Am I doing this right?

dude7691

Albermarle said:

It's also a bit unnerving knowing that over 4 years, there is a possibility a fall today might not be recouped in that time, whereas over 25-30 years (inc dividends) it's practically a certainty. 

If investing in developed world stock markets , I think the longest period ever in 200years when you would have still made a loss was 13 years . The odds of making a loss after ten years are pretty small , even after seven it is probably no more than 10% ( can not remember exactly ) Even then the potential loss could be small . Overall if history is anything to go by then any even any investment over five years you would be unlucky to make a loss , but it would be a possibility.

On the other side average gains are around 7% .

Yes that's what I was thinking, the great depression was around a decade I believe. A long time for sure but not devastating by any means over a life course. Of course I'm sure MSE's general advice will advise you that anything less than 10 years is quite risk on vs risk off.

Yes, indeed :P That's the fun part  

Aceace

Hi @dude7691, have you looked at P2P investments? It might be worth putting some of your funds there. Your capital would be at risk, but there are plenty of platforms where that risk is pretty low. In your position a property secured one could suit as the biggest risk on a quality platform would be that the value of the security properties drop, which would likely mean that the property you intend to purchase will have fallen much further, so you would still win.
CrowdProperty would be worth a look, they offer up to 8% and have an ISA version. You would need to arrange to extract your funds well in advance of the purchase as their loans are 12 months on average and some of them overrun, so you would need to allow for this.
A simpler, less risky, alternative would be Loanpad. They offer 4% and also have an ISA. Accessing funds on there is much simpler, just a case of giving notice under normal conditions, though not guaranteed. Normal conditions have applied throughout the covid crisis, which is a pretty tough test. You could also move funds here from the less assessable platforms towards the end of your 4 years. Would still be sensible to pull the funds out several months before you expect to use them just in case. 
There are lots of other platforms depending on your risk appetite or if you prefer to diversify. Just ask if you're interested. 

Thrugelmir

dude7691 said:

Albermarle said:

It's also a bit unnerving knowing that over 4 years, there is a possibility a fall today might not be recouped in that time, whereas over 25-30 years (inc dividends) it's practically a certainty. 

If investing in developed world stock markets , I think the longest period ever in 200years when you would have still made a loss was 13 years . The odds of making a loss after ten years are pretty small , even after seven it is probably no more than 10% ( can not remember exactly ) Even then the potential loss could be small . Overall if history is anything to go by then any even any investment over five years you would be unlucky to make a loss , but it would be a possibility.

On the other side average gains are around 7% .

 Of course I'm sure MSE's general advice will advise you that anything less than 10 years is quite risk on vs risk off.

That's down to market volatility. The higher up the risk scale of investment you move. The wider the extent of volatility can be. If you've a fixed term objective then there's no certainty you'll be able to achieve it.  Likewise if your investment goes wrong, such as investing in Japan in the boom years. You'll never recover the capital loss. 

Another_Saver

Aceace said:

Hi @dude7691, have you looked at P2P investments? It might be worth putting some of your funds there. Your capital would be at risk, but there are plenty of platforms where that risk is pretty low. In your position a property secured one could suit as the biggest risk on a quality platform would be that the value of the security properties drop, which would likely mean that the property you intend to purchase will have fallen much further, so you would still win.
CrowdProperty would be worth a look, they offer up to 8% and have an ISA version. You would need to arrange to extract your funds well in advance of the purchase as their loans are 12 months on average and some of them overrun, so you would need to allow for this.
A simpler, less risky, alternative would be Loanpad. They offer 4% and also have an ISA. Accessing funds on there is much simpler, just a case of giving notice under normal conditions, though not guaranteed. Normal conditions have applied throughout the covid crisis, which is a pretty tough test. You could also move funds here from the less assessable platforms towards the end of your 4 years. Would still be sensible to pull the funds out several months before you expect to use them just in case. 
There are lots of other platforms depending on your risk appetite or if you prefer to diversify. Just ask if you're interested. 

I vehemently disagree. Equity is fine.

To the OP - I'll try to say this is the most politically correct way I can. Just based on reading your posts, I do not think you will be on the minimum wage for long. Also mortgage lenders prefer, and life is generally easier, when you're a little up the income spectrum, why not aim for at least twice that.

