Passive Investing for a beginner

Marcusian

Hi Guys. Not expecting a full financial breakdown of what to do, more a sanity check on what i am doing.
I have £1300 now invested in ETFs on a GIA on Freetrade. My general idea (i am new to this but it makes sense i think) was to start putting my savings into these on monthly basis as my savings accounts is giving me !!!!!! all interest. So the goal would be purely get a better return on what my money would get sat in an account.
I can afford 500 a month new money to drip feed into this. I wanted to just stick with ETFs, and just add to the 3 I have invested in (S&P, FTSE All world, FTSE 250). The idea is that i can beat the 0.2% interest the money would be getting in a savings account, and ideally above inflation so 2.5%. 
I have £5000 in cash also - would i be better served also drip feeding this in (pound cost averaging i was thinking) my ETFs investments. 
Like i said - all i am looking to do with this is build up my savings for a rainy day in the future, at get a better rate of return than my savings account will give me.
I understand the risk with the market as opposed to savings - but in my rather simplified logic, if i put all this money over time into these investments than i would in savings, then I would make a better return all things being considered?

Linton

You say you are building a pot for a rainy day.  Before you think about investing you should have several months living expenses in cash.  You dont want  the rainy day to arrive and you to find that your pot has dropped significantly in value thanks to poor economic confditions.

Once the emergency pot is in place then you can sensibly comsider long term investing.  But remember this is for the long term, certainly more than 5 years and preferably more than 10.  Dont plan on cashing it in earlier.

With those caveats in principle what you are doing seems sensible.  Though buying 3 funds out of £500/month will lead to excess charges, better to put it all in one fund each month, switching from time to time.  I do not think having an S&P500 fund makes much sense.  FTSE All World is 50-60% US anyway.

As to drip feeding - on average you will make more money by investing the money as soon as you have it, a delay will cost you.  However what actually happens may not be average. So you could rationally choose either way.

A final warning - at some stage in the next say 5 years you must be prepared for a major fall in share prices, perhaps 40%.  It is important that you dont panic and sell out because that will make your loss real.  Better to stay invested as prices will recover.  You should continue paying in your £500/month.  If you think a crash will really spook you look to investing more safely - options for doing this are available.

MaxiRobriguez

You need to first decide what your savings are for, and when they will be needed. If they are emergency savings, or you will want to use the savings in the next couple of years, then subjecting them to capital at risk investments is not appropriate, as there's a chance they'll be worth less than they are now when you need to access.

If you are saving over a much longer time frame, then it generally makes sense to invest as like you say the returns over time should be better than holding in a savings account. There will be times when your investments are up, and times when they are down, but over the long run (ie >10 years) then you should be able to see average annual gains of 4% or more, depending on how racy the investments you bought are.

Marcusian

Linton said:

You say you are building a pot for a rainy day.  Before you think about investing you should have several months living expenses in cash.  You dont want  the rainy day to arrive and you to find that your pot has dropped significantly in value thanks to poor economic confditions.

Once the emergency pot is in place then you can sensibly comsider long term investing.  But remember this is for the long term, certainly more than 5 years and preferably more than 10.  Dont plan on cashing it in earlier.

With those caveats in principle what you are doing seems sensible.  Though buying 3 funds out of £500/month will lead to excess charges, better to put it all in one fund each month, switching from time to time.  I do not think having an S&P500 fund makes much sense.  FTSE All World is 50-60% US anyway.

As to drip feeding - on average you will make more money by investing the money as soon as you have it, a delay will cost you.  However what actually happens may not be average. So you could rationally choose either way.

A final warning - at some stage in the next say 5 years you must be prepared for a major fall in share prices, perhaps 40%.  It is important that you dont panic and sell out because that will make your loss real.  Better to stay invested as prices will recover.  You should continue paying in your £500/month.  If you think a crash will really spook you look to investing more safely - options for doing this are available.

Thank you for this, some food for thought. I am going to keep aside a few grand rainy day money, so I think it wise to just keep my cash savings i have no for this purpose. 

So what you are saying is that each month put my 500 in one of those ETFs? then the next month 500 in the other one? or purely focus on one ETF full stop?

Marcusian

MaxiRobriguez said:

You need to first decide what your savings are for, and when they will be needed. If they are emergency savings, or you will want to use the savings in the next couple of years, then subjecting them to capital at risk investments is not appropriate, as there's a chance they'll be worth less than they are now when you need to access.

If you are saving over a much longer time frame, then it generally makes sense to invest as like you say the returns over time should be better than holding in a savings account. There will be times when your investments are up, and times when they are down, but over the long run (ie >10 years) then you should be able to see average annual gains of 4% or more, depending on how racy the investments you bought are.

