Investing 'surplus' cash that isn't for retirement?

JustAnotherSaver

Surplus is the wrong word but to explain...

The past couple days i've been thinking about maybe managing the finances slightly differently with interest rates on savings accounts as poor as they are.

The consideration is that I will need x-amount in cash, just in case. When i've Googled for advice on this I keep hitting emergency fund/pot figures and that's not what i'm looking at. So i will need x-amount in cash which will be separate to my emergency savings. This x-amount would be for day-to-day type things. Food shopping, buying clothes, buying a phone, insurance, house repairs so on & so forth. Just your regular kind of spends. Not quite sure what x-amount would actually be but that's the basic idea.

Emergency savings is basically that - put out of work. Everyones view on emergency is different. Some will decide to dip in to it because their freezer has given up. To me that's what the day-to-day cash savings is for. Emergency is - have no income.

So then there's money beyond this. I could keep sticking it in the bank but it's not earning a whole lot.

I could stick it in my SIPP/LISA, which is an option but then it's gone for a long time and "what if..." i need it at some point? Like we fancy getting the kitchen done and don't want to hit our cash savings so hard for example.

So i hope i've explained the purpose of this money.

As it isn't necessarily for 30 years, it could easily be in the 5-10 range, what sort of funds would you be looking at so that your money isn't eroded with inflation?

El_Torro

If you don’t really need the money to be readily accessible and you are flexible in when you withdraw it I would still invest it. Maybe look at options that aren’t 100% equities. 

For example all my pension money is 80/20 equities to bonds. My ISAs are all 60/40. The logic being that I can access the ISAs whenever I want so I want something less volatile for those easy access funds. I’m ok with the fact that the investments won’t grow as fast as my pension.

colsten

Sorry, I don't understand what this money is about. On the one hand, you say you can invest it for 5-10 years; on the other, you say it's for day-to-day type things. Food shopping, buying clothes, buying a phone, insurance, house repairs so on & so forth.
These two things aren't compatible unless you are expecting to get a healthy monthly income from your investments, or would plan on using capital, or a combination of the two. But perhaps I have misunderstood what you are trying to achieve.

Alexland

I tried to understand but failed too. In addition to holding some cash I have grown to like a regular stream of investment trust dividends in our ISAs for financial security and convenience if we ever wanted to spend the money. Takes a while for the dividends to snowball into anything significant though.

Thrugelmir

Lock the money away into fixed term deposit accounts. There's no guarantee that your chosen investments will grow. Markets aren't bank savings accounts. They consist of living breathing companies that face challenges every day of the week. Even without the challenges of Covid and an increasingly Nationalistic / Protectionist world. 

JustAnotherSaver

El_Torro said:

If you don’t really need the money to be readily accessible and you are flexible in when you withdraw it I would still invest it. Maybe look at options that aren’t 100% equities. 

For example all my pension money is 80/20 equities to bonds. My ISAs are all 60/40. The logic being that I can access the ISAs whenever I want so I want something less volatile for those easy access funds. I’m ok with the fact that the investments won’t grow as fast as my pension.

Yes that's the angle i'm coming from - the SIPP & LISA i hold will have another 30 years before it's touched (well, hopefully just shy of 30 years) so i can afford to be a bit more adventurous.

What i'm talking about here could be a fair bit less than that in time frame so i'm wondering what kind of investments/funds would be advised.

And as for those who didn't follow - colsten, Alex ... no worries, I was aware I was struggling to put in to words what I was trying to say.

Talk about emergencies and people will just instantly start talking about 6 months bills/earnings .... well i have an account for that.

Talk about cash aside and people will talk about regular savers and the higher interest savers/current accounts ... well i have an account for that. So what i'm talking about isn't any of that.

You wouldn't want £100 -only- in cash to your name with the rest invested because as soon as you fill up your car and the wifes car then you've gone beyond that £100.

Likewise 99% of people don't need £100k in cash - it's overkill.

