Looking to invest/save.

dori2o

Following a promotion at work, and now that my daughter is grown up and earning in a good job, for the first time in my life I'm finally in a position to be able to save or invest.

Don't get me wrong we have saved in the past, but only for Christmas and never large amounts.

I have a credit Union account that I save £20 a month into and currently has around £700 in.

I got the account to take advantage of the loans they offer, with upto 5x the account balance, and that is what we've used previously for unexpected  bills etc.

In the past I've been quite poor with money so until 2 or 3 years ago I had a very poor credit rating score.

This has improved over the last couple of years with no missed payments and I paid off all outstanding credit card/store cards etc.  The car finance which started in Nov 2018 is in my wife's name precisely because of my poor credit score.

My promotion, plus a recently agreed staff payrise means I'm looking at almost £400 a month extra salary compared to my old salary.

Ive decided that before I get used to having the extra money I want to start putting some away for the future.  I'm 40, have a £60k mortgage which is currently interest only, but I have that covered as will take a lump sum from my work pension (I can take upto 25% of the pot at a rate of a £1 reduction in monthly pension for every £12 of lump sum).

I have also thought about changing to a repayment mortgage, but not sure whats best, saving or paying down when I already have repayment plans in place.  Plus when looking at possible options for mortgages, most expect that I will take more than whats outstanding (even the existing lender Yorkshire BS) and I really don't want to add anything to the outstanding on the mortgage.

With my pay increase I was looking at saving around £100 a month on top of the £20 which already goes to the credit union.

I could save more but after 20 years of making do and going without I think we deserve to have a few extra luxuries, I.e. not always restricting ourselves to budget brand food, having a few more days out, or maybe our single holiday a year to North Wales in a Travelodge/Premier Inn for 3 nights might become 4 or 5 nights or maybe even rent a cottage instead of the budget hotel. (We cannot go in a caravan due to personal/health reasons).

The intention is that this will be a long term saving/investment of upto 25 years, whether all in one or say 5 years then renew.

We are not planning on moving home, our jobs are pretty much safe, we're likely to remain working at home, and in terms of expenses we'll  be looking for a new car in the next 12-18 months by which time our current car will be almost 5 years old but is currently immaculate and has only 13000 miles on the clock.

I've looked at the guides on the site, and on other sites, but I'm still confused.

I know interest rates are lower massive returns are not expected.

I've looked into alternate investment such as Whiskey Maturing but I'm not experienced enough to take the risk.

I've been reading up on the stocks/shares ISA's and also things like fixed term bonds, but again I'm confused.

Is it worth seeing an IFA? Are they worth the cost?

In terms of smaller investments, what about these which round up your shopping to the next £1/£5/£10?  Are they (as I expect) a gimmick?

Any advice would be much appreciated...

Brricktop69

If I am understanding what you are saying are you looking at using part of your pension to pay of the £60k mortgage?
If so are you looking to use the 25% tax free lump sum assuming you are on a defined contribution scheme?
Also what age would you be looking to pay your mortgage off?
I understand that you may want to slurge a little with your additional cash but please be careful, it does take long to get used to this and it just becomes part of your normal expenditure.

Albermarle

If I am understanding what you are saying are you looking at using part of your pension to pay of the £60k mortgage?
If so are you looking to use the 25% tax free lump sum assuming you are on a defined contribution scheme?

THe OP said but I have that covered as will take a lump sum from my work pension (I can take upto 25% of the pot at a rate of a £1 reduction in monthly pension for every £12 of lump sum).

So it is almost certainly a Defined Benefit scheme and with that very poor commutation rate probably LGPS or similar .

OP - Exchanging £1 of guaranteed monthly income for the rest of your life, inflation linked, for £12 lump sum is a very bad deal .

So I suggest you rip up the current plan and find a way to pay off the mortgage another way , maybe by overpaying it with your recent increased income.

Before that you should build up a bigger emergency cash savings fund ( £700 is not enough) .

Plus of course after years of austerity , you should spend some of it on your selves ( but not all of it )

dori2o

This is exactly why I'm looking for advice.

As I said whilst I can take upto 25% (based on my last pension statement and future contributions at least at my new salary rate I would need only 15% lump sum to pay off the mortgage which still leaves me a health) if there's a better alternative then I'm all ears

I know that I need to do something now rather than wait and this morning I've set up a standing order for £150 a month into a savings account linked to my current account which doesn't have a great interest rate, but it removed the temptation to spend it.