Certainly for a longer time frame, I have the emergency fund. Truth be told, and I will try to avoid the life story, but I started a business in 2020 and it has not only doubled my income but has become my main income. I just want to make this 'success' count, the business is now established and I just want to make sure if it did drop down and I had to go back into full time work/reduced salary I have at least a good amount of savings there. 
In background I want to be mortgage free earlier, so say in 10 years I would draw down that savings to pay off my mortgage. Again oversimplifying, i am already over paying it without penalty, I just meant I won't be looking to touch this money in the nearish future. 

Linton

Marcusian said:

Linton said:

You say you are building a pot for a rainy day.  Before you think about investing you should have several months living expenses in cash.  You dont want  the rainy day to arrive and you to find that your pot has dropped significantly in value thanks to poor economic confditions.

Once the emergency pot is in place then you can sensibly comsider long term investing.  But remember this is for the long term, certainly more than 5 years and preferably more than 10.  Dont plan on cashing it in earlier.

With those caveats in principle what you are doing seems sensible.  Though buying 3 funds out of £500/month will lead to excess charges, better to put it all in one fund each month, switching from time to time.  I do not think having an S&P500 fund makes much sense.  FTSE All World is 50-60% US anyway.

As to drip feeding - on average you will make more money by investing the money as soon as you have it, a delay will cost you.  However what actually happens may not be average. So you could rationally choose either way.

A final warning - at some stage in the next say 5 years you must be prepared for a major fall in share prices, perhaps 40%.  It is important that you dont panic and sell out because that will make your loss real.  Better to stay invested as prices will recover.  You should continue paying in your £500/month.  If you think a crash will really spook you look to investing more safely - options for doing this are available.

Thank you for this, some food for thought. I am going to keep aside a few grand rainy day money, so I think it wise to just keep my cash savings i have no for this purpose. 

So what you are saying is that each month put my 500 in one of those ETFs? then the next month 500 in the other one? or purely focus on one ETF full stop?

Yes to only buying one ETF per month. The FTSE All World would be fine on its own but the FTSE250 fund will give a bit of extra spice.  Probably best to have most of your money in the All World fund and perhaps less than 20% in the FTSE250.;

Marcusian

Linton said:

Marcusian said:

Linton said:

You say you are building a pot for a rainy day.  Before you think about investing you should have several months living expenses in cash.  You dont want  the rainy day to arrive and you to find that your pot has dropped significantly in value thanks to poor economic confditions.

Once the emergency pot is in place then you can sensibly comsider long term investing.  But remember this is for the long term, certainly more than 5 years and preferably more than 10.  Dont plan on cashing it in earlier.

With those caveats in principle what you are doing seems sensible.  Though buying 3 funds out of £500/month will lead to excess charges, better to put it all in one fund each month, switching from time to time.  I do not think having an S&P500 fund makes much sense.  FTSE All World is 50-60% US anyway.

As to drip feeding - on average you will make more money by investing the money as soon as you have it, a delay will cost you.  However what actually happens may not be average. So you could rationally choose either way.

A final warning - at some stage in the next say 5 years you must be prepared for a major fall in share prices, perhaps 40%.  It is important that you dont panic and sell out because that will make your loss real.  Better to stay invested as prices will recover.  You should continue paying in your £500/month.  If you think a crash will really spook you look to investing more safely - options for doing this are available.

Thank you for this, some food for thought. I am going to keep aside a few grand rainy day money, so I think it wise to just keep my cash savings i have no for this purpose. 

So what you are saying is that each month put my 500 in one of those ETFs? then the next month 500 in the other one? or purely focus on one ETF full stop?

Yes to only buying one ETF per month. The FTSE All World would be fine on its own but the FTSE250 fund will give a bit of extra spice.  Probably best to have most of your money in the All World fund and perhaps less than 20% in the FTSE250.;

So in February buy 500 of FTSE All world, march 500 of  FTSE250 for example? then repeat. 

can i ask why not the S&P 500? I get the all world has alot of USA stocks in it, but I always assumed it was a standard type of investment for me in terms of steady/passivity. 
Thanks so much for the help too. 

Eyeful

My suggestions are:
1. Have an emergency fund of at least 6 months normal spending.
2. Expect to invest for at least 10 years, the longer the better.
3. Do not get spooked when the market crashes (that's one reason for having the emergency fund).  
4. As you are just starting out, use just one cheap World Index Tracker ETF. I do not see the point of the other two at this stage.
5. Watch:  https://www.kroijer.com/

dunstonh

I wanted to just stick with ETFs, and just add to the 3 I have invested in (S&P, FTSE All world, FTSE 250).

So, you are not really a passive investor as you are making management decisions on how to deviate from a pure global tracker.

Albermarle

If you are investing for the long term /to retire early/retirement income it makes sense usually to invest in a pension due to the tax benefit . With the right type of pension you could still invest in the same ETF's you already have mentioned.
 

RolandFlagg

If you want something a bit sexier than a FTSE fund I think the QQQ (nasdaq tracker) is great to put a bit of money in.