Long term investment advice

James811

Hi everyone. I'm after some long term investment advice 

I'm 30 years old and work for myself, I have about £500 per month to invest.

I started about 2 years ago and my current investments are as follows 

Premium bonds - £14,000

Personal pension - £14,200

S&S ISA (S&P500 ETF) - £5,700 

LISA - £3000

I have no other debt apart from my mortgage (due to finish at 50), no loans, credit card debt etc.

At the end of each month I currently divide my money the following way for investment 

Let's use £500 as this months money to invest 

10% Overpayment on mortgage - £50

20% LISA

20% Premium bonds 

20% Pension 

30% S&S ISA 

Would you consider this a good strategy long term? Anything you'd add or change? 

Any advice will be greatly appreciated, 

James 

eskbanker

The fact that you have a mortgage signifies that your LISA is intended for retirement money rather than property purchase, so is presumably an S&S one rather than cash, in which case it would probably make more sense to maximise your contributions to that instead of putting so much into the non-Lifetime S&S ISA, given the 25% bonus.

Unless there are any likely life events requiring significant accessible cash, you've probably built up enough of an emergency fund in your premium bonds, so perhaps worth considering (a) putting that money somewhere with a better return (e.g. Santander's 2.75% saver) and (b) stopping further savings, concentrating on the other areas instead.

What's your mortgage rate and what constraints are there on overpayments?

The pension is a bit light for your age, so again you might wish to divert money away from the S&S ISA into that.

James811

I only started the pension 2 years ago, I had a very small workplace pension which I transferred from NEST to start it off. 

The LISA is a cash LISA but it's just as another cash savings as I don't want it all in stocks etc. 

My mortgage is in 2 parts,
1. 90k fixed at 2% until 2031
2. 50k fixed at 5.5% for 5 years as of yesterday 

dunstonh

S&S ISA (S&P500 ETF) - £5,700 

With such a small amount it doesnt really matter what you are invested in at this stage.   However, the fall in sterling and the rise in the dollar have certainly helped in this period.   However, going forward, when sterling begins to rise and the dollar begins to the fall, both of those things will create a drag on the recovery of the S&P500.   By having all your eggs in that unhedged basket, you lack sensible diversification.

As I said it doesnt matter with that amount as percentage returns provide little in monetary terms but you may as well get it right for when the figure gets bigger.

eskbanker

James811 said:

I only started the pension 2 years ago, I had a very small workplace pension which I transferred from NEST to start it off.

Sure, but regardless of how you got here, the point was that it's an area to concentrate on if you wish to build up a meaningful pot with which to retire, it wasn't a personal criticism!

James811 said:

The LISA is a cash LISA but it's just as another cash savings as I don't want it all in stocks etc. 

Money in a LISA can't be accessed without penalties until you're 50 60*, so if you left it in a cash product for that time, its real-terms value would be decimated over that 20 years.  Your prerogative obviously, but if you're already paying into a S&S ISA then you obviously don't have any fundamental aversion to investing, so my point was that the investing would be better in the LISA, even if you diverted more money into savings elsewhere.

James811 said:

My mortgage is in 2 parts,
1. 90k fixed at 2% until 2031
2. 50k fixed at 5.5% for 5 years as of yesterday 

Seems a bit odd to make a major financial decision immediately before asking for advice, but making bigger inroads into a 5.5% debt would probably be worth doing if permitted.


With all of the above, it all comes down to your priorities and individual circumstances, so I was really answering your questions about "Would you consider this a good strategy long term? Anything you'd add or change?" from my perspective....

* corrected LISA access age, you can only pay in until 50 but can't access it until 60, as pointed out by @Albermarle below.

GazzaBloom

Personally, if it were me, and I was 30 all over again, knowing what I know now, I would put all extra money I could after having a cash emergency fund and putting 15% into my pension, into paying off the mortgage Dave Ramsey style.

[Deleted User]

Premium bonds are not offering a great return. You have a reasonable 'emergency fund' here, I would be inclined to stop contributing at this point.

Mortgage overpayment - I would hit that 5.5% if possible. Easy to find accounts paying greater than 2% so no urgency to pay off the 90k

LISA - seems to be a no-brainer and could offer early tax-free retirement money further down the line. I would look at gilts.
With rates where they are and apparently rising, it's got potential.

S&S ISA - since you already have an emergency fund (in premium bonds), I would be inclined to move this money to either LISA (if you can't fund by other means) or place the funds into a pension and gain tax relief.

Pension - can you salary sacrifice in work, does your employer offer any incentives? If you can avoid NIC or benefit from employer contributions this has to be worth investigating (if you can afford to)

In summary
Overpay higher rate mortgage if possible (unless savings rates go over 5.5%)
Premium bonds - emergency funds (basically cash with a few days notice)
LISA - free govt money, keep in cash or gilts, as rates are acceptable (can always switch to equities if conditions are right). Compound interest to build generous pot. Early retirement fund (or emergency fund with penalties if things get really bad)
Pension - tax benefits, long term fund invested in equities/funds.

I would mix however you see fit, all options look good to me, other than premium bonds.

Just for a bit of fun - deposit £4,000 each year into LISA, with the Govt adding £1,000.
Use a compound interest calc to test different scenarios. Try 4, 6 & 8%.
You can't draw too many conclusions as we can't predict the future, but it does illustrate the potential to a youngster with 30years to play with

Albermarle

Money in a LISA can't be accessed without penalties until you're 50, so if you left it in a cash product for that time, its real-terms value would be decimated over that 20 years.  Your prerogative obviously, but if you're already paying into a S&S ISA then you obviously don't have any fundamental aversion to investing, so my point was that the investing would be better in the LISA, even if you diverted more money into savings elsewhere.

I thought that the earliest you can access a LISA is 60 not 50?

In which case that would be 30 years of cash saving to be eaten away by inflation, so even worse, and further not helped by LISA cash saving rates being quite poor generally.

OP - Most of what you are doing seems pretty sensible, with only a few tweaks needed as suggested by other posters.

However not changing your cash LISA to a S&S LISA, would very likely be a very bad decision due to the long term nature of the LISA.

ellenvan

I f you can overpay the mortgage part that is at 5.5% that is what I would do.
Basically, if your savings are not producing that amount than why not overpay.

James811

OK, so
1. Let's just ditch the LISA
2. Put the LISA contribution into Pension 
3. Take the Premium bond money and pay extra off the mortgage 

Seem a better plan? 

James811

dunstonh said:

S&S ISA (S&P500 ETF) - £5,700 

With such a small amount it doesnt really matter what you are invested in at this stage.   However, the fall in sterling and the rise in the dollar have certainly helped in this period.   However, going forward, when sterling begins to rise and the dollar begins to the fall, both of those things will create a drag on the recovery of the S&P500.   By having all your eggs in that unhedged basket, you lack sensible diversification.

As I said it doesnt matter with that amount as percentage returns provide little in monetary terms but you may as well get it right for when the figure gets bigger.

What would be your suggestion be as to a fund split then?