5K initial investment into their S & S ISA. I'm assuming I can add to the £5K and then they charge me even more.

Vanguard seems a bit cheaper. But not much. I suppose if i'm squirreling it away for 5 - 10 years then thats not a lot...is that the way i should look at it?

Sorry to continue to sound a bit dim. I promise I'm not dim in all areas of life

bowlhead99

Deleted_User said:

Hello all. Its me again. I hope you all had  a lovely weekend.
So ....its quite expensive this investing malarkey! I've had a look at Hargreaves and they charge 0.45% plus a dealing charge plus another charge which i didnt understand. That seems like a lot of money to me. For, say, a £5K initial investment into their S & S ISA. I'm assuming I can add to the £5K and then they charge me even more.

Vanguard seems a bit cheaper. But not much. I suppose if i'm squirreling it away for 5 - 10 years then thats not a lot...is that the way i should look at it?

Sorry to continue to sound a bit dim. I promise I'm not dim in all areas of life

Hargreaves at 0.45% are one of the most expensive providers that work on a percentage basis for their platform fees on funds you buy through them. However, they don't charge for dealing if you're buying normal open-ended funds, only if you're buying things that need to be individually dealt on the stock exchange like individual company shares or investment trusts or ETFs.

Over ten years if you made 7% a year on the £5000 you would have doubled your money, so even paying 0.45% of the balance each year as the balance grew would not be the end of the world; but you could pick other providers e.g. AJ Bell is 0.25% a year plus a £1.50 fee to buy or sell, Vanguard is 0.15% but they only sell Vanguard funds rather than the other 3000+ choices you'd get at HL or AJB.

[Deleted User]

So with AJ Bell as an example. They’d charge me £12.50 a year if I invested £5000.00 and then £1.50 to buy whatever I’ve chosen to invest in.
And then if I Subsequently invest £100 a month there will be £1.50 a month charge to buy whatever it is Ive chosen to invest in. Have I got that right? 

bowlhead99

Deleted_User said:

So with AJ Bell as an example. They’d charge me £12.50 a year if I invested £5000.00 and then £1.50 to buy whatever I’ve chosen to invest in.
And then if I Subsequently invest £100 a month there will be £1.50 a month charge to buy whatever it is Ive chosen to invest in. Have I got that right? 

Yes, that's right. If you resent the £1.50 charge for every £100 invested (which feels like a large percentage of that £100, despite being just a one-off), you might prefer just to set your direct debit at £100pm but have your 'regular investment' purchase be for £300. Then two out of three months your automated purchase wouldn't go ahead due to lack of funds in the account to make a £300 purchase, but on the third month you would buy £300 of investments with a £1.50 fee, which is only half a percent of the investments you purchased, rather than doing it every month and spending relatively more in fees.    

With that as an example, your balance would tick up from £5000 to £6200 over the course of the year (ignoring investment growth) so the 0.25% platform fee charge on a balance of £5300 at the end of the first quarter and £5600 at the end of the second quarter etc would average out to be more like £14 a year instead of the £12.50 you had originally thought of (if you had just put in £5000 on day one and it hadn't grown in value).

By contrast HL would charge you a higher fixed percentage, but not have any of the £1.50 charges.

[Deleted User]

Gosh. I miss the days when all I had to think about was which Building Society had the best interest rate! 

bowlhead99

Deleted_User said:

Gosh. I miss the days when all I had to think about was which Building Society had the best interest rate! 

Well, then you were looking to put money into an account for safekeeping and hoping the interest rate you got wasn't too much worse than inflation, while now you are looking to take investment risk to maintain or grow your money in real terms. 

The latter involves some risk, so rightly you are looking into what products are available and what they cost. It's inevitably going to be more complicated than simply reading aloud the interest rates quoted on a list of fully insured / FSCS protected savings account and picking the top one.

What you are doing now is fundamentally different to what you were doing when you just wanted to put money into a savings account and come back to it later, and it's worth spending some time figuring it out how 'investment' works. 

You mention that 'all you had to think about...' was what was the best interest rate, implying it was all very easy.  However, taking that 'easy' option and never bothering to figure out how investments work, is what has left you with a pile of cash and no pension at 59 when if you had instead used pensions or investment ISAs you could have potentially had decades of investment gains along with some of your income tax refunded as tax relief if using pension; and been generally wealthier by the age of 59 than you've actually become. 

Being late to the party is better than never finding it at all, so, a belated welcome. It does make sense to take some time to research your options properly rather than just dive in to the first product you hear about.