50% premium bonds/50% s+s isa.

clive0510

I've been debating for a while whether to leave my p/b where they are (not the only one either from what I gather) or draw it out and put it in a s+s isa. I couldn't decide. so what I've done is I drew out half and put it in a high income fund isa. so now at this moment they are both level. It'll be interesting to see over the coming months how they both perform. plan is to leave both where they are now for 5 yrs. so we shall see.

El_Torro

You're essentially asking whether it's better to save your money or invest it. 

If you want your money in savings, in a place where it's relatively easy to access (i.e. not in a fixed term account, or one which penalises you for withdrawing), then Premium Bonds are currently a good place to go. 

Putting your money in a S&S ISA (i.e. investing it) is great if you don't plan to access your money for 10 years or more. Assuming you invest it sensibly of course.

Since you are only investing for 5 years it's possible that your investments could be worth less in 5 years time than they are today.The chance of that happening is low, but the chance does exist.

In the long term sensible investments should beat Premium Bonds by a long way. Of course you could win £1 million in Premium Bonds, thereby getting a massive return. The chance of that happening is so low though that it's not really worth thinking about.

clive0510

El_Torro said:

You're essentially asking whether it's better to save your money or invest it. 

If you want your money in savings, in a place where it's relatively easy to access (i.e. not in a fixed term account, or one which penalises you for withdrawing), then Premium Bonds are currently a good place to go. 

Putting your money in a S&S ISA (i.e. investing it) is great if you don't plan to access your money for 10 years or more. Assuming you invest it sensibly of course.

Since you are only investing for 5 years it's possible that your investments could be worth less in 5 years time than they are today.The chance of that happening is low, but the chance does exist.

In the long term sensible investments should beat Premium Bonds by a long way. Of course you could win £1 million in Premium Bonds, thereby getting a massive return. The chance of that happening is so low though that it's not really worth thinking about.

yes I know. so with that in mind I decided to go 50% high risk. 50% low. all these 50 50s about. its a bit like who wants to be a millionaire.

steampowered

Over a 5 year time period:
- If you keep the money in premium bonds, you will lose capital due to inflation. Inflation over the past few years has been around 2%. The effective interest rate on premium bonds is 1%. This means you are losing 1% of your capital each year.

- If you invest into a 100% stock market fund, statistically, you have about an 88% chance of making a profit and a 12% chance of making a loss. That chance will reduce further if you select a medium or lower risk investment fund, rather than a 100% stock market fund. Source: https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/.

To me, that choice is a complete no brainer. 

Why would I want to take a guaranteed 5% loss of capital, with no upside? Rather than a very small chance of making an investment loss with significant upside? 

You mention a 5yr time frame. Is that a minimum or a maximum? If the money might be there for longer than 5 yrs, the case for investing becomes even stronger.

El_Torro

clive0510 said:

yes I know. so with that in mind I decided to go 50% high risk. 50% low. all these 50 50s about. its a bit like who wants to be a millionaire.

I'm not sure if you got my point. Or maybe it was me who missed your point. Either way I'm going to drone on in the hope that somebody reading this thread appreciates my ramblings:

Savings and investments are two fundamentally different things which shouldn't be confused. Savings are for things we need to pay in the next few years. Either expected things or unexpected things (losing your job, paying for things that break, paying for a new car, etc...). Investments are to make us wealthier in the long term, usually used to go towards retirement. Blurring the two will (in my view) lead to disappointment.  

Investing your savings in the hope that you will get better returns is bad saving. Saving too much because you don't like the volatility of investments is bad investing. 

Premium Bonds blurs the lines in some people's view though, since the return on Premium Bonds is not certain. You could save £50k for 10 years and not gain anything at all (extremely unlikely) or you could win millions of pounds (even more unlikely). Having said that though I wouldn't mistake Premium Bonds as a form of investing (or even gambling) since in the long term chances are you will make the quoted return, or thereabouts.

Having said all that though if your plan works for you then it works. Based on what you've said you're unlikely to hit a disastrous situation, and chances are you'll probably be better off than if you had just left all the money in Premium Bonds.

clive0510

so not much point in any one having money in premium bonds really, be it savers or investors, with the figures quoted above.

csgohan4

important thing is have a target for an emergency fund, park it in PB or high savings account and anything left put in S+S ISA or add more to your pension, situation allowing of course

What ever you do, see investing as over a 10 year or so timeframe.

Investing takes alot of research and care and not as easy as dumping your money into tesla and hope for the best. Stick to global index funds for the time being until you get more experience and most of all have an investment strategy

droopsnoot

clive0510 said:

so not much point in any one having money in premium bonds really, be it savers or investors, with the figures quoted above.

Well, not much point in having money only in Premium Bonds, certainly. Mine stays there because there's a chance, albeit small, that it might return much more than roughly 1%. But that's not my only savings / investment.

Albermarle

clive0510 said:

so not much point in any one having money in premium bonds really, be it savers or investors, with the figures quoted above.

If you might need access to the money quickly , then PB's current low interest rate is still better than other easy access accounts, some only offering 0.01% and even the better ones in the 0.5% to 0.7% region.
In fact PB's and fixed rate savings accounts are actually beating inflation at the moment .

clive0510

Albermarle said:

clive0510 said:

so not much point in any one having money in premium bonds really, be it savers or investors, with the figures quoted above.

If you might need access to the money quickly , then PB's current low interest rate is still better than other easy access accounts, some only offering 0.01% and even the better ones in the 0.5% to 0.7% region.
In fact PB's and fixed rate savings accounts are actually beating inflation at the moment .

well I might as well leave p/b where they are for now. If I take them out I can't put them anywhere isa based, as I'm up to my isa limit for this year now.