Saving/investing income - in a lucky position with no idea where to start

kitrat

Hi all.

I'm in the very fortunate position of being mortgage free in my 30s. I own a house that myself and my partner live in (unmarried at the moment, this is likely to change at some point when we get ourselves organised). We earn a decent amount a year (approx £100k pre-tax) and now that the mortgage is paid off we don't really know what to do.

I think most people in our position would move to a bigger, better house and their money would be invested safely that way. But currently although out house could be better we're actually very happy where we are, love our neighbours, love what we've invested in the house and garden etc and we have zero interest in moving any time soon. But now we have quite a decent amount of savings being made each month we really don't know what to do (nice problems to have I know). It’s not a high value house (bought for £196k, probably in the £250-£300k max range now). I would like to retire (earlyish) one day in a different and higher value home (I don't know, maybe £450-£550k). But we need to make our savings work for us for that to happen given that we aren’t going to keep climbing the ladder right now.

Could you please just maybe point me in the right direction for some ideas of how to save sensibly? Or I expect we may need to see a financial advisor, in which case does anyone know what happens at such a meeting and what I'd need to prepare?! I've worked so hard to get to this point and now I'm completely clueless, I feel like I've got an awful lot to learn. There are lots of resources on MSE about bank accounts and ISAs etc but I don't know where would be the right place to start.

I guess import details are we are both in our mid to late 30's, no plans to stop work fully any time soon. Both pay into pensions. If we can overcome our current fertility problems then I may wish to reduce/pause working for a while so income may significantly drop/ we may wish to have access to savings so it's hard to plan to lock all savings away very long term (maybe some). If we are lucky enough to have children maybe we will want to move house once they're a few years old?? Who knows, it's so hard to know what the future holds and that's part of the problem.

Current ideas - stocks and shares ISAs, lifetime ISA for some percentage of savings, further private pension schemes (I know nothing about these at the moment), invest in a small rental property (doesn't seem like a good time to be doing this and not a small task, would need to learn a lot more before going down this avenue).

Any thoughts most welcomed.

El_Torro

You say you earn about £100k. This is between the two of you? If either of you are 40% tax payers I would put enough in your pension to no longer be a 40% tax payer. This doesn't have to be in a new pension, you can just contribute more to your workplace pension scheme. 

Stocks & Shares ISAs and LISAs are a good idea as you say. The S&S ISA especially can be used towards your moving costs if you do decide to buy a more expensive house some day. 

Don't forget to have a decent sized emergency fund in cash. 

kitrat

El_Torro said:

You say you earn about £100k. This is between the two of you? If either of you are 40% tax payers I would put enough in your pension to no longer be a 40% tax payer. This doesn't have to be in a new pension, you can just contribute more to your workplace pension scheme. 

Stocks & Shares ISAs and LISAs are a good idea as you say. The S&S ISA especially can be used towards your moving costs if you do decide to buy a more expensive house some day. 

Don't forget to have a decent sized emergency fund in cash. 

Thank you sorry I wasn't clear, we earn about 100k between us, not each. We are probably each teetering on the edge of the higher bracket so that is good to know for the future (probably more of a problem for him than me!) I'm in the NHS and already maxed out on my pernsion contribution (I'm not sure about him, hopefully he is I will ask). If we are both maxed out then should we look at private pensions?

Fab I think the ISAs will be our first port of call then. Do you think it's best to max out the contribution to the LISAs to start with? I think we can happily tuck away £4k each without worrying about access to money.

Also I'm generally quite risk adverse, but are lower risk stocks and shares ISAs generally a safe bet long term? 

El_Torro

I've never had a Direct Benefit pension but I believe you can pay AVCs into an NHS pension. This is usually considered more beneficial than paying into a SIPP or private pension. As long as you are a 20% tax payer I would say there isn't much urgency to pay more into a pension than you already are. S&S ISAs will give you more options in terms of when you can access your money. 

If you are happy to wait until you are 60 to access the money in your LISA then yes, this is a good idea. This is very tax efficient for people who are 20% tax payers as well. At the very least you should both open LISAs before you are 40. If you don't pay in while in your 40s then fine, at least you'll have the option to do so if you open it now.

Stocks and shares (even relatively risky ones) are considered a safe bet over the long term. By this I mean that if you invest for 10 years or more then you should get a good return. Stocks and shares are volatile by their nature though, the value goes up and down, sometimes by an alarming amount. The trick is not to sell when shares drop in value, that's the worst thing you can do. Generally speaking you should get a much better return than leaving the money in cash. 

Yorkie1

Assuming you both own your current house (as opposed to just one of you), bear in mind that whilst a Lifetime ISA (LISA) does give you extra money from the Govt, you will not be able to access it without a 25% penalty until you are aged 60 because it is only available (before then) if buying a first house: Print Lifetime ISA - GOV.UK

Money in a LISA also counts towards the maximum £20K ISA limit per year.

