Help me to invest / manage my future

mustiuc
mustiuc Posts: 98
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edited 15 June 2018 at 11:25PM in Savings & investments
Good evening all,

It will be a quite long post and I would like to ask you to give 3 minutes of your life to read it all and advise me.

First of all, I am living in UK for a bit more than two years. I am an EU citizen working and living in there, building my credit file (excellent at the moment), never been in debt, never had a loan/HP or financial issues (I have 3 cc's to build my credit history and my partner/fiance 1 cc).
I was struggling in my first year .. doing my best to have a plan, get a job/house/integrate into the system and going on. First year was difficult, changing a lot of jobs and places but when my partner moved with me last year we managed to save nearly £20k. Because unexpected problems appeared into our lifes (one of my parents died, we've been three times abroad and had expenses in two places: rent/bills here/abroad and moving twice) we left with about £15k cash.
To the point: We are quite a modest couple, working 50-60hours a week and earning about £1500-1700 a month after taxes (we pay about 500 a month income/Ni) but we manage to live decent and not to spend stupid. Saying so, one is paying the bills and the other is saving.
We are talking for a month now to start doing something with our money but nothing is promising. Savings accounts are rubbish, Cash ISA's I consider them the same. My bank is offering me 1.25% for 2years (without cutting the fees) which is stupid. Don't get me wrong, I do not want 20-30% overnight but to get my money stuck for 2 years and earning £125 after I prefer to keep them available anytime.
I have no financial education except the life's one so I do not know the deeps of bonds/shares/equities/funds/etc. I know what they are but in the same time I don't know to manage them. Saying so, I decided with my partner for a first step to invest into a fund (or more).
I don't know what to fund/company to choose. My bank (Barclays) is saying they have investment accounts where I can pick what fund I want or ready-made ones and my car insurer (Aviva) is doing the same. I don't want to go there and to be like a sheep to be slaughtered. What to be aware to, where shall I focus my attention? I read horror articles about aviva doing things to their clients and force them to get a life insurance along with their investment and only a small percentage of their monthly payments would go to their fund, the rest of it were LI costs and their fees, which is awful.
I also been advised by some friends to choose "small" companies to manage the funds because they will have higher returns over time. They need to stay on market and do their best to succeed. Also to invest in two funds, growth and income.
Saying so, we have about £250-500 each, to split and invest in two funds (growth and income) a month for at least 5-10 years but I don't know who to visit or to call and start. I would like to get some advise or direct me for something else.

I haven't talk anything about pension just because I don't like the idea ... to pay for 30 years and get the money after you retire. Maybe I want to buy a property, start a business, do something so I need to have access to my money (even I get less). I have Ni contributions and auto-enrolment which I think is enough. I don't want to rely on government and we have the Brexit problem as well.

Thanks a lot for your time and I will keep this thread up to date with all my actions.
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  • george4064
    george4064 Posts: 2,801
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    1. Establish an emergency fund This should be a few months of your total expenditure in an instant access account. MSE have a good list of savings accounts here: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

    2. You may want to exhaust the available banks in the link above with more cash you have.

    3. You might want to allocate some money to investments. This will have risk involved but remember that the potential returns are much higher here as you are taking a bit of risk. With investments diversification is the key, so consider global funds (think of having a finger in every pie, but in terms of investments all over the world!)

    There is a huge range of global funds out there, but here are some popular ones:

    - Vanguard LifeStrategy 60% (this is also available at 100%, 80%, 40% and 20%)
    - L&G Multi Index Funds (similar to Vanguard they have a range of funds with different levels of risk and potential return)
    - HSBC Global Strategy Funds (again they have a range of these a set above)

    You will also need to select an investment platform, whether it be for your ISA or SIPP. I personally use AJ Bell YouInvest who have been great, but note that there isnt a perfect platform for everyone. Also its important to remember that the cheapest platform isnt necessarily the best, the saying you get what you pay for certainly holds true with investment platforms. Here is a good website that compares platforms and their costs: http://monevator.com/two-ways-to-help-you-find-the-best-online-broker-or-investment-platform/

    Good luck!
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

    Save £12k in 2021 - #027 £15,268 (76%)
  • DairyQueen
    DairyQueen Posts: 1,822
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    Could you provide a little extra info:

