Best Way To Invest Money At 23.

sam9

I'm almost 23-years-old, living with my parents, and I'm looking to move out before I'm 26. I have over £45k saved, with £6k in a Barclays Help-To-Buy ISA and the rest is in Premium Bonds and my bank.

I want to invest my money in the best, but also, safest way possible. My parents have suggested I open a L-ISA and put £4,000 (max amount) into it each financial year, and open several Cash-ISA's and put money in there as well. However, I'm in a bit of a dilemma, because I want to open a L-ISA, but I'm aware that I can't use both a L-ISA and HTB-ISA for my first home. Whether I should keep my HTB-ISA open and keep adding money in or leave it alone - I don't know what to do? It seems a waste having over £6k in my HTB-ISA account, knowing I won't use it if I use a L-ISA for my first house instead. But I've been putting money into that account for the past 3/4 years, so I feel like all that time was a waste of money.

If anyone has any suggestions or the way forward they would go if they were in my posotion, that would be great. I have thought of buying and renting out a flat, but I'm unable to do that during the Covid pandemic. I have posted on here before about this, but I'm just trying to get my head around the different options I have and take in any suggestions.

Thanks,
Sam

maxsteam

Something to try, which might suit you or it might not, is to invest in shares. If you were wanting to start in something like this, I would advise that you start with small amounts in large FTSE companies. It is economical to start with £100 or so in a low cost broker like Degiro. Other options worth considering include some of the larger investment funds.

sevenhills

maxsteam said:

Something to try, which might suit you or it might not, is to invest in shares. If you were wanting to start in something like this, I would advise that you start with small amounts in large FTSE companies. It is economical to start with £100 or so in a low cost broker like Degiro. Other options worth considering include some of the larger investment funds.

The costs involved in buying and selling shares is at the very least £10, so that would be 10% lost straightaway.

When I buy shares with Hargreaves Lansdown, my minimum shareholding would be £600

Shares are a high risk, I believe a good risk, but not right for everyone.

El_Torro

If you’re looking to spend a large amount of your savings towards buying a house within the next 3 years then do not invest in shares, especially not shares in individual companies.

Agreed that putting as much as you can into your Help to Buy ISA or a new LISA is beneficial. I don’t know which is better, though this forum generally recommends LISAs over HTB.

I wouldn’t bother too much with Cash ISAs, Premium Bonds should give you a better return. You seem to be getting close to the maximum allowed in Premium Bonds though.

maxsteam

sevenhills said:

maxsteam said:

Something to try, which might suit you or it might not, is to invest in shares. If you were wanting to start in something like this, I would advise that you start with small amounts in large FTSE companies. It is economical to start with £100 or so in a low cost broker like Degiro. Other options worth considering include some of the larger investment funds.

The costs involved in buying and selling shares is at the very least £10, so that would be 10% lost straightaway.

No. It would be around 2%.

For a £100 investment in UK shares, their fee is £1.75 plus 0.014%. That's £1.76 in total. The fee is capped at £5 for large purchases. There will also be 50p stamp duty on £100 of UK shares.

sevenhills

maxsteam said:

No. It would be around 2%.
For a £100 investment in UK shares, their fee is £1.75 plus 0.014%. That's £1.76 in total. The fee is capped at £5 for large purchases. There will also be 50p stamp duty on £100 of UK shares.

If those are the true fees, then the same again to sell, so 4%

steampowered

Your post assumes that you want to buy immediately. Could you be better off renting your first property rather than buying?

Renting has several big, big advantages:
- Flexibility. If you decide you'd rather live somewhere else, or you are earning more and can afford somewhere better, it's cheap and easy to move.
- Career. Renting gives you the flexibility to move to a different town in order to pursue better work or education opportunities. Is it possible that you might want to take a better job in a different city over the next few years? 
- Knowledge. You get to know what it's like to live in your own property - life experience you just don't get living with your parents. This will help you make better choices when you are ready to buy. 
- Deposit. You have time to save a bigger deposit, which will mean a lower LTV on your mortgage, which will mean a lower interest rate, which will mean wasting less money on mortgage interest. 
- Bonus. You have more time to make the most of the bonus on the Lifetime ISA. This is worth £1,000 per year. 

As you do not intend to buy for 3-4 years, you are better off using a Lifetime ISA. The maximum bonus on the HTB ISA is £3,000.

If you put £4,000 in a Lifetime ISA now and another £4,000 in your Lifetime ISA after the tax year ends this April, you will already have a £2,000 bonus on that. So you will start accruing a bigger bonus from the Lifetime ISA than your HTB ISA very quickly.

For the remainder of your savings, you can consider whether you want to keep everything in savings accounts or premium bonds (where it will be safe but will underperform house prices), or whether you want to invest (where you are taking some risk but would expect to overperform house prices).

This article provides an excellent explanation of what risk you are actually taking with stocks and shares: https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/.

As the article demonstrates, if you were to buy a "stock market tracker fund", over a 1 year timescale you would have a 30% chance of making a loss. After 2 years, 20%. After 4 years, 10%. 

Therefore, if you were to put some of the money into a stocks & shares ISA for 4 years, you would have a 90% chance of a profit and a 10% chance of a loss. Are you willing to take that risk? That's a personal decision.

eskbanker

steampowered said:

This article provides an excellent explanation of what risk you are actually taking with stocks and shares: https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/.

As the article demonstrates, if you were to buy a "stock market tracker fund", over a 1 year timescale you would have a 30% chance of making a loss. After 2 years, 20%. After 4 years, 10%. 

Therefore, if you were to put some of the money into a stocks & shares ISA for 4 years, you would have a 90% chance of a profit and a 10% chance of a loss. Are you willing to take that risk? That's a personal decision.

That article is a retrospective analysis of past events for a specific style of investment but clearly doesn't actually signify real odds for future ones, even if the choice of investment was to be the same as the dataset used in that example, so your conclusions need to be caveatted accordingly....

maxsteam

sevenhills said:

If those are the true fees

It's surely not too difficult to look up a broker's fees.

Hexane

I have a similar amount of cash sloshing around for dissimilar reasons but for equivalent likely timescales, and I'm putting as much of it as I can in regular saver accounts, to get superior amounts of (effective) interest to Premium Bonds, but with effectively the same zero risk. This might be particularly worth looking into if you're going to end up with more money than you can keep in Premium Bonds but a scarcity of worthwhile places to put it, especially if you decide not to take the risk of investing in equities over such a short time frame.

If I were eligible for it I would be going for the Lifetime ISA as well.

I'm not sure why you are being recommended to open several cash ISAs, when these generally have poor interest rates compared with (inter alia) regular savers? I don't think there's a tax advantage so long as you're inside your Personal Savings Allowance?

sevenhills

Hexane said:

I have a similar amount of cash sloshing around for dissimilar reasons but for equivalent likely timescales, and I'm putting as much of it as I can in regular saver accounts, to get superior amounts of (effective) interest to Premium Bonds, but with effectively the same zero risk.

With Premium Bonds paying 1% in prizes, it's quite possible that inflation will rise above 1%, so there is a large risk of losing money.