No, I don't have £100k in cash

So take a round figure of £10k. I think that's a reasonable figure for things that will & may need spending on. Say you have a bad run of luck - both cars go (i likely don't spend as much as you on cars), washing machine goes kaput, fridge is knackered ... and all this right after you committed on a new bathroom/kitchen spend. All in all I think £10k is a decent buffer. This could be stored across various cash accounts, regular savers, so on & so forth.

But what after that?

You save a further £5k, £10k, whatever. There's little point in keeping that in a cash account earning 0.01% interest, you've already decided your initial £10k does you just fine as handy cash so what do you do with your money beyond that £10k?

Hope that explains it better?

And to just add in another thing - I am also talking about putting it in to a S&S ISA, question being what really to invest in with this kind of cash for an unknown period of time (unlike the LISA & SIPP - which is timeframe known - 30 years).

Alexland

Ok so you have working cash for day to day expenses, emergency cash for bigger issues, and you want to save/invest more for spending that may occur before you can access retirement wrappers?
If you are happy to only spend this money when markets are good then yes maybe an accumulating multi asset or a global tracker fund but accepting you might be waiting years for the market to recover which might not match your future life spending plans.
Or maybe take the income version or start building ownership of an income smoothing investment trust. Each time the dividends pay out you have the option of reinvesting with the next new contribution or spending the money. While you are not damaging your investment by spending dividends while markets are low you might be missing an opportunity. Your choice each time.

Nebulous2

I think part of the issue is that you are trying to use different definitions for the terms that many people use in their budgeting.  People who run a budget generally make sure they have cover for all their regular payments based on their previous experience / expectations.

Say you get £2000 a month net. Bills food, car repairs council tax, holidays, clothes come to £12,000 a year or £1000 a month.  You put £1000 a month into a spending account to cover all of these.

You want an emergency fund and decide on 6 months, so you need £6000 in your emergency fund. If that is rundown you put some of the excess £1000 each month in there to top it back up. You then commit the remainder - possibly the whole £1000 per month to investment / pension / ISA / savings account  etc wherever your risk appetite takes you. 

Spending then looks like this. The pot or pots you have committed £1000 a month to should cover all your food, shoes, holidays, petrol etc. A bigger expenditure outside that - car blows an engine costing £2000 comes from the emergency fund, which you top up over the next few months. A major disaster - house roof blows off costing £15k and you discover you aren't insured, may need you dipping into your investment money. 

There are a million permutations of that, and you may need to fine tune regularly - but food should be bought from a regular pot not from an investment pot. Emergency fund should then cover most other scenarios. If you make it very big, it might cover everything, but then you might miss out on the investment opportunities by having so much in an emergency fund. 

Albermarle

Until a couple of years ago , some people would have suggested P2P as a possible  home for medium term money , that was not critical for your main finances. Interest rates varying from 4% to 12 % .
Even before Covid cracks appeared , especially amongst the ones offering double digit returns , which have largely disappeared/packed up/gone bust. . Covid of course brought a lot more stress. However some P2P companies have survived and are operating normally or at least on the road back.
Worth a look as a possible medium term  alternative for a small % of your overall money, but proceed with caution.

JustAnotherSaver

I'm at work and my break is about to come to an end after reading that.

So just a quick one to say that if you're of the impression I was saying my food will come out of investment money then I've explained very very badly and will need to have another bash at it.

Alex seemed to get the gist of where I was coming from with his 2nd post.

My aim (for this particular goal) is for the money to not be eroded by inflation, not necessarily trying to squeeze out maximum potential. 

colsten

JustAnotherSaver said:

So just a quick one to say that if you're of the impression I was saying my food will come out of investment money then I've explained very very badly and will need to have another bash at it.

JustAnotherSaver said:

The consideration is that I will need x-amount in cash, just in case. .... So i will need x-amount in cash which will be separate to my emergency savings. This x-amount would be for day-to-day type things. Food shopping, buying clothes, buying a phone, insurance, house repairs so on & so forth. Just your regular kind of spends.

I was just going by what you had posted