The usual rule of thumb is that:

• For any money you may need to access within 5 years, keep it in cash. 
• For any money you won't need to access in the next 10 years, stocks and shares will generally perform better over that long term (but reduce how much you have in pure S&S as you approach the time for wanting to withdraw some).
• For the medium-term, it's a choice.

Make sure you have up to 6 months' expenditure in relatively easy-access funds for an emergency.

Depending on your levels of savings, you may be into the realms of paying tax on your savings interest. Try to shelter funds in cash ISAs, or Premium Bonds for example (the returns are free of tax but not as good as other savings), if avoiding tax is your focus. 

Pile as much as you can into ISAs to protect them from income or dividend tax. There are rumours - and only that - that the Chancellor may reduce the amount that can be put into cash ISAs in future, so if you have funds you want to put into a cash ISA, and you haven't both filled your ISA allowances already this year, you may wish to factor this in.

HedgehogRulez

Pensions is probably the answer

infj

If you are in the NHS and think you are likely to stay there then there are various ways to add to your pension - this page outlines the options https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension 
Good value for money but you are then restricted by the rules of the scheme, so need to think about how much flexibility you might want.
Adding a maximum to your ISAs seems a no brainer to me if you have enough to do so. And at least a proportion into a stocks and shares ISA. You don't need anything complicated - just a global index tracker or a mixture of trackers once you get more confident. I have saved for 35 years in both cash ISAs and S&S - my S&S ISA has romped away despite the various financial crises  and my only regret is that I didn't start sooner.
This website gives a good summary of what to think about https://monevator.com/category/investing/passive-investing-investing/
The big advantage of the ISA is that you are not tied by any rules as to when you can or can't use it.
Personally I don't think you need an adviser - you can learn most of this stuff yourself - and it will be significantly cheaper.

Albermarle

 I've worked so hard to get to this point and now I'm completely clueless, I feel like I've got an awful lot to learn. There are lots of resources on MSE about bank accounts and ISAs etc but I don't know where would be the right place to start.

You have come to the right place 

Regularly reading this forum ( it also has an ISA subforum) and the Pensions forum, would be a good way to improve your knowledge.
Although there are a few odd threads/posters, and some can get a bit technical, it is good way to learn.
There are lots of threads where inexperienced posters are looking for guidance, so reading the responses would be useful.

autoplay

Yes it should be removed but are there any possibility to delay its removals until the end of the proceedings?

Bostonerimus1

Firstly well done. Being mortgage free gives you enormous freedom. You obviously have good control over your finances and so I don't think you need an IFA.

The UK has very generous tax advantaged investing opportunities like your work place pension and ISAs. As you are nudging up to 40% tax payers the obvious answer is to increase the amount you are putting into your pensions so research AVCs and SIPPs. And you should also take the time to educate yourself about how your pension money is being invested, particularly if its a DC pensions where you have a choice of funds - many people stick with the default fund and never bother to understand if it's right for their circumstances.

Take a look at this flowchart

https://ukpersonal.finance/flowchart/

Eyeful

1. Savings means cash in the bank/building society
    Investing  means you are putting your money at risk; Think shares, bonds, gold etc.

2. Use tax shelters wherever possible in this order
Pension
Cash ISA,s
Stocks & Shares ISA's

3. Have an emergency savings account to cover at least 6 to 12 months of household bills and car/boiler break downs.

4. Any money you will need within 5 year should be held in either
(a) NS&I, where it is protected 100% as you are loaning  money to the UK Government. 
(b) Bank or building Society Account on the FSCS list where it will be protected up to £85,000.

5. Before investing make sure you have cleared any high interest debt such as credit cards etc.

6. Investing is for money you know you will not touch for at least 10 years. The longer the better.

7. Academic research repeatedly shows that most "active fund managers" after charges are applied,

    do not beat a MAJOR  GLOBAL WORLD INDEX like the FTSE All World or ACWI.

8. SIMPLE INVESTING IN DETAIL (advantages, easy to understand  & implement)
(a) First watch this: https://www.kroijer.com/
(b) Then read these:
 https://monevator.com/passive-fund-of-funds-the-rivals/
https://monevator.com/best-global-tracker-funds/

9. Financial Advisors come in to types. Make sure that you ask them directly which they are!
(a) Independent Financial Advisor (IFA) : Who are supposed to work for you.
These look at the whole of the markets
(b) Financial Advisors(FA) also called Restricted Advisor: Who works for their employer.
These do not look at the whole of the markets. Some think of them more like "financial sales persons"
https://www.moneysavingexpert.com/savings/best-financial-advisers/

10 FSCS Protection Checkers:
https://www.fscs.org.uk/check/

11. Best savings Rates:
https://moneyfactscompare.co.uk/savings-accounts/