How much to keep back and invest?

7685

How much to keep back and invest? 5 year cash ladder should be plenty and invest the rest.

Albermarle

https://forums.moneysavingexpert.com/discussion/6662461/how-much-to-keep-back-and-invest

You are not going to get any sensible responses, when you have supplied so little detail.

7685

https://forums.moneysavingexpert.com/discussion/comment/81948956#Comment_81948956

thanks for your reply, I was going to keep back 10 years of spending (so I can leave the rest of my money invested). However, I think it is better to keep 5 years and add the other 5 years money to my investment pot. But I am not sure when this money is going to come through now, so have left it out of my investment plan for now.

Bostonerimus1

Everyone needs cash to spend, how much is going to depend on individual circumstances, needs and desires. Cash can be a buffer against market crashes, but inflation will eat away at it's value and too much cash might reduce your long term investment returns.

SVaz

10 years of cash will be heavily eroded by a period of high inflation. A short term money market fund will give a better return than cash.

5 is plenty, followed by a Gilt ladder ( Index linked if you want full inflation protection) ordinary gilts are cheaper and prices have currently dropped so you would have a capital gain on maturity as well as twice yearly coupons, which you could put in a short term money market fund. Beyond that, either all equities or a mixed asset fund at your own comfort level.

I’ve got an average of 4.6% on a Gilt ladder from 2034-39 plus a few hundred capital gains due to buying 2 of them under par. I didn’t bother with ILGs because I have a DB pension that rises with inflation.

7685

10 years of cash will be heavily eroded by a period of high inflation. A short term money market fund will give a better return than cash.

I agree with that, I read that there is some risk with money market fund (hence, I have kept my money in a savings account (4.75% till around 7/2026 so looking for other options)

5 is plenty, followed by a Gilt ladder ( Index linked if you want full inflation protection) ordinary gilts are cheaper and prices have currently dropped so you would have a capital gain on maturity as well as twice yearly coupons, which you could put in a short term money market fund. Beyond that, either all equities or a mixed asset fund at your own comfort level.

I have 5 year cash and the other 5 year cash was going to come through next thing but should get it within the next 5 years, this money should take me over to year 9 to 10 (bear in mind inflation)

Would it better to invest in ordinary gilts as it is cheaper than ILG ? but it is not index linked so maybe a short term of one year may work? for longer term, 5 year + buy an ILG?

I’ve got an average of 4.6% on a Gilt ladder from 2034-39 plus a few hundred capital gains due to buying 2 of them under par. I didn’t bother with ILGs because I have a DB pension that rises with inflation.

Good for you. I need to understand the Gilt ladder - do you buy the clean price or dirty price gilts? and the language and work out which one will suit me. I am thinking it is like putting money in to 5 different saving account and which for each one to mature when I need the money?

Storcko14

You'll pay the dirty price and it's slightly more complicated with ILGs as you will likely need to call the platform. With ii it was a fairly lengthy call (approx 1 hour for 7 ILGs) as each goes through a quote - accept - deal - confirm process. They will quote you clean price then calculate accrued interest for your purchase separately so it can be a bit confusing. By 'accrued interest' they mean interest and indexation of principal.

For example (based on my ii ILG experience - other brokers may differ) say you want to buy T27 they will quote you something like £1.035 to buy (or they may say £103.50 but it'll amount to the same thing so it's safer to tell them how much you want to invest rather than the number of gilts). Then they'll calculate the accrued interest which will depend on how much you want to invest and be quoted as a sum of cash. I had to ask them to calculate the dirty price per gilt. With an ILG like T27 which has a dirty price of about double the clean price, that accrued interest will be a significant part of what you pay.

Furthermore on ii, your newly bought gilts will be valued using the clean price so you need to not freak out when you see what looks like an instant loss of £,000s.

I know that maybe sounds painful, and to an extent it can be, but it's fire and forget so you'll only do it once.

QrizB

Furthermore on ii, your newly bought gilts will be valued using the clean price so you need to not freak out when you see what looks like an instant loss of £,000s.

Just as an example, I bought ~£30k worth of T32 and it showed up on my online account as being worth ~£16k.

I didn't panic as I was expecting that.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81952311#Comment_81952311

I bought 4 ILGs with Bell. Very easy on line. Took about 10 minutes. Dirty price is used for valuation.

7685

While I get my ahead around how the gilts work, I have some questions.

1. I am will ii and will consider other platforms, as prefer to do it in writing but I am sensing that it needs to be done over the phone ?

2. Each gilt needs to be bought as a separate transaction?

3. is there only one type of index linked gilt? ie if I call ii they will know which one I am buying as I understand they have ETFs but I want to buy the index linked gilt.

4. What is a safe amount to buy as 'a test run'?

Bostonerimus1

You might want to consider a combination of cash and an annuity as an income strategy. The gilt ladder offers you more flexibility, but something like a fixed term or lifetime annuity will offer a bit more upfront income and has the benefit of simplicity. Both strategies should be considered.

Over the years I've had access to a couple of DB/annuity type products and I use them and a cash buffer as my retirement income foundation. Consequently my invested portfolio has a very low allocation to bonds and I don't bother with gilt/bond ladders.