Savings v investments - what’s a good proportion of each?

eskbanker

square root of minus one in investments

In an i-SA? 😉

aroominyork

What do you consider savings and what investments? Which is a short term money market fund? What about a nominal gilt maturing in six months... or in two years...or in six years... or in 20 years... or in 2073 (what Ramin on Pensioncraft calls "old man's crypto")? Longer dated bonds have lots of duration risk making them very volatile, but if you have built a gilt ladder and plan to hold them to maturity, you could consider them savings.

And what about short duration investment grade corporate bonds, which are much less risky than equities?

Aylesbury_Duck

I've arranged all our pension funds, savings and investments into buckets 1, 2 and 3. Bucket 1 covers three years' spending and is in cash or STMM, Bucket 2 the seven years after (bonds and things like VLS60) and Bucket 3 long term (VLS80 and all- or mainly- equity funds). I reassess annually.

Across that lot, equity exposure in pensions is about 70%, and 40% in savings and investments. We're 53, planning to retire in four years' time.

El_Torro

Being 10 years (or more) away from retirement I don't need any cash, apart from my emergency fund.

My emergency fund is about 8% of my savings and investments combined. As has been mentioned though looking at the proportions isn't the right way to look at it. Better to have the right amount of cash and invest the rest.

ShinyStarlight1

https://forums.moneysavingexpert.com/discussion/comment/81997477#Comment_81997477

Thanks for this clear reply - I found it interesting to follow your thinking on this.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/81995657#Comment_81995657

I try to start by estimating the size of the cash reserve I need to maintain, easy access and similar. But even those funds need to work and earn something, no matter how small…..I don't live in the UK so this is a greater challenge for me than it is for UK residents, consequently I am cash heavy.

I then look at the other end of the scale and ask my self how much money I am willing to risk in higher risk investments such as equities. But even within the equities group there are degrees of risk, albeit I group all equities under the same heading for the purpose of this estimate.

If you can do those two things with a reasonable degree of confidence, what remains is a large portion of funds that need to be managed but are arguably easier to address. I think, short term, hi grade, short duration bond funds are better than money market funds for holding cash and if you want to increase risk slightly, greater returns are possible in the world of bonds. Again, for me, I don't think of short term bond funds as investments at significant risk, even though it is still possible to lose money….it's a matter of scale and attitude I suppose.

Today, I am only 22% invested in markets. If I could chose, I would increase that to perhaps say 35%. I would probably allocate my investment across markets the same way as I do now so only the volume would change. The caveat here is that I don't rely on my investments for retirement income, which are totally separate….I am 76 years.

P933alilli

Its a dilemma i have whether to put £10000 of this tax years allowance in a fixed rate cash isa or invest into my vls 60 which has another 5.5 years to go to the intended time i may need it. I'm retired, age 64. Ive not paid into the S&S isa for 18 months and its averaged 7% per year since i started in Janary 2022.

newatc

https://forums.moneysavingexpert.com/discussion/comment/81995535#Comment_81995535

This is my logic . We don't need extra money (I'm 77) and really don't know what's around the corner so why risk too much when I get an inflation growth on savings. We still have about 30% of non-property (our house only) in funds which are generally medium risk but it is extremely unlikely we will ever use them and they will end up with the children.

GeoffTF

There is a cost to holding cash. It is taxed unfavourably for many of us and has a relatively low return. There is also a cost to running out of cash. You have to pay dealing charges to replenish it. Suppose that your investments earn 3% more than your cash deposits, and that it costs you £6 to sell investments to raise more cash. £1,000 in cash will cost you £30 per annum in lost return. The break even point for holding another £1,000 in cash occurs when you run out of cash five times a year. Nonetheless, there is also an convenience value in not running out of cash,

ShinyStarlight1

https://forums.moneysavingexpert.com/discussion/comment/81997823#Comment_81997823

I find your thinking behind your decisions very interesting.