But that kind of risk averse attitude is useful.
Also people often blandly stated the average return is around 7%, I think Mr Money Moustache started this, not wrong just an overly simple way of looking at it. A reasonable future long term expectation if you're talking about a global equity fund would be upto 4% on top of inflation.

dude7691

Aceace said:

Hi @dude7691, have you looked at P2P investments? It might be worth putting some of your funds there. Your capital would be at risk, but there are plenty of platforms where that risk is pretty low. In your position a property secured one could suit as the biggest risk on a quality platform would be that the value of the security properties drop, which would likely mean that the property you intend to purchase will have fallen much further, so you would still win.
CrowdProperty would be worth a look, they offer up to 8% and have an ISA version. You would need to arrange to extract your funds well in advance of the purchase as their loans are 12 months on average and some of them overrun, so you would need to allow for this.
A simpler, less risky, alternative would be Loanpad. They offer 4% and also have an ISA. Accessing funds on there is much simpler, just a case of giving notice under normal conditions, though not guaranteed. Normal conditions have applied throughout the covid crisis, which is a pretty tough test. You could also move funds here from the less assessable platforms towards the end of your 4 years. Would still be sensible to pull the funds out several months before you expect to use them just in case. 
There are lots of other platforms depending on your risk appetite or if you prefer to diversify. Just ask if you're interested. 

Hi There  

I have indeed, I've thought about P2P for a while and for cash I could afford to lose it's not a bad investment, but my problem with it has always been this. 

Most of the borrowers on there are probably people who couldn't get loans from banks. Makes you ask yourself, "if a bank won't lend to them, why should I?". 

I'm not for a second saying all lenders are like this, I'm sure there's lots of companies that are responsible and lend to companies that maybe aren't as well viewed by banks like competing financial institutions. But of course there's no FSCS protection if the company itself (the middle man) goes bust. Banks have that advantage over private lenders. Although they can go bust, they're in control of it mostly. 

I know you can calculate the average default rate and then assume a best and worst case scenario. However if the middle man restricts withdrawals, or collapses completely there's no protecting against that. I'd personally feel more comfortable in equity, but thank you for your advice  

Aceace

Another_Saver said:

Aceace said:

Hi @dude7691, have you looked at P2P investments? It might be worth putting some of your funds there. Your capital would be at risk, but there are plenty of platforms where that risk is pretty low. In your position a property secured one could suit as the biggest risk on a quality platform would be that the value of the security properties drop, which would likely mean that the property you intend to purchase will have fallen much further, so you would still win.
CrowdProperty would be worth a look, they offer up to 8% and have an ISA version. You would need to arrange to extract your funds well in advance of the purchase as their loans are 12 months on average and some of them overrun, so you would need to allow for this.
A simpler, less risky, alternative would be Loanpad. They offer 4% and also have an ISA. Accessing funds on there is much simpler, just a case of giving notice under normal conditions, though not guaranteed. Normal conditions have applied throughout the covid crisis, which is a pretty tough test. You could also move funds here from the less assessable platforms towards the end of your 4 years. Would still be sensible to pull the funds out several months before you expect to use them just in case. 
There are lots of other platforms depending on your risk appetite or if you prefer to diversify. Just ask if you're interested. 

I vehemently disagree. Equity is fine.

To the OP - I'll try to say this is the most politically correct way I can. Just based on reading your posts, I do not think you will be on the minimum wage for long. Also mortgage lenders prefer, and life is generally easier, when you're a little up the income spectrum, why not aim for at least twice that.

But that kind of risk averse attitude is useful.
Also people often blandly stated the average return is around 7%, I think Mr Money Moustache started this, not wrong just an overly simple way of looking at it. A reasonable future long term expectation if you're talking about a global equity fund would be upto 4% on top of inflation.

