Savings strategy

shmuli9

Hi MoneySavers,

I have just started my first job. I haven't yet received my first pay-check and I wanted to ask MSE Forum what is the best strategy for saving?

I am in my mid 20's (I went to uni late) and my pension contribution is 3% and i am getting 6% from my employer. Also, lucky enough to be living at home with my parents, so rent and food aren't currently weighing me down at all, so i think now is the perfect time to start saving.

What is the best way to get started? I remember reading about passive tracker funds but everywhere seems to charge exorbitant fees. What is the cheapest way to do this?

A few months back I remember seeing a cool infographic that laid out a path for saving, but i cant find it again. For example it said start with clearing high interest debt, then work on pensions, then savings etc. If anyone could share that with me I'd appreciate it.

Thanks for any advice you can share!

El_Torro

Regarding your pension, it's a good idea to put as much in to maximise the amount your employer contributes. If you contribute more than 3% will your employer contribute more? If not then in your position it may not be worth contributing too much more today, especially if you are planning to save up for a house deposit. LISAs are good for house deposits. I won't go into more detail about that since this isn't what you're asking anyway.

If you want to invest on top of your pension, either in LISAs or ISAs (you are unlikely to need to find a home for more than £20k a year) then yes, passive tracker funds are a good way to go. Many people, especially when starting out, invest in a single global tracker fund or multi asset fund. This is well diversified and suitable for many people who are able to invest for 10 years or more. If you are saving up for a house deposit and plan to buy in less than 10 years you may want to rethink this idea though.

I'm not sure where you're looking where you're seeing exorbitant fees. If you open a Stocks & Shares ISA with Hargreaves Lansdown (one of the more well known and expensive platforms) then they will charge you 0.45% for the platform and somewhere between 0.2% and 0.25% for a multi asset fund. There are various other platforms which are cheaper than this as well. Your idea of exorbitant may be different to mine, but in my opinion there are cost effective solutions out there.

This article could be useful in helping you choose an investment platform:
https://monevator.com/compare-uk-cheapest-online-brokers/

This article can help with choosing a multi asset fund. Bear in mind the article is old though, and only getting older by the day
https://monevator.com/passive-fund-of-funds-the-rivals/

As you can probably guess by the links I have provided I am a fan of Monevator in general. It has some very useful articles for people who are starting out in investing.

Eccles04

A couple of years ago after a house move I had a few thousand £'s left over. I the past when this happened now and then I just searched for a bank/building society paying a better interest rate than most and dumped the money there until such time as we needed a new car/boiler/whatever. However, no-one pays any kind of interest rate worth having anymore (has to be at least equal to inflation rate). Having done some research I discovered that there are a few fairly safe companies which regularly yield well above the inflation rate in the form of dividends and the government tax those divs at just 7.5%

if they exceed £2k per annum. Next I needed to find a broker who would buy and hold shares for me super cheap and I found one - LSE who charges just £10 for buying/selling shares and nothing else. Also gives a lot of useful information on their website for free.The first company I bought was Legal & General who are safe as houses IMO and regularly pay around 6% in dividends. There are others of course and you will have to do your own research but it's a whole lot better than going to financial advisers or getting around 0.5% from the banks. Yes of course share prices can go up and down a bit even with "safe" companies but usually not by very much and if you ever need to cash in it's usually easy to hang around for a few weeks and jump in when the prices are a bit better.

kuratowski

shmuli9 said:

A few months back I remember seeing a cool infographic that laid out a path for saving, but i cant find it again. For example it said start with clearing high interest debt, then work on pensions, then savings etc. If anyone could share that with me I'd appreciate it.

Thanks for any advice you can share!

The infographic you saw may very well have been this one: https://flowchart.ukpersonal.finance/.  However, bear in mind that not everyone's circumstances can easily be shoehorned into a 1 page chart, it's just a starting point.

I agree with El Torro that monevator is a good site for learning more about investments.

I disagree with Eccles04 that you should start out by picking individual stocks, it's very risky and unsuitable for a beginner IMO.

RacingDriver

A few months back I remember seeing a cool infographic that laid out a path for saving, but i cant find it again. For example it said start with clearing high interest debt, then work on pensions, then savings etc. If anyone could share that with me I'd appreciate it.

Not sure if this is the sort of thing you were thinking of? https://flowchart.ukpersonal.finance/

El_Torro

kuratowski said:

I disagree with Eccles04 that you should start out by picking individual stocks, it's very risky and unsuitable for a beginner IMO.

