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  • FIRST POST
    • Oliver1191
    • By Oliver1191 14th Feb 18, 9:26 AM
    • 48Posts
    • 13Thanks
    Oliver1191
    How should I invest 700 a month?
    • #1
    • 14th Feb 18, 9:26 AM
    How should I invest 700 a month? 14th Feb 18 at 9:26 AM
    Hi all,

    a bit about me:
    - I have a house worth about 300, 000 with an outstanding mortgage of 154k + 53k equity loan. I'm paying capital + interest with 26 years outstanding - 1.74% fixed interest rate.
    - I have a Teachers' Pension with a current value of approximately 9.5k annual income on retirement. Having been convinced on another thread, I am remaining in the TP scheme.
    - Other main investments include a SIPP at 14k, LISA at 1k, S&S ISA at 3.5k, and a local Government Pension at 400 per annum at the age of 60.

    In the next couple of months, I will be in the position of being able to invest / save 700 each month (on top of my current mortgage and TP payments).

    My question is - how would you invest this? I'm conscious there's no easy right or wrong answer, but sometimes different perspectives gives a really helpful way of moving forward.

    I would like financial independence, so that one day I am less reliant on having to work.

    Possible options include:
    - maxing out the LISA. I'm very interested in that bonus! But I can't access it until 60. I think it's in my interests to pay into the LISA before contributing more to the SIPP as I can withdraw it all tax free. A lot of my wealth is already in pensions,
    - Overpaying on the Teachers' Pension.
    - Overpaying on the mortgage. I'm conscious that if interest rates go up, i'll be stung.
    - Investing heavily in my S&S ISA.

    So, what would you do?

    Thanks :-)
Page 1
    • kidmugsy
    • By kidmugsy 14th Feb 18, 9:30 AM
    • 10,384 Posts
    • 7,070 Thanks
    kidmugsy
    • #2
    • 14th Feb 18, 9:30 AM
    • #2
    • 14th Feb 18, 9:30 AM
    I'd see if I could get the timing right to save all or part of the 700 into two or three Regular Saver accounts that will mature in time to let me contribute to an 18/19 LISA. 5% p.a. (say) followed by a 25% boost in the LISA would be attractive and leaves open the decision to subscribe to the LISA until the last moment, which you may find attractive.

    Are you a higher rate taxpayer? Do you have an adequate cash "emergency fund"?

    Is there any way that extra payments into the TPS could be compatible with a cost-effective early retirement or swap of career to a different line of work? If not I'd be leery of throwing more money into TPS.
    Last edited by kidmugsy; 14-02-2018 at 9:36 AM.
    Free the dunston one next time too.
    • Oliver1191
    • By Oliver1191 14th Feb 18, 9:43 AM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    • #3
    • 14th Feb 18, 9:43 AM
    • #3
    • 14th Feb 18, 9:43 AM
    Thanks Kidmugsy.

    My only issue with regular savings accounts is that the interest rates are so low. 5% PA is far less than how my funds have grown, though I suppose that's a guaranteed rate.

    I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).

    Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.

    The problem with the TP is that if you retire early you have it reduced in value...I think by 25% if I retire at 55. I wanted to keep the options open (hence the SIPP) to be able to retire early, but not call on the TP unless I had to.

    Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?
    • Oliver1191
    • By Oliver1191 14th Feb 18, 9:51 AM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    • #4
    • 14th Feb 18, 9:51 AM
    • #4
    • 14th Feb 18, 9:51 AM
    That said, I like your idea of 'pooling' the money in a savings account before investing it. I'm quite used to monthly investments by standing order / dd.
    • Eco Miser
    • By Eco Miser 14th Feb 18, 9:56 AM
    • 3,444 Posts
    • 3,234 Thanks
    Eco Miser
    • #5
    • 14th Feb 18, 9:56 AM
    • #5
    • 14th Feb 18, 9:56 AM
    I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).
    Originally posted by Oliver1191
    So put enough into your SIPP so that none is at 40% tax.
    Eco Miser
    Saving money for well over half a century
    • Oliver1191
    • By Oliver1191 14th Feb 18, 10:04 AM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    • #6
    • 14th Feb 18, 10:04 AM
    • #6
    • 14th Feb 18, 10:04 AM
    It automatically goes into the TP.
    • TheShape
    • By TheShape 14th Feb 18, 10:15 AM
    • 1,267 Posts
    • 1,075 Thanks
    TheShape
    • #7
    • 14th Feb 18, 10:15 AM
    • #7
    • 14th Feb 18, 10:15 AM
    I'd use the full LISA allowance this tax year and from next year pay into the LISA each month an amount that uses the full subscription for the year and split the remainder between SIPP, S&S ISA and/or a regular saver if you don't have much of a cash/emergency fund.
    • Oliver1191
    • By Oliver1191 14th Feb 18, 10:21 AM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    • #8
    • 14th Feb 18, 10:21 AM
    • #8
    • 14th Feb 18, 10:21 AM
    So take the bonus...but is waiting until 60 an issue - I might be able to get financial independence before that?