    - how old are you/your partner?
    - do you intend to stay permanently in the UK?
    - do you have children? Or, do you plan to do so?
    - can you be more explicit about your savings objectives? What is the priority? House purchase? Business? Something else?
    - can you also be more explicit about the timeframe over which you wish to save? Is it 5/10 years? or at least 5 years? or at least 10 years? Investing in S&S is not recommended for short periods (i.e. 5/10 years). If there is any chance that you will need to access the cash in less than 10 years then don't go there.
    - is that £15k your emergency cash fund? This could be anything from 3 to 18 months' expenses but is typically around 6 months expenses for a young couple.
    - relying only on the UK state pension plus auto-enrolment will guarantee that you will have insufficient retirement income unless you intend moving to a country with a much lower cost of living when you retire. Do you have any retirement benefits built-up in your country of origin? In any other country?
    - what is your attitude to risk? How would you feel if your investment dropped in value by 20/30% and didn't recover for 5 years? Would it keep you awake at night worrying? Would you be able to wait for the markets to recover? Would you shrug?

    Just to add....

    Never take advice 'from friends' unless they happen to be independent financial advisors who have completed a full fact find of your circumstances. If these 'friends' had even the rudiments of investment understanding they wouldn't be advising you but would direct you toward an independent advisor or suggest that you do lots and lots of research. Why they should recommend 'small companies' is unclear. Do they mean small investment houses? Small-sized funds? Or funds that invest in small companies? Regardless of which definition applies it is difficult to imagine any circumstance when it would be advisable for a new investor to target any of these on the grounds of any/all: risk/cost/diversification.

    Your first step is to consider your savings objectives/timeframes/attitude toward risk. Deciding where to invest is the final step of the process.

    With a little extra information the well-informed people here will be able to guide you.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    mustiuc wrote: »
    I haven't talk anything about pension just because I don't like the idea ... to pay for 30 years and get the money after you retire.

    Does your employer offer a pension scheme?
  • mustiuc
    mustiuc Posts: 98
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    Hello again,
    I really appreciate your prompt and quick answers.

    I am 28 (29 this month) and my partner 26. We are well educated, having a nursing degree and my partner a UNI and master degree; we are planning to stay here or at least our children to have the opportunity to live here and study. Speaking about children, we are planning for a long time to have one but it was always the fear of "what we gonna do, we need to give him/them the best of what we couldn't have,etc". That's why we saved and saved to not be worried about tomorrow. If someone will need to stay at home unemployed to look after babies to don't have any arguments/stress about money or bills, at least for a couple of months.
    As I said in my first post, the past was the perfect teacher for us, when my father past away or we bought the car or what we've done, we were prepared for it. (I always paid every goods with cash - car/phones/furniture/etc - as I said, I never been and never will be in debt - except mortgage).
    Because the property market is going up we are not yet prepared, at this moment, to get a loan of 200-250k and end with a 1000+ monthly payment + other bills. If we add baby in our life we gonna be in debt. We don't want that.
    Back home in our country, I have a 3bedroom (90m3) apartment and planning to rent it (my mother is living in it because she have a house in the country side but don't want to live alone in there) and my partner is having a house and a lot of land (I used to laugh with her saying "you have so much land that I am planning to buy a tractor and work it in a few years"). We are quite ok back home BUT no contributions, no pension,nothing. Everything we have is here in UK.
    Our attitude at risk is fine, I personally lost a lot of money in my life, I used to be a gambler (casinos/bets) and is not the end of the earth losing some money. I am truly honest with you saying I am quite different and don't care about paying more on day to day expenses, increased bills, etc. I don't argue with people if they charge me a bit more than before, if you understand what I mean. I don't make a fuss and live with it. I don't go to the news complaining the chips or wings are 50pence more expensive than before and I can't afford them.
    WE have a pension scheme at work with NEST.

    Having those 15k atm, we can keep 10k emergency and start with a lump sum of 5k + monthly payments OR we can keep 15k (and do something else with) and start with a smaller lump sum + monthly installments.
    If there are so many unknown things in our life (kids/mortgage/we need to marry as well/etc) do you think is best to diversify or we gonna be overwhelmed in time? For example, let's say we pay £200 into two funds (income + growth) and in the same time to open a Help to buy ISA to help us in 1-2 years for mortgage. If we are doing so, I am confident we can manage quite well with kid/s.
  • george4064
    george4064 Posts: 2,801
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    You don!!!8217;t meet the eligibility requirements for the Help to Buy ISA, as you have had an interest in a property already. Same goes for your partner.
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

    Save £12k in 2021 - #027 £15,268 (76%)
  • DairyQueen
    DairyQueen Posts: 1,822
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    First things first: time is on your side. As a young couple, investing long-term in S&S now is definitely advisable.

