Investment Advice Please

HamsterCheeks

Hello all,

I'm after some ideas on how I can invest my savings to get back a minimum of 8% P/A.
My money is currently all over the place, and I need a new investment strategy. 
I'm tempted to pay for a financial advisor but wanted to get some input from you all first.
My goal is to not have to work in around 10 years and I only need 1k p/m to live off. 

Current financial situation: 

Age 41
Own my home outright (400k)
Work pension (250k) invested via Scottish widows 80%shares 20%Bonds - Paying in 3,300 p/m
Work Share Scheme paying in £500 p/m
£1700 available from salary to invest p/m

Savings:

£61,000 - Ford Money Fixed 2 year 6.05% ending in Sep 25 
£52,000 - Plum Cash ISA 4.92% (can be moved)
£10,000 - Plum LISA 4.86% (locked)
£34,000 - Recently received through selling some shares so in a current account.

So really around £147,000. I'm tempted to invest the 34k all in an index fund or the idea of owning a second property doesn't seem like a terrible idea, but with the recent buy-to-let changes, I'd lose a lot on stamp duty etc. Plus could get messy if I get the wrong tenants. 

If anyone has any suggestions or ideas I could think about, or look into- it would be greatly appreciated. 

I know ultimately it's my choice and risk plays a big factor,  but I'm not looking for massive amounts of return. I want to let compound interest do it's thing. 

eskbanker

HamsterCheeks said:

I'm after some ideas on how I can invest my savings to get back a minimum of 8% P/A.

[...]

I know ultimately it's my choice and risk plays a big factor,  but I'm not looking for massive amounts of return. I want to let compound interest do it's thing.

I'd suggest that 8% is a pretty substantial return, especially if you're talking about compound interest, which implies savings rather than investments.

HamsterCheeks said:

My goal is to not have to work in around 10 years and I only need 1k p/m to live off. 

Current financial situation: 

Age 41
Own my home outright (400k)
Work pension (250k) invested via Scottish widows 80%shares 20%Bonds - Paying in 3,300 p/m
Work Share Scheme paying in £500 p/m
£1700 available from salary to invest p/m

So you're currently allocating £5.5K per month to pension, shares and savings, over and above what you're currently living on?  Is that living budget only £1K at the moment or are you planning significant lifestyle changes?  It sounds remarkably low for someone who's clearly a fairly high earner.

HamsterCheeks said:

I'm tempted to invest the 34k all in an index fund or the idea of owning a second property doesn't seem like a terrible idea, but with the recent buy-to-let changes, I'd lose a lot on stamp duty etc. Plus could get messy if I get the wrong tenants.

A global equities fund would indeed probably be worth considering, certainly over BTL, as you do seem relatively cash-heavy at the moment if you're trying to accumulate for retirement in ten years time.

mebu60

HamsterCheeks said:

I'm after some ideas on how I can invest my savings to get back a minimum of 8% P/A.

I'm not looking for massive amounts of return. 

Hmmmm! A minimum of 8% pa you say? What's your risk tolerance? 

Avoid property rental.

leosayer

What makes you think you need a minimum return of 8% per year? How did you arrive at this number? You will never get this with compound interest but with investment returns it may be possible if you get lucky. 

What makes you think you can live off £1k per month? Are you dependent on anyone else or do you have any dependents?

Have you considered downsizing your house to free capital?

If you are entitled to full state pension then this will pay you £1k per month from age 67 so your savings only need to cover the period from age 51 to 66. £12k x 15 years = £180k.

InvesterJones

It's hard to predict future returns, but with interest rates where they are, if you need 8% then savings and bonds aren't going to cut the mustard. I'd be looking for the most diversified, multi-asset, fund that I thought could reach 8% as then I'd have some protection against changes to the established order, and 10 years is only just long enough to recover if there is a correction now - if there's one towards then end then it may not. So maybe either go with a DIY global equity index tracker + some gilts with your target maturity as a back up, or something like VLS 80.

edit: I'm assuming that's 8% absolute, not real return. 

InvesterJones

leosayer said:

If you are entitled to full state pension then this will pay you £1k per month from age 67 so your savings only need to cover the period from age 51 to 66. £12k x 15 years = £180k.

You're assuming £1k will be worth the same in 26 years as it is today. Inflation will mean it buys much less than half it can today.

eskbanker

InvesterJones said:

leosayer said:

If you are entitled to full state pension then this will pay you £1k per month from age 67 so your savings only need to cover the period from age 51 to 66. £12k x 15 years = £180k.

You're assuming £1k will be worth the same in 26 years as it is today. Inflation will mean it buys much less than half it can today.

If OP projects their required expenditure to be approximately equal to the current full state pension when both are expressed in 2025 money, they still ought to be roughly equal in 2051, unless some of the doom-laden forecasts of SP viability come to pass over that timeframe....

aroominyork

I'm giving the OP the benefit of the doubt about investing not saving... "how I can invest my savings to get back a minimum of 8% P/A... I need a new investment strategy". Long term the stock market has delivered 6% inflation adjusted so call it 8% absolute. Presumably the OP is not investing for 100 years so that might not come to pass, though at 41 years old and if planning for retirement, a couple of decades in the stock market might get him/her close. 

phlebas192

As others have said, min 8% is somewhat optimistic and certainly not something that can be guaranteed. But if you go with long term stats like equities giving a real return of 4% over longer terms then not necessarily impossible - as long as you are prepared to weather possibly having -8%, -18%, -28% or even worse in the short term.

If I were in your position then I would have my pension 100% equities. I don't see why you would have any of it in bonds - you really do not need any "safety" aspect that bonds might add at your age unless you are dead set on buying an annuity as soon as you retire (are you?). Depending on your risk appetite you might want to introduce some bonds when you are within a few years of being able to access the pension, but not when you are over 15 years away!

I would keep 6 months worth of expenses in easy access savings and put the rest into equities. The former covers you if you lose your job, and the latter is the only hope of getting anywhere near 8%. But do make sure you are comfortable with significant short term losses - they have happened in the past and will happen in the near to mid term future (ie before you retire). If you are likely to panic and sell out if your investments fall by a third or more in a few months then forget about equities - but also forget about any chance of 8% pa.

Eyeful

I do not think you should count on a minimum 8% P/A return.
I also do not know your risk level or how much you know about investing.

1. Suggest you watch the video below. It might be of help to you:
https://www.kroijer.com/

2, Read this: 
 https://monevator.com/best-global-tracker-funds/

3. Use tax shelters (Pensions, Stocks & Share ISA's, Cash ISA's) whenever you can.

Bostonerimus1

OP you have an excellent financial foundation in your mortgage free home, pension and cash savings earning good interest. You are doing good things, just keep doing those things, don't complicate things. So either up your pension contributions or contribute to an S&S ISA and buy similar funds to what's in your pension already ie equity and bond ETFs and index funds or a multi-asset fund like VLS80. Don't buy another house as that will probably mean taking on more debt and it will definitely complicate your life. Financial success is really just about doing simple and sensible things for many years, so do more of what you are already doing.