The additional £50 is what I'm currently saving on fuel whilst home working, so this will come out should plans change and I return to the office.

My current mortgage doesn't allow overpayment and I'm struggling to find a lender that will give me a mortgage just for the outstanding.

The house is valued at £105K ( 1889 Victorian railwaymans cottage)  so I only need 60% living, but most I've looked at expect me to take on additional borrowing to increase the LTV.ĺ

My own lender will only let me change from interest only to repayment, on a 5 year fix at 1.99% if I take another £10K, and I don't want to increase my mortgage.

I'm looking to retire at 64, the same time as my wife who is 3 and a bit years older than me.

The lockdown has been kind to us in that we've stayed healthy and have much less outgoings at the moment, so the £700 is not currently the only money saved.

I just wanted to know what my best options are.

I'm not completely averse to risk, but I don't want to come out with less than I put in which is why I looked at a managed stocks/shares ISA, and also did a bit of research into Whiskey maturing (though I think I've now given up on the idea as I don have enough knowledge of it).

Thanks for the replies so far.

Albermarle

As I said whilst I can take upto 25% (based on my last pension statement and future contributions at least at my new salary rate I would need only 15% lump sum to pay off the mortgage which still leaves me a health) if there's a better alternative then I'm all ears

It would be good if you clarify the sort of pension you have as the info is a bit mixed.

When you talk about 25% or 15% lump sum it sounds like a defined contribution pensions but when you say you would lose £1 pension for every £12 , it sounds like a defined benefit one ( a public sector scheme maybe ?)

I'm not completely averse to risk, but I don't want to come out with less than I put in which is why I looked at a managed stocks/shares ISA, and also did a bit of research into Whiskey maturing (though I think I've now given up on the idea as I don have enough knowledge of it).

You do not want invest in anything that is away from the mainstream , such as whisky maturing, car park spaces, hotel rooms etc , as there is the possibility of losing everything. With stocks and shares it can be a bumpy ride but  with a mainstream medium risk fund, you should never really see a loss more than 35% and that would be unlucky .

So a S&S ISA could be a good idea but be aware they are not managed .

The funds on offer may well be managed but you still have to decide which ones to invest in . Some S&S ISA's make that relatively simple by restricting the choice to just a handful. Stocks and Shares ISA | Open an Investment ISA (2020/21) - Nutmeg

Eco_Miser

Only invest in a Stocks & Shares ISA - if the 'investment' isn't allowed in an ISA, it's too risky, some allowed investment s are also too risky for you.

You need to save for all your planned spending, like holidays and a new car. Divide the cost of each by the number of months until you will be spending it, and put that amount away each month as soon as you are paid. Regular Savings Accounts (see this thread) usually pay more than other accounts and are ideal for monthly saving. You could also save with your credit union, or other savings accounts (or even additional current accounts).

The round up your spending offers are indeed a gimmick, plan your savings, pay into them as soon as you can ("pay yourself first"), and if spare money builds up, save that as well.

IFAs are not worth it, and probably not interested, for your amounts. Read up on investing in Monevator's archives.

£1 reduction in monthly pension for every £12 of lump sum

So after a single year you've effectively repaid the pension for the lump sum? That's terrible value. Or is it £1 reduction in annual pension (paid monthly) which is twelve times better, but still not very good - you'd have repaid the lump sum in just 12 years, after that the pension scheme is benefiting from your choice.

Could you overpay your mortgage by up to 10% per year, even though it is interest only?

jimjames

dori2o said:

We are not planning on moving home, our jobs are pretty much safe, we're likely to remain working at home, and in terms of expenses we'll  be looking for a new car in the next 12-18 months by which time our current car will be almost 5 years old but is currently immaculate and has only 13000 miles on the clock.

I've looked into alternate investment such as Whiskey Maturing but I'm not experienced enough to take the risk.

Is it worth seeing an IFA? Are they worth the cost?

Any advice would be much appreciated...

3 bits to try to cover.
1) As above, avoid any non standard investment scheme like whiskey that you find on Facebook or Google searches. The really important thing is that they are regulated and covered by the FSCS. Ignore claims of guarantees - a guarantee is only as good as the company making it, they disappear or go bust and your guarantee is gone too. Savings accounts or S&S ISAs may be more boring but they are safer than trying to find guaranteed investments that you could lose all your money on.

2) An IFA is almost certainly not viable for the cost for your level of savings so it's down to you to do some research and asking here is a good first step.

