Best investment options after emergency fund with no plans for property

FXE1981

Hi all,

So after a relatively lengthy period in my teens and twenties of being terrible with money, I’m now mid-thirties and have reached a point where I’m entirely debt free (one credit card used for petrol and paid off each month).

I have a £26k emergency fund which is currently in a Santander savings account (almost zero interest but easy access if required). This would cover me for 12 months comfortably, possibly 14-16 months if very frugal.

I own a car and motorbike worth about £20k combined and could sell/downgrade if required. They’re modest vehicles but fairly new so both reliable and under warranty.

I have paid around £150 a month into a workplace pension for the past five years which has been matched by my employer.

Perhaps unusually, I have no interest in owning property. I lived in London for a number of years so got used to renting for the convenience of living closer to work and being able to
move easily if needed.

Ive continued to rent since it affords me far nicer and better located properly than I could currently afford to buy. I also enjoy the lack of responsibility for repairs etc. I appreciate the wider view is that renting is wasted money and I understand that I’m not building equity. But I am happy.


I have £500 a month set aside to save or invest for the longer term future. But given the above, I’m not sure how best to use that. Should I be looking at low-risk tracker funds, or perhaps a mix of different accounts/funds?

I suppose the goal is to try and offset some of the lack of equity gains in renting to try and improve my future position (retirement).

Any advice on how best to use that additional £500 would be really appreciated as I really don’t know anything about funds or investments.

Many thanks.

grumiofoundation

If saving for retirement then pension/stocks and shares lifetime ISA* would likely be most suitable, although you sacrifice accessibility. 

*would recommend opening one anyway before you hit 40 just to keep options open.

Are you a higher rate tax payer? 

Otherwise a stocks and shares ISA would be a better option is you might want to access this money before retirement (or want more flexibility for now). 

In terms of investment options globally diversified multi-assets funds (mix of equity, bonds plus other assets) or  a global index tracker (100% equity) are a good place to start looking. 

What are you invested in in your workplace pension? 
 

You could look at moving your emergency fund savings from Santander to an interest paying easy access account or into premium bonds. 

kuratowski

If you don't already have one, then open a Lifetime ISA (LISA) to keep your options open.  This can be used for retirement savings (not just property purchase) and in certain cases it can be more beneficial than pension.

Are you a basic rate taxpayer?

What method is used to make your workplace pension contributions - is it salary sacrifice, net pay or relief at source?  Are there any further matched contributions available?

FXE1981

Thanks both.

I am a higher rate taxpayer and my pension is through salary sacrifice and my contributions are matched by my employer. I haven’t actually looked at the figure but it’s been £150 a month for five years and I’m planning to continue that obviously. 

Thanks for the Lifetime ISA tips, I’ll have a look into it. I suppose I am slightly leaning towards something with access pre-retirement or house purchase but I won’t rule out a LISA for that reason.

In terms of trackers, would a single S&S tracker be a better idea than say mixed risk options. So £100 a month in a high risk, £100 a month in a mid risk, £300 in a low… for example? Again, im very new to this so feel free to write that off as a ridiculous idea.

bostonerimus

Your pension saving is far too low for a higher rate tax payer. I'd be putting in at least 10% of my gross salary before any employer contributions. Do you understand how your pension is invested? 

kuratowski

As a higher rate taxpayer with salary sacrifice, try and put as much in the pension as you are prepared to lock away.  This is superior to a LISA in your situation.  Pension contributions £150 pm for a higher rate taxpayer actually looks on the low side.  But do check what fund(s) your pension is invested in - in your thirties you do not want to be too cautious, go as adventurous as you dare.