    I'm not usually this categoric but, at your age, forget income funds. These are specifically targeted at older age groups and, especially, the retired. At your age you should seek maximum growth on all S&S investments.

    With the benefit of hindsight I can only advise what I would have done 30 years ago if I could turn the clock back.

    Firstly, max the return on your emergency fund. Regular savings accounts fed from a current account are one way of achieving this. Nationwide/Santander are just two of the 5% interest paying accounts available on regular savings (there are many more). The aim is to cycle your cash from the best paying current a/c into a regular saver each year. This strategy will, at least, ensure that your emergency cash matches inflation.

    Next, you need to think about house purchase (in the the UK) and children. Both of these will severely drain your disposable income. Historically, S&S investments have out-performed property in the UK. You both own property in your country of origin. If you have any intention to return then my advice would be to prioritise pensions and S&S investment over buying UK property. This would be counter-intuitive to anyone intending to retire in the UK but could pay dividends to those intending to retire elsewhere.

    So, what would I do in your situation?

    I would keep that £10,000 emergency fund in cash and use current a/cs and regular savers to max the return. Don't draw on this unless you hit a bad time. This money is your insurance against redundancy/unemployment.

    I would also keep the extra £5000 lump sum in cash in order to subsidise your household ncome when/if you have children. I would invest this in a fixed interest, 1-2 year bond.

    Next step would be to invest for the long term. This is where stocks & shares pay massive dividends to someone of your age. George4064's advice is definitely supported by me. The best advice for a new investor is to invest in a highly diversified, global tracker (examples given by george). The charges are low and this will give you exposure to all of the world's major developed markets. Forget small companies at the moment as they are the kind of satellite investment that is of interest to investors with a much bigger portfolio. Keep it simple. keep it cheap.

    Investing in global trackers via a pension is the best route as you will receive tax relief from the UK government at your highest rate of tax (free money!). The downside being that you cannot access the money until age 55. I know that seems like a massive constraint at your age but, believe me, your 50-something self will thank you for every penny you invest now.

    If you can't bring yourself to invest all of the cash until you are age 55 then consider some-and-some. Invest half in a pension fund and the rest in a S&S ISA. Choose the same funds. The fees will be the same. Bear in mind that you may not be able to access these funds when you wish. S&S is a long term investment (10+ years). The markets have been on a bull run for several years and we are overdue a major correction. When this happens, don't panic! Stay invested and continue to add your regular investment. You will then benefit from 'pound cost averaging' (look this up). Over time, if the last century is a guide, this investment will come good and you will laughing at age 45+.

    Btw, don't worry about Brexit, The UK is as concerned about protecting its citizens resident in the EU as it is concerned about protecting the interests of EU citizens resident in the UK. The UK needs you. You are welcome here. Brexit is not a mandate for discrimination.
  • mustiuc
    mustiuc Posts: 98
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    Thanks for your answers. Tomorrow I'll visit santander/nationwide to see what I get. At the moment we keep 12k into a savings acc for 0.20% a year and have access to it anytime without restrictions.
    If i know for sure I won't touch my investment for at least 10yrs, it would be better to choose the 80% vanguard lifestrategy fund instead of 60%? Or shall I be cautious and be happy with lower returns but safer long time.
    One more question. What is the difference betweend lifestrategy funds and (vanguard/any other) ISA's? I couldn't find any past performance/returns of them. I know you have a 20k a year tax free from them but what is the point of them instead of funds/bonds/etc. Isn't better to claim that tax free from isa instead 9f paying income from funds?
    I am saying this because we can use up to 40k into two isa's tax free each year.

    Thanks in advance for your help.
  • atush
    atush Posts: 18,719
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    you can do better than 0.20% for that easy access 12K.

    You have 2 properties abroad- do you need 2? Rent both out, or sell one. If you mother is living in yours because she doesnt want to live in hers, have her sell hers and buy yours.

    This sill free up cash for pensions and S& isas. I would agree with global trakers and multiasset funds, but at your age would go for 80-100% equity ones, not 60. this is money you wont touch for 10 years or more.
  • DairyQueen
    DairyQueen Posts: 1,822
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    mustiuc wrote: »
    Thanks for your answers. Tomorrow I'll visit santander/nationwide to see what I get. At the moment we keep 12k into a savings acc for 0.20% a year and have access to it anytime without restrictions.

