Critique my finances please?

steampowered

I think it is madness to be keeping so much cash.

You need this money for the long term. It makes no sense to keep so much in cash savings accounts and PBs. You are taking more "inflation risk" than the investment risk you are avoiding.

It seems particularly mad given that you are making money playing online poker. If you were actually risk averse you would not be playing online poker. 

Ray_Singh-Blue

How's that for a curve ball 😂

pat1976

steampowered said:

I think it is madness to be keeping so much cash.

You need this money for the long term. It makes no sense to keep so much in cash savings accounts and PBs. You are taking more "inflation risk" than the investment risk you are avoiding.

It seems particularly mad given that you are making money playing online poker. If you were actually risk averse you would not be playing online poker. 

Agree it's too much cash, as I said above I will be moving £60k to stocks by end April and will look into moving the cash ISAs as they reach the end of the fix.

Very few people understand enough to get the poker,  I have never made below £2k a month, last month was £6k. I am confident of at least £3k a month for the next year or two unless brexit really screws it.

dd95

can you teach me?!

steampowered

pat1976 said:

Agree it's too much cash, as I said above I will be moving £60k to stocks by end April and will look into moving the cash ISAs as they reach the end of the fix.

Very few people understand enough to get the poker,  I have never made below £2k a month, last month was £6k. I am confident of at least £3k a month for the next year or two unless brexit really screws it.

I understand poker - if you can consistently make money doing it, why not.

However, it is not "risk free". What you are doing is taking a sensible calculated level of risk - do the same with your investments.

I would reduce the cash/PBs to perhaps 6 months' expenses-  that is more than enough to cover you for a long time if you were to lose your job, and even if that happened you would be able to sell part of your S&S if needs be.

Mr.Saver

Ray_Singh-Blue said:

Mr Saver, I like your analysis, but moving all the cash savings into investments comes with some risk.

Bond funds could drop quite a lot from current value. It's sometimes said that "a bad year in the bond market is like a bad day in the stock market", which makes bonds sound safe. However in the case of bonds, the worst year on record on saw an 11.1% drop.

If this occured in the same year as a stock market crash, even a safe fund like VLS80 could lose perhaps 20% of its value.

Of course, the OP with 60% cash and 40% stocks might also lose 20% that year. But their higher exposure to equities increases the upside potential of their portfolio.

(This is how I see it anyway)

Investment is for the longer term, that's why I specifically asked whether OP has any plan for large expenses before suggesting invest it. If you don't need the invested money when the investment falls in value, it's just a paper loss, and leave it alone for a few more years, it will come back and beat cash savings accounts.

I should also stress that I'm against invest solely in bonds. Even very risk-averse people should have some equities in their investment portfolio. Other asset classes are also worth considering, such as gold and REITs, because they don't always go up and down in tandem with the stock or bond market.

pat1976 said:

I can't figure out how to format this reply usefully like yours so I apologise in advance if this is a hard to follow.

Each time you click on the "Quote" button under the post, the forum will insert a copy of the full quote to the reply box. Click as many times as you need, and delete the paragraphs in the quoted content and insert your comments between the quotes. If you latter need more quotes, you can move the cursor in the text input area to where you need the quote to be, and click on the "Quote" button again.

pat1976 said:

It does seem like a lot in cash to me now, I've added in that the Cash ISAs are fixed until 2022 at 1.74% which is a very good rate for today. I could transfer them to stocks at a loss of a few months interest. Given that our entire isa allowance is already used each year by our savings this would be the only way to buy get additional stocks.

The unwrapped shares were bought near the beginning of the tax year after allowances had been used, there's not much I can do with them since I'm not short of cash to fill ISA allowances.

I see. In that case, it's probably better to keep the cash ISA as your emergency fund, as that interest rate is a lot better than what you can get today without taking any risk.

If you do decide to use the cash ISA as the emergency fund, you need to know what's the worse case scenario. If you both lost income and had to dip in the emergency fund before it matures, you will have to pay the few months interest penalty and will also loss the ISA status for the money taken from this account, unless it's a flexible ISA. Although you said you are fairly confidence all your jobs are secure, so I wouldn't expect this to happen before the fixed rate cash ISA matures anyway.

