Invest in ISA, Gold or Stocks?

izgo

I’m looking to invest £500 per month for 5 years with the hopes that after 5 years I can use the money for home renovation works. However, I don’t know whether to invest £500 per month into an ISA (my bank offer all sorts of fixed ISAs and Bonds), gold (buy £500 worth of digital gold per month from Royal Mint) or FTSE 100 or FTSE 250? Which normally give the best returns?

wmb194

izgo said:

I’m looking to invest £500 per month for 5 years with the hopes that after 5 years I can use the money for home renovation works. However, I don’t know whether to invest £500 per month into an ISA (my bank offer all sorts of fixed ISAs and Bonds), gold (buy £500 worth of digital gold per month from Royal Mint) or FTSE 100 or FTSE 250? Which normally give the best returns?

Why only the FTSE100 or 250? Put it in a global tracker and hope for the best. If you want some certainty then you could chase the best rates for regular saver savings accounts, up to 10% at the moment (Virgin Money). Gold is pure speculation.

Btw, an Isa is just a tax wrapper, sounds like you're referring to cash Isas.

https://moneyfactscompare.co.uk/savings-accounts/

eskbanker

Gold or equities are typically considered too volatile for money you know you're going to need in five years, so sticking to cash would generally be safer over that period, but if you'd be happy to defer the work for one or more years if necessary then you could do worse than investing in something well diversified, such as a global equity fund or a multi-asset one. 

Albermarle

On the forum when you say 'Investing' it is assumed you mean investing in stocks and shares, which is different to 'saving' which is taken to mean money in a safe savings account.
As mentioned you should say S&S ISA, or Cash ISA to be clear what you mean.

As said 5 years is a bit short for investing, but you could invest some and save some as a compromise.

FTSE 100 etc - Most investors nowadays go for global funds. For sure not 100% UK

Gold - You can actually buy shares in funds that follow the gold price. Easier than holding the physical product .

Rollinghome

You are right to say "normally" because in truth, nobody really knows what will happen over the next 5 weeks, let alone over the next five years. The unexpected can always be just around the corner.  Beware of buying something volatile, like gold, that has just soared recently: now may be a better time to sell than to buy.

The best return "normally" is likely to be from equities, such as in a global equity tracker - provided you stay the course. Equities enjoy a "risk premium" over cash and if investors didn't expect a better return, then everyone would stay in cash. You could double your money, or more, or halve it. The further the horizon, the lower the risk. So only invest if you are relaxed about that risk, and always ensure you have a substantial reserve in cash first to see you through the ups and downs.

ColdIron

Don't buy gold, it's unsuitable for what you are trying to achieve. 5 years isn't really long enough for equities either

Hoenir

What rate of interest are you currently paying on your mortgage? 

brasso

If it was me I would put it in a Stocks and Shares ISA. You can put in up to £20K a year so you'll be fine at £500 a month. There is no guarantee that the markets will continue to rise in the short term but long term, that is the inescapable trend.

Important -- if you can invest a regular amount per month you're in a good position as you can exercise "dollar [or pound] cost averaging". This means that when stocks dip in value your £500 will be able to buy more of them. So the markets going down for a while is actually good news -- as long as there is eventually a rise again, which historically there tends to be. It needs strong discipline though, to keep buying in a falling market but if you don't you lose the benefit of dollar cost averaging. If you only buy when stocks are expensive you won't get the benefit.

As for what to invest in, if it was me (and I have a reasonable appetitie for risk) I would keep it simple and buy Vanguard Lifestrategy 100%, each and every month. This invests globally for diversification. Charges are very low.

YMMV.