    I have my slush money in RCI bank (protected by the French government up to - I think - Euros 100,000). This is instant access and is currently paying 1.3%.

    First stop (for you) should be Nationwide. They pay 5% on current a/cs up to £2500 for the first year. Plus, holding a Nationwide current a/c gives you access to that 5% regular saver account. You and your partner could both save £250 p.m. at 5% currently.

    Santander is good as (although it has a monthly charge) it gives cashback on your utility bills PLUS you will have access to their monthly regular saver (also 5% for max £200 p.m. for you and your partner).

    FirstDirect also offer a 5% regular saver to current a/c/ holders. There are other banks that offer similar deals.

    Note that you need to actively manage your cash to receive these amounts but that 0.2% you are receiving can be easily beaten with a little effort.

    mustiuc wrote: »
    If i know for sure I won't touch my investment for at least 10yrs, it would be better to choose the 80% vanguard lifestrategy fund instead of 60%? Or shall I be cautious and be happy with lower returns but safer long time.
    I would put all money that you believe that you don't need to access for at least 10 years in Vanguard 80/20. (or similar, such as Blackrock) If you believe that you won't need to access it for 15+ years then choose a 100% equity version of these funds. Time is definitely on your side and every penny you can invest in the long term will pay dividends for you in 10+ years.
    mustiuc wrote: »
    One more question. What is the difference betweend lifestrategy funds and (vanguard/any other) ISA's? I couldn't find any past performance/returns of them. I know you have a 20k a year tax free from them but what is the point of them instead of funds/bonds/etc. Isn't better to claim that tax free from isa instead 9f paying income from funds?.
    I think you are becoming confused between the tax wrapper in which the fund is held, and the fund itself. Vanguard's funds (as with any other) can be held via a pension wrapper, an ISA wrapper, or directly. The only difference is the tax break.

    Pensions are (by far) the most tax efficient as the UK government will give you the tax back for every penny that you invest in Vanguard (or any other fund) via a pension wrapper. This tax break will be at your highest rate of tax. The downside being that you can't access this until your are at least age 55.

    If you invest in an ISA wrapper (and Vanguard like most companies offer this facility directly at very cheap prices) then you will not receive the boost on your initial investment (an extra 20% or 40%) but you will receive all income and capital gains free of tax. This is definitely worth doing. An ISA will allow you instant access to the proceeds of the funds if you wish to sell. Of course, selling when markets are down is definitely not recommended.

    If you choose to invest directly then there will be no tax break and no protection against any tax due on the income and capital gains. This may not be important initially but an ISA can grow in value very quickly when markets are high. My opinion but there would be no benefit to investing outside a pension or ISA wrapper.

    I reiterate that there are similar funds (other than Vanguard) in which you can invest at similar low cost. They will do a similar job - i.e. give you exposure to all the world's developed markets at a low cost. Vanguard seems to be recommended most frequently as they paved the way in the UK for this kind of low-cost, very efficient global investment. They are a very large company (almost a trillion dollars of client money under management). They are as 'safe' as most investment companies could be.

    I also reiterate that investing for income at your age would be at the expense of growth. That is counterintuitive. Unless you need the income then growth is where you need to be. Bonds (unless very short-term) are almost certain to lose value at the moment. The return on long-term gilts is negative thanks to quantitive easing (i.e. the money that governments have thrown at banks since the financial crisis). At your age bonds are only useful (at the moment) to add a little stability to the volatility of the equities.
  • mustiuc
    mustiuc Posts: 98
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    Thanks a lot for your answers/advises !!!

    One more question and I won't be a pain for you ^^ : it is better to put money together with my partner every month to get as much tax free we can or to have two separate accounts for each of us ? I mean we don't have yet 20k cash and even if we did we wouldn't invest it all (emergency savings/etc) but like this we can go up to 20k allowance pretty quick and after we can open another account for my partner to get another 20k tax free. Once we have two accounts up to 20k each we can start investing in proper funds and get used with income taxes.
    It's a long journey but we need to stick with it... seeing what in happening in this world (uk/eu/my country) makes me to frighten about.

    My mum is in italy now for a couple of months and we already talk about renting the apartment and selling the house. She agreed with selling the house but keeping the apartment just for her to living in it. I.m trying to convince her to buy another smaller (1bed) apartment to live in it. I hope this year I.ll sort the things out back home.
    I can get easily £230-270 a month renting that property which can be invested every month in ISA/fund.
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