By the time the cash ISA is matured and fully transferred to your S&S ISA, you can sell the unwrapped investment and buy them back in the S&S ISA on the same day to avoid the time out of the market, and turn your unwrapped investment into emergency cash at the same time. Although I wouldn't sell all £21k (and hopefully more by that time) unwrapped investment, because your annual expenses is about £33k, and half of that (for 6 months) is only £16.5k.

pat1976 said:
I equate being risk averse with wanting to keep a greater proportion of my funds as cash, I do know enough about stocks to know where I want to invest.

I think this reply below pretty much said what I wanted to say.

steampowered said:

I think it is madness to be keeping so much cash.

You need this money for the long term. It makes no sense to keep so much in cash savings accounts and PBs. You are taking more "inflation risk" than the investment risk you are avoiding.

pat1976 said:

On pensions I have gone back to the original post to clarify. We are currently in average salary schemes with a few old DB and DC schemes so provided we stay in work our pensions should be pretty healthy and sufficient. I hadn't really thought about the state pension, is it really expected to still be around in 30 years? We've both been in work since graduation but I'll see where it stands and get some advice.

Sounds good. You are in a good shape providing that you will both get full state pension and have no plan to retire before the state pension age. The state pension (or some equivalent scheme that replaces it) will almost certainly still exist in 30 years, because we, all taxpayers, all have been paying into it, and have made our financial plans based on the state pension forecasts. Unless any party, be it the Tories or Labor, want themselves to be kicked out of the parliament and surrounded by angry protesters, they won't completely axe it. Although they may make it less generous, and we will see about that. For now, just stick with the SP forecast, it's a good enough reference point.

pat1976 said:

We have life insurance which I've added to the original post, £350k one life, £500k two plus some survivors pension. I have no idea if this is enough and will look into it.

We do not have critical illness insurance, I did look into it once and it seemed rather expensive given the safety-nets in place e.g.  our employers would support us at 75% salary for at least a year for a temporary illness,  more long term we'd be fine on one income forever if costs were trimmed, the side gig is online and can continue whilst I am able to work on a laptop. I will look into that some more too.

Permanent health insurance is different than critical illness insurance. PHI is also sometimes referenced as income protection insurance, but more often income protection insurance references to the mortgage payment protection insurance type. What PHI does is, if you are incapacitated due to illness or accident, and cannot do your job anymore, they will, after a deferral period, pay you monthly benefit until you've either returned to paid work, reached your pension age, or die.

Use 3% safe withdraw rate, £350k payout will generate about £10.5k annual income, of course assuming that you don't need to use this money to pay off the mortgage. If the survivor can carry on working and earn £30k annually (about £23k after-tax), that's £33.5k annual income for two people, sounds enough before the survivor reach retirement. Once the survivor retires, the situation will pretty much depend on the terms of the DB pensions belonged to the deceased. OP will need to check this and make sure the survivor and the child will have enough income in their later life.

In the even worse scenario, if both earners die and the disabled child survives, who will take care of the child? How much does he (and his carer) need? It's never pleasant to think about these things, but you must if you want to ensure that your child doesn't suffer if those bad things really happen to you.

pat1976 said:

So my new plan:
We have £20k of this years ISA allowance left so that will go to stocks
We will put £40k into next years allowance (£10k of this will be new savings earned by then)
I will think about transferring the cash ISAs to stocks when the rate expires.

Sounds good to me. Just add a few points already mentioned above:
Check your state pension forecasts
Check the DB pension's term, make sure the survivors will have enough money in later life if bad thing happen to either one of you
Check whether you need a permanent health insurance (or two, one fore each person)
Make sure you have proper arrangement in place for the disabled child if you and your partner both die and the child survives
And, move your cash from the mortgage offset account to higher interest savings account (e.g. 1% year fixed) if you insist to keep it in cash. Or invest it if you can convince yourselves to do that.