Redundancy money to invest

TheUmpteenth

Bostonerimus1 said:

The answer is the same as nearly always: budget, emergency fund, pay off debt; pension, ISA.

0) Do a budget so you can control spending.

Check

1) Put at least 6 months spending into an easy access saving account as an emergency fund.

Can't that be my ISA?

2) If there is anything left then pay off high interest debt, ie loans and credit cards.

Check - had a Trust Deed, discharged, and stayed debt free (though I've borrowed and repaid) since.

3) Make extra payments to your workplace pension which should be invested in a mix of low cost equity and bond index tracker funds or a multi-asset fund.

I'll need less pension if I don't have to pay rent. I pay 10% into my pension as is.

4) Invest in an ISA that is similarly invested as your pension ie low cost trackers or a multi-asset fund.

This leaves a chunk of money going into rent, every month, that would be paying into mine and my family's future. It also goes against what others are saying, which is that house prices may rise faster than I can save and that stocks and shares ISAs are a 5-year plan (5 years plus).

do you have counter arguments?

TheUmpteenth

Alexland said:

Albermarle said:

House prices have been relatively flat for some time, but probably that will not last for much longer ( just guessing)

I'd argue the failure of house prices to rise means they have crashed circa 20% relative to inflation. Unfortunately that doesn't make them more affordable as salaries have struggled to keep up, other costs have gone up and interest rates have gone up.
Getting the house you want is usually a stretch but then a few years later that reducing amount of borrowing feels more affordable as incomes rise with inflation. Unless incomes don't rise or interest rates increase....

As I said, it's a roll of the dice either way. Some say that the end of capitalism is coming and homeowners wont be protected at all. I try to ignore the crystal ball and be pragmatic. In the average case, house prices will rise faster than wages. However, if I'm careful, I think can save now and beat the curve. I used to live on half what I'm earning now...

Albermarle

Alexland said:

Albermarle said:

House prices have been relatively flat for some time, but probably that will not last for much longer ( just guessing)

I'd argue the failure of house prices to rise means they have crashed circa 20% relative to inflation. Unfortunately that doesn't make them more affordable as salaries have struggled to keep up, other costs have gone up and interest rates have gone up.
Getting the house you want is usually a stretch but then a few years later that reducing amount of borrowing feels more affordable as incomes rise with inflation. Unless incomes don't rise or interest rates increase....

I'd argue the failure of house prices to rise means they have crashed circa 20% relative to inflation.

You are not wrong, but that also applies to all financial assets. Most pension pots might be just a bit above where they were two and a half years ago, but minus 20% in terms of buying power has to to be taken into account.

Alexland

TheUmpteenth said:
However, if I'm careful, I think can save now and beat the curve.

A couple of decades ago I saved up £60k to buy my first property at £180k which was fine but I probably should have stopped once I had a £20k deposit as in the couple of years it took to save up the extra £40k the price increased from around £140k and it delayed my start on repaying the debt.

Alexland

Albermarle said:
You are not wrong, but that also applies to all financial assets. Most pension pots might be just a bit above where they were two and a half years ago, but minus 20% in terms of buying power has to to be taken into account.

Yes I forget that as I wasn't holding bonds (the 'return free risk' argument some of us were making at the time) so my pensions have maintained their spending power even after the modest pension sharing. Unfortunately it's my employment income that has lagged.

Bostonerimus1

TheUmpteenth said:

Bostonerimus1 said:

The answer is the same as nearly always: budget, emergency fund, pay off debt; pension, ISA.

0) Do a budget so you can control spending.

Check

1) Put at least 6 months spending into an easy access saving account as an emergency fund.

Can't that be my ISA?

2) If there is anything left then pay off high interest debt, ie loans and credit cards.

Check - had a Trust Deed, discharged, and stayed debt free (though I've borrowed and repaid) since.

3) Make extra payments to your workplace pension which should be invested in a mix of low cost equity and bond index tracker funds or a multi-asset fund.

I'll need less pension if I don't have to pay rent. I pay 10% into my pension as is.

4) Invest in an ISA that is similarly invested as your pension ie low cost trackers or a multi-asset fund.

This leaves a chunk of money going into rent, every month, that would be paying into mine and my family's future. It also goes against what others are saying, which is that house prices may rise faster than I can save and that stocks and shares ISAs are a 5-year plan (5 years plus).

do you have counter arguments?

Don't put all your eggs in one basket. You don't necessarily have to fill all your ISA allowance to the exclusion of saving for a mortgage deposit in a short term interest account. Also house prices might fall. Having the ISA gives you flexibility and you can use some of that money for a deposit. Don't be tempted to convince yourself of a single scenario, but plan for various possibilities.

I would use your ISA allowance for stocks and shares as they have the potential for the greatest gains and so you get the biggest tax efficiency. You can earn up to 1k in interest on your emergency fund in a regular saving account without paying any tax.