Nothing wrong with trying the equity route, it's just a higher risk option over the timescale IMO. One doesn't preclude the other. If the risk tolerance is high enough, perhaps try some of each. 

dude7691

Another_Saver said:

Aceace said:

Hi @dude7691, have you looked at P2P investments? It might be worth putting some of your funds there. Your capital would be at risk, but there are plenty of platforms where that risk is pretty low. In your position a property secured one could suit as the biggest risk on a quality platform would be that the value of the security properties drop, which would likely mean that the property you intend to purchase will have fallen much further, so you would still win.
CrowdProperty would be worth a look, they offer up to 8% and have an ISA version. You would need to arrange to extract your funds well in advance of the purchase as their loans are 12 months on average and some of them overrun, so you would need to allow for this.
A simpler, less risky, alternative would be Loanpad. They offer 4% and also have an ISA. Accessing funds on there is much simpler, just a case of giving notice under normal conditions, though not guaranteed. Normal conditions have applied throughout the covid crisis, which is a pretty tough test. You could also move funds here from the less assessable platforms towards the end of your 4 years. Would still be sensible to pull the funds out several months before you expect to use them just in case. 
There are lots of other platforms depending on your risk appetite or if you prefer to diversify. Just ask if you're interested. 

I vehemently disagree. Equity is fine.

To the OP - I'll try to say this is the most politically correct way I can. Just based on reading your posts, I do not think you will be on the minimum wage for long. Also mortgage lenders prefer, and life is generally easier, when you're a little up the income spectrum, why not aim for at least twice that.

But that kind of risk averse attitude is useful.
Also people often blandly stated the average return is around 7%, I think Mr Money Moustache started this, not wrong just an overly simple way of looking at it. A reasonable future long term expectation if you're talking about a global equity fund would be upto 4% on top of inflation.

I appreciate that optimism I'm hoping so too believe me, I'm more thinking for the first year or maybe two after I move out, get settled and need a bit more flexibility in terms of where I work. I'll ideally get the job I want first, then buy the house in that general area. I totally agree, you can only save so much money but there's no limit to what you can earn. 

I try to keep a worst case scenario as my base, because then I'll never be shocked if things go against me. I've been guilty of blind optimism in the past when I was younger, so I've made a conscious choice to be conservative at least until I've got a decent buffer behind me. 

Yeah, in the future if inflation stays this low I wouldn't expect more than 4% per year on top of inflation. But if inflation happens to be low, it devalues the money less so it's all for naught really. 7% return with 3% inflation is the near enough the same as 4% return with 0% inflation. Over a 30 year timeframe (talking longer term into retirement for me) a 2% inflation rate over that time devalues the money by about 45%, so 500k would be worth 275k, whereas if you have no inflation it stays at 500k.

Aceace

Fair enough if its not for you, but like many you do have some misconceptions. 

Most of the borrowers on there are probably people who couldn't get loans from banks. Makes you ask yourself, "if a bank won't lend to them, why should I?". 

This is true or some of the higher rate platforms, but certainly not for the two I mentioned. CP are a specialist property development / bringing lending platform that has several advantages for borrowers over banks. They have a great deal of specialist property development knowledge in house to be able to assist their borrowers when needed and can provide funds much quicker than traditions lenders would. Far from being a lender of last resort they are often a preferred lender. They reject offer 95% of all applications. LP provide senior loans to borrowers at the very safest end of the capital stack, allowing their junior lending partners to take the higher risk and to gear up their investments. 

But of course there's no FSCS protection if the company itself (the middle man) goes bust. Banks have that advantage over private lenders. Although they can go bust, they're in control of it mostly. 

Yes, there's no FSCS protection, but there is plenty of protection if the company goes bust. If the platform goes bust you do still own the loan and are entitled to the associated security. Sure it would likely take longer to be able to access your cash, but the security would still be there. On LP for instance your cash would currently be spread over 39 loans with an average LTV of 34%, with no single loan over 50%. So, on average, property prices would need to fall by more than 66% before your cash started to be at risk. In your case that wouldn't be so much of a problem as the property you wanted to buy would likely also have fallen by a similar amount. 

I know you can calculate the average default rate and then assume a best and worst case scenario. However if the middle man restricts withdrawals, or collapses completely there's no protecting against that. 

Sure, worst case is that you can lose some (or even all) capital, but that's also true of equities, and especially so over a short time. As I described above, it's a low probability. The covid era has been a pretty severe test of liquidity and both of these platforms have passed with flying colours. Again, as described above, there is protection from platform collapse. 

Fair enough if you prefer equities, they would certainly have a potential of a higher return, but don't fool yourself that it would be lower risk in your circumstances compared with the platforms I mentioned. The very best of luck to you though.