3) Do you really need to change the car in 12 months? That will be a big expense and if it's only done 13,000 miles and is immaculate it's barely run in . Spending money on a new car that could be used to help clear the mortgage instead is one way to have less money available.

maxsteam

dori2o said:

I could save more but after 20 years of making do and going without I think we deserve to have a few extra luxuries, I.e. not always restricting ourselves to budget brand food, having a few more days out, or maybe our single holiday a year to North Wales in a Travelodge/Premier Inn for 3 nights might become 4 or 5 nights or maybe even rent a cottage instead of the budget hotel. (We cannot go in a caravan due to personal/health reasons).

Sometime you should try AirBnB, Booking.com, Hotelscombined.com, etc.. It's certainly worth browsing their websites even if, like me, you have no plans to travel in the next few months.

jimjames said:
I've looked into alternate investment such as Whiskey Maturing but I'm not experienced enough to take the risk.

Any money that you send off to a self-proclaimed expert will mysteriously disappear.

dori2o said:

Is it worth seeing an IFA? Are they worth the cost?

£400 per month is not big money for an IFA. If you are lucky, the IFA will recommend that you put the money into a mainstream UK fund from which the IFA will get a very small commission. If you are unlucky, the IFA will note that you are considering investing in Whisky and will recommend a bespoke alternative investment from which the IFA will get a huge commission and you will get nothing.

If you are seriously considering investing something in shares, I would suggest that you also put something into a savings account with your current bank. The investment in shares might be mostly into one of the larger UK funds with a small amount into your own choice of FTSE companies, but the choice of fund and company needs to be your choice, after doing your own research. With experience, you might try choosing more shares yourself.

A good staring point might be to visit the "investing for beginners" section of your bank's website. Some of the advice that you get on forums like this will be good and some of it will be bad. The advice that you get from your bank's website should be above average, whichever bank you use.

DireEmblem

When do you think you would want to retire?

Lets say 60 at the latest.  Then your 60k outstanding mortgage / 20 / 12 is only £250 a month.  Imagine having an extra 60k when you retire!

It would likely be less than 20 years to pay off your mortgage.  Over that timeframe you could invest, and take advantage of ‘sign up offers’.  I’ve seen Wealthify recently offer £40 cash back for investing £400 for 6 months, and Nutmeg have previously done £100 cash back for investing £100 a month over a year.

Investing carries risks, but a 20 year timeframe should hopefully be more than enough to iron out any kinks.  Long term investing in the right thing can return on average 8-10% a year.  Make your money work for you.

Yes enjoy life as you say, but why not save half of your pay rise - it’s money you’ve never had before, so would you really miss it?  Either put it into a simple S&S isa, and take advantage of offers as above, or top up your pension if possible to take advantage of tax benefits.

So to choosing your S&S ISA - go for the offers as above first, they’re not the cheapest routes but can be a great head start.  Then switch to a low cost platform.  Vanguard is popular.  You could maybe start on the Lifestrategy 100%, and then switch down to the 80/60/40 as you get closer to needing the money.

My only other thought is to pay down the mortgage directly.  I’m surprised you can’t get less than 2% on a principle plus interest mortgage with more than 40% paid off.

jimjames

maxsteam said:

dori2o said:

I could save more but after 20 years of making do and going without I think we deserve to have a few extra luxuries, I.e. not always restricting ourselves to budget brand food, having a few more days out, or maybe our single holiday a year to North Wales in a Travelodge/Premier Inn for 3 nights might become 4 or 5 nights or maybe even rent a cottage instead of the budget hotel. (We cannot go in a caravan due to personal/health reasons).

jimjames said:
I've looked into alternate investment such as Whiskey Maturing but I'm not experienced enough to take the risk.

dori2o said:

Is it worth seeing an IFA? Are they worth the cost?

£400 per month is not big money for an IFA. If you are lucky, the IFA will recommend that you put the money into a mainstream UK fund from which the IFA will get a very small commission. If you are unlucky, the IFA will note that you are considering investing in Whisky and will recommend a bespoke alternative investment from which the IFA will get a huge commission and you will get nothing.

Highly misleading and also factually incorrect. IFAs do not get any commission for you putting money into an legitimate investment and haven't for 7 years. The reason I said an IFA is not worth it is that they now work on the basis of fixed fees which on the amounts mentioned just isn't viable. The promoters of unregulated investments may get huge commission but they are not IFAs.