Yes, I was a bit concerned about that post as well. While I won't contest Eccles04's assertion that it is a strategy that has worked well for them over the last couple of years, it's certainly not the sort of thing that should be recommended to others, especially people who are just starting out in their investment journey. 

An investment strategy that works for 2 years (or so) isn't necessarily the right one, or even a good one. It's easy to get lucky for a short period of time, especially when looking at how the stock market has performed in that time. Performance over the long term (especially since the OP probably won't retire for a good few decades) is a lot trickier to maintain.

shmuli9

El_Torro said:
Regarding your pension, it's a good idea to put as much in to maximise the amount your employer contributes. If you contribute more than 3% will your employer contribute more?

The max they match is 3% + 6%.

If not then in your position it may not be worth contributing too much more today, especially if you are planning to save up for a house deposit. LISAs are good for house deposits. I won't go into more detail about that since this isn't what you're asking anyway.

I don't think a LISA is useful in London. Flats (2-3 bedrooms) around where my family and friends live already exceed £450k, and thats only likely to get higher

This article could be useful in helping you choose an investment platform:
https://monevator.com/compare-uk-cheapest-online-brokers/
This article can help with choosing a multi asset fund. Bear in mind the article is old though, and only getting older by the day
https://monevator.com/passive-fund-of-funds-the-rivals/
As you can probably guess by the links I have provided I am a fan of Monevator in general. It has some very useful articles for people who are starting out in investing.

Thanks for the links, great site!

shmuli9

kuratowski said:

The infographic you saw may very well have been this one: https://flowchart.ukpersonal.finance/.  However, bear in mind that not everyone's circumstances can easily be shoehorned into a 1 page chart, it's just a starting point.

RacingDriver said:

Not sure if this is the sort of thing you were thinking of? https://flowchart.ukpersonal.finance/

Thanks, it wasn't that infographic that i remember but it covered those exact points, so thanks!

shmuli9

Eccles04 said:
A couple of years ago after a house move I had a few thousand £'s left over. I the past when this happened now and then I just searched for a bank/building society paying a better interest rate than most and dumped the money there until such time as we needed a new car/boiler/whatever. However, no-one pays any kind of interest rate worth having anymore (has to be at least equal to inflation rate). Having done some research I discovered that there are a few fairly safe companies which regularly yield well above the inflation rate in the form of dividends and the government tax those divs at just 7.5% if they exceed £2k per annum. Next I needed to find a broker who would buy and hold shares for me super cheap and I found one - LSE who charges just £10 for buying/selling shares and nothing else. Also gives a lot of useful information on their website for free.The first company I bought was Legal & General who are safe as houses IMO and regularly pay around 6% in dividends. There are others of course and you will have to do your own research but it's a whole lot better than going to financial advisers or getting around 0.5% from the banks. Yes of course share prices can go up and down a bit even with "safe" companies but usually not by very much and if you ever need to cash in it's usually easy to hang around for a few weeks and jump in when the prices are a bit better.

Thanks for the tip @Eccles04 , I will have to see if I am comfortable spending the time to pick stocks when that isn't my primary concern. I'd prefer to have a more hands off approach while i focus on my career.

shmuli9

El_Torro said:

I'm not sure where you're looking where you're seeing exorbitant fees. If you open a Stocks & Shares ISA with Hargreaves Lansdown (one of the more well known and expensive platforms) then they will charge you 0.45% for the platform and somewhere between 0.2% and 0.25% for a multi asset fund. There are various other platforms which are cheaper than this as well. Your idea of exorbitant may be different to mine, but in my opinion there are cost effective solutions out there.

This article could be useful in helping you choose an investment platform:
https://monevator.com/compare-uk-cheapest-online-brokers/

This article can help with choosing a multi asset fund. Bear in mind the article is old though, and only getting older by the day
https://monevator.com/passive-fund-of-funds-the-rivals/

Can you tell me what you invest in? What platform and funds? I am looking for a hands off approach in the tracker fund department, and that extends to the get go. I'm a bit put off by the variety of options and prices...

Sea_Shell

With all this talk of pensions, and investments in ISA's, don't forget to still put a little bit of your savings away in instant available cash.

OK, so the idea is to save money, not spend it, but at least that way if you really did see XYZ that you wanted (needed) and you've SAVED up for it, at least you won't need to turn to credit.

If you squirrel away ALL your savings in hard to access (or unable to access) places, then the temptation is to use credit to buy something if you don't have any available cash.

How much per month do you think you can save?  Over and above your pension contributions, so out of net pay.    Then start thinking about the percentages of that saving, and what to put where.    80% ISA, 20% cash.