Savings strategy

enthusiasticsaver

shmuli9 said:

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!

I dont know about an infographic with a savings path but I dont' see how that works as everyone is different.  I think you need to think about financial goals before deciding on the savings instruments you should use.  If you have debt though I would start by clearing that.  Although you do not have a house yet you may wish to buy one so investing may not be the best thing initially as generally that is for medium to long term savings.  If your short term savings goal is to buy a car or a house then you may need to consider a regular saver or a Lisa if considering a house purchase. As you are only just starting out on your career I would start by saving an emergency fund first. Regular savers are a good start or premium bonds. 

If you definitely think investing is for you then look into Monevator articles for beginner investors.  Passive trackers tend to be cheaper and more diversified than individual stocks so that translates usually to lower risk of loss.  Check out different investment platforms and tracker funds and Monevator, Morning Star or Trustnet. As I said though you do need to think of investing as being long term so if you think you may need access to it within the next five years that may be something to think about after your  immediate financial goals are met. 

Thrugelmir

csgohan4 said:

Eccles04 said:

I have to say that there are some weasely comments here (possibly "financial advisers"). For a start stamp duty is 0.5% not 2.5%, it is important to be accurate in these posts. Also most people are aware that there are risks associated with investing in shares but those same risks also apply to so called tracker funds because they also are invested in shares, it is important to be accurate in these posts. Also of course tracker funds charge fees. Thus a tracker fund tracking the FTSE 100 for example, which many do would have sunk like a stone last spring because of Boris's panicdemic : from 7500 to 6500 or a loss of 15% so let's not pretend that trackers are less risky than ordinary shares. Oh and BTW, Legal and General still paid a dividend of around 6.5% in the midst of all that pandemonium last year.

No-one said trackers are risk free, but they are less risky than individual shares. Take VLS 100/HMWO  and say CINE/IAG which is riskier? Which has recovered ?

All are risky investment options. Just because the market value has bounced back and risen even higher doesn't mean that a global recovery is fully underway. Doesn't take much investment skill to see the very specific problems that both IAG and Cineworld are suffering from. Resulting in a volatile share price. 

Remember the numerous threads and posts related to INRG last year. Very quiet now. A lot of burnt fingers I would suggest. A case of following the fad of the moment without performing due diligence. Markets are often more predictable than people think once you look back with hindsight and think the matter through carefully. Warning flags were a plenty.  In INRG's case the weather literally took a turn for the worse. 

jdlak

Eccles04 said:

I have to say that there are some weasely comments here (possibly "financial advisers"). For a start stamp duty is 0.5% not 2.5%, it is important to be accurate in these posts. Also most people are aware that there are risks associated with investing in shares but those same risks also apply to so called tracker funds because they also are invested in shares, it is important to be accurate in these posts. Also of course tracker funds charge fees. Thus a tracker fund tracking the FTSE 100 for example, which many do would have sunk like a stone last spring because of Boris's panicdemic : from 7500 to 6500 or a loss of 15% so let's not pretend that trackers are less risky than ordinary shares. Oh and BTW, Legal and General still paid a dividend of around 6.5% in the midst of all that pandemonium last year.

Very poor advice. Index funds are inherently diverse and with diversity, comes risk reduction. It is also worth mentioning that the OP is going to be benefitting from PCA and so he will likely ride out these 15% bumps and will enjoy the 'average' historical returns that the stock market has provided us with.

My advice is to find a platform with the lowest fees possible (you can probably rely on the MSE comparison). Once you've found one, start dripping your money into there and look at some unit trusts/mutual funds or ETFs. I am a fan of Vanguard and Fidelity. Locate the funds on these platforms with the lowest ERs (aka TER or OCF).

I'd advise a portfolio that reflects the global economy. You should also consider allocating some percentage of your assets to bonds. Bonds are inherently less volatile than stocks and shares but produce a poorer return. As a young investor, you should be able to stomach greater risk, and so I'd advise a portfolio like: 80% global market cap plus 20% intermediate term bonds. For example, an 80/20 split between: Vanguard FTSE Global All Cap Index Fund and iShares Global Aggregate Bond UCITS ETF GBP Hedged (Dist) - AGBP. Do not fall into the home country bias puzzle. A portfolio holding a good percentage of foreign equity is always better (in my opinion) to one favouring company stock from only the UK.

Vanguard also have a set of all-in-one "LifeStrategy" funds that can achieve the above mixture e.g. Vanguard LifeStrategy 20% Equity A Inc.

Don't forget that if you buy into a world fund or ETF that already has a mixture of UK stocks, and then purchase a fund with a UK-bias (e.g. FTSE-related), you will be over-exposed to the UK market. The UK makes up only 10% of the MSCI World Index---if your allocation is greater than that, you aren't well-diversified in my opinion. To avoid that, you can look for funds that have "ex-UK" in them. You may also want to create your own global fund by mixing funds in the following ratio: 66% US, 18% EU, 9% Japan, 7% East ex Japan.