Investment strategy - late 30s, good income, starting to build

bringingit

Hi, I’m hoping to get some thoughts and ideas on my investment strategy. I’m 38, have a good income and feel comfortable. However, I had a lot of bad years so I don’t have much put away (yet). The main goal is to be able to retire early - how early, I’m not sure. Also to note I live in the north.

I’m willing and wanting to learn about advanced products and also willing to be fairly aggressive.

I’ll start by putting some details below

Income: £70k 
Very stable, not likely to increase much in the next 3-4 years as recently promoted. Net £4K a month.

Assets

House: Valued at approx £240k, mortgage outstanding £185k with 24 years remaining and on a fixed rate (2.8% for the next 4 years). Happy here for the next few years but long term not sure.

Pension: £76k pot with just over £1k going in per month, invested in global index tracker.

ISA: £7k, adding £800 per month, invested in global index tracker.

Savings: £3k, adding £250 per month which is my emergency fund.

Crypto: £2k, adding sporadically and don’t really have a strategy.

Car: Same car for the last 3 years, worth about £7.5k. Likely to want to get a newer car next year, which will mean £300 a month less to invest in the things above.

A small amount of credit card debt which was used for holidays and buying things for the house last year. It’s on 0% until next year and will be cleared before that rate ends. 

I have around £300 extra on top of that per month - I sometimes put that into crypto, or ISA or paying down the credit card a bit quicker.

As I said at the top, things are comfortable and I feel on a reasonable trajectory. But, could I be doing more and could I take some risks? I’m particularly interested in

- products that would get me some income tax back such as VCTs.
- leveraged index funds such as ETPs.
- anything else I could be getting involved in that would help me build wealth.

As a final point, I’m not interested in property and becoming a landlord. I rented for a long time and encountered a few bad landlords - I wouldn’t want to become one!

Any thoughts or discussion would be much appreciated.

AlanP_2

Personally I would avoid advanced products and focus on basic ones - S&S ISA and Pension.

Of those I would maximise pension and say thank you very much to HM Gov for giving me such generous tax relief on my contributions - at a minimum I would be aiming to get all my income that is subject to 40% / HR tax in to a pension.

How much of those current pension contributions are yours and how much the employer?

How are your work pension contributions paid - Net Pay (taken off pay before tax is calculated), Relief at Source (taken after tax calculated but provider reclaims 20% BR tax relief on your behalf) or via Salary Sacrifice where you make no contribution and it is all made be employer?

bringingit

Thanks for the comment Alan. I have two pension pots as my employer changed provider. 

I pay £50 a month into one which is the bigger one, and the one my employer currently pays into I pay 3% and they pay 14.5% (I think that’s right). I get confused over the pension types, but I claim back the extra 20% on MY contributions each year.

The downside of putting a lot more into the pension is that it doesn’t help with the retiring early goal. I feel that if I stay in the same job/career I’ll very comfortably be able to retire at 58 and use my pension pot, so I want to try to focus on what will enable me to do it sooner than that.

Albermarle

bringingit said:

Thanks for the comment Alan. I have two pension pots as my employer changed provider. 

I pay £50 a month into one which is the bigger one, and the one my employer currently pays into I pay 3% and they pay 14.5% (I think that’s right). I get confused over the pension types, but I claim back the extra 20% on MY contributions each year.

The downside of putting a lot more into the pension is that it doesn’t help with the retiring early goal. I feel that if I stay in the same job/career I’ll very comfortably be able to retire at 58 and use my pension pot, so I want to try to focus on what will enable me to do it sooner than that.

You have identified the downside of a pension pot that it is inaccessible until your late Fifties.
However the tax benefits of a pension for a higher rate taxpayer are so good, that you really should be putting more in yourself to add to your employers very generous contribution. 
Higher rate tax relief costs the UK treasury many Billions of Pounds and probably one day ( could be soon, nobody knows) it will get stopped. So I would maximise pension contributions for the next few years at least. Maybe then you can change to adding more to your S&S ISA, to build up a fund so you can retire earlier than when the pension will be accessible.

products that would get me some income tax back such as VCTs.
- leveraged index funds such as ETPs.
- anything else I could be getting involved in that would help me build wealth.

This is really a consumer forum, so you are not going to get much feedback about high risk products suitable only for experienced/sophisticated investors.

Linton

bringingit said:

Thanks for the comment Alan. I have two pension pots as my employer changed provider. 

I pay £50 a month into one which is the bigger one, and the one my employer currently pays into I pay 3% and they pay 14.5% (I think that’s right). I get confused over the pension types, but I claim back the extra 20% on MY contributions each year.

The downside of putting a lot more into the pension is that it doesn’t help with the retiring early goal. I feel that if I stay in the same job/career I’ll very comfortably be able to retire at 58 and use my pension pot, so I want to try to focus on what will enable me to do it sooner than that.

You havent said whether you have a family/dependents, assuming not:

At the moment you have £78K in your pension increasing by £12K/year. Lets look at what would happen if you retired at 58.

Assuming the pension contributions increase with inflation and you get an investment return of 3% above inflation that works out at about a £400K pension pot at current prices.  But this needs to cover say £10K/year SP for 10 years leaving you £300K for extra income.  £300K could possibly sustain £10.5K/year inflation linked income at current prices.  So if you retire at 58 you are talking about a total income in retirement of around £20K/year. 

TBH unless I have missed something I would question whether you will be able to retire at 58 at a standard of living with which you would feel comfortable unless you put a lot more money into your pension, never mind retiring earlier.

However, first I would get the emergency fund up to say £20K.  It is suggested that about 6 months living expenses is appropriate to cover losing your job.

bringingit

Thanks Linton. My thinking is that the pension will be the base, and I’ll also have whatever else I save by then as well as the house almost paid off. Also a small point, but the employers contributions increase by 1.5% when I’m 41 and 1% when I’m 46 and future prospects for promotion are reasonable.

Agree with the point on the emergency fund. I used the cash I had saved for the house deposit/move late last year so have been building up from pretty much zero.