For money you don't want to lock away until your late 50s, open a Stocks & Shares ISA.  You don't need to mix accounts or mix and match funds.  Use a simple multi-asset fund at the right risk level.  This will serve you fine for the foreseeable future.  Examples include: HSBC Global Strategy, Legal & General Multi-Index, Vanguard Lifestrategy, and many more.
Have a look at this
https://monevator.com/passive-fund-of-funds-the-rivals/

moneysavinghero

Have you worked out how you will pay your rent when you retire? You have about 30 years left till retirement age and could live for another 30 years after that. Will the £500pm you are saving now be enough to pay the rent. And will the £300pm in your pension be enough to pay the other bills?

ColdIron

FXE1981 said:

I am a higher rate taxpayer and my pension is through salary sacrifice and my contributions are matched by my employer

Then pension contributions are a no brainer, £150 a month is very low indeed. The tax relief is literally free money

FXE1981

Fantastic, thanks for the advice, really appreciated. The pension is currently in ‘NOW: Pensions Trust’ although it has changed a few times. 

I’ve heard the Vanguard fund mentioned before and the fee structure looks appealing. 

As for renting plans when I retire, admittedly I haven’t given this as much thought as I perhaps should. For candour, I was a fairly notable graphic designer/design director during my time in London, the salaries of the time allowed me to clear debts and build the savings I mentioned. I’ve now taken a lower paid job outside of London with the benefit of a wildly increased work/life balance as a trade-off. 

It’s a romantic (naive…) idea I suppose but I have other means of income source through selling my works and imagine this could continue beyond retirement given the very little physical effort required. I suppose I’d hoped that any accrued fund, private pension and art sale profits could help cover rent beyond retirement. It’s also not uncommon in my industry for people to continue to work past retirement age as consultants which again, health dependent, I wouldn’t mind doing since I love my field.

There’s also the slightly morbid but real fact that I stand to inherit assets currently worth around £800k, albeit that will very hopefully not be for a number of years yet and not something I’m factoring in to my long term plan.

Thanks again.

bostonerimus

FXE1981 said:

Fantastic, thanks for the advice, really appreciated. The pension is currently in ‘NOW: Pensions Trust’ although it has changed a few times. 

I’ve heard the Vanguard fund mentioned before and the fee structure looks appealing. 

As for renting plans when I retire, admittedly I haven’t given this as much thought as I perhaps should. For candour, I was a fairly notable graphic designer/design director during my time in London, the salaries of the time allowed me to clear debts and build the savings I mentioned. I’ve now taken a lower paid job outside of London with the benefit of a wildly increased work/life balance as a trade-off. 

It’s a romantic (naive…) idea I suppose but I have other means of income source through selling my works and imagine this could continue beyond retirement given the very little physical effort required. I suppose I’d hoped that any accrued fund, private pension and art sale profits could help cover rent beyond retirement. It’s also not uncommon in my industry for people to continue to work past retirement age as consultants which again, health dependent, I wouldn’t mind doing since I love my field.

There’s also the slightly morbid but real fact that I stand to inherit assets currently worth around £800k, albeit that will very hopefully not be for a number of years yet and not something I’m factoring in to my long term plan.

Thanks again.

You have done well to be debt free and have a good emergency fund in the bank. As the next step you need to understand your pension. "NOW: Pensions Trust" will put your money into investment funds. Make sure you understand those funds, the costs and the annual returns. Right now your small pension contribution means you are missing out on some big tax advantages and when you retire your pension pot will probably not be large enough to provide a reasonable income. When you have understood your pension and increased your contributions to a good level then you should consider an ISA and investigate multi-asset funds sold by companies like Vanguard, Fidelity, iShares, HSBC etc.

FXE1981

Thank you, I’ll certainly do that.

Is there a way to find out if I’ve invested in other pensions earlier on? In the aforementioned more hedonistic days I’ve a suspicion I may have enrolled in prior workplace schemes but lost track of them.

The agencies I worked for have long-since merged or been acquired so trying to track down the right HR team to ask would be tricky. I wondered in the day and age of digital services whether there’s one to find all the pensions I’ve put money into.

Again, clearly should’ve paid more attention before now but I guess better late than never!