    Equally, with channelling it into S&S ISA / SIPP / savings account, do I run the risk of getting really stung if mortgage interest rates go up?
    • ValiantSon
    • By ValiantSon 14th Feb 18, 11:55 AM
    • 1,622 Posts
    • 1,393 Thanks
    ValiantSon
    • #9
    • 14th Feb 18, 11:55 AM
    • #9
    • 14th Feb 18, 11:55 AM
    Thanks Kidmugsy.

    My only issue with regular savings accounts is that the interest rates are so low. 5% PA is far less than how my funds have grown, though I suppose that's a guaranteed rate.

    I'm mainly paying 20% income tax (only about 500 quid was at the 40% ta rate according to HMRC).
    Originally posted by Oliver1191
    Putting money into pensions will be more tax efficient. It doesn't matter how much tax you pay at the higher rate, you are a higher rate tax payer. Pension contributions will reduce your tax bill, so they are an efficient form of investment for your future. If you don't want to access TPS flexibilities, then you can always increase contributions into your SIPP.

    Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.
    Originally posted by Oliver1191
    I'm not convinced that sounds like an emergency fund. You shouldn't be dipping into it on a regular basis: it's meant to be for emergencies. Any spending that could reasonably be planned for should be separate, e.g. new tyres on a car. Emergencies are immediate and unexpected demands on your finances, e.g. your boiler breaks down, or, more importantly, you lose your job.

    The problem with the TP is that if you retire early you have it reduced in value...I think by 25% if I retire at 55. I wanted to keep the options open (hence the SIPP) to be able to retire early, but not call on the TP unless I had to.
    Originally posted by Oliver1191
    Don't expect to be able to retire at 55. From 2028 the age for early retirement will be 57. You won't be able to draw on pensions (not just TPS) before this age. If you want to retire at 55 then you will need to fund that from other savings or investments. A LISA will be no use as you can't draw that until you are 60. An S&S ISA would be fine, but you'll need to think about how you structure your investments to reduce risk as you get nearer your planned retirement date. One ready made option is a Vanguard Target Retirement fund.

    Don't guess what the actuarial reduction would be on the TPS. The formulae are published and can be accessed by you. 25% is not correct.

    Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?
    by Oliver1191;738739093!
    If anyone tells you that TPS is an intrinsically bad investment then they are either a liar or a fool. Ignore anything such a person has to say. DB pension schemes (particularly on terms like TPS) are better than pretty well anything else out there. I thought that we had already established that on you previous thread.

    The scheme may change again before you reach retirement, but it may not. Life is inherently uncertain, but your benefits accrued to that point will be protected, and your pension is underwritten by the government of the United Kingdom: it doesn't get much safer than that.
    Last edited by ValiantSon; 14-02-2018 at 11:59 AM. Reason: Typo
    • aj23
    • By aj23 14th Feb 18, 12:03 PM
    • 358 Posts
    • 133 Thanks
    aj23
    Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.
    • kidmugsy
    • By kidmugsy 14th Feb 18, 12:10 PM
    • 10,384 Posts
    • 7,070 Thanks
    kidmugsy
    Are you reluctant to put more money into the TP because the government keep changing the rules? Or because it's not a good investment in an of itself?
    Originally posted by Oliver1191
    Because of the Actuarial Reduction for early retirement. In itself it offers excellent value to the teacher and lousy value to the taxpayer.
    Free the dunston one next time too.
    • kidmugsy
    • By kidmugsy 14th Feb 18, 12:20 PM
    • 10,384 Posts
    • 7,070 Thanks
    kidmugsy
    Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.
    Originally posted by Oliver1191
    Some regular savers let you withdraw cash without reducing the interest rate they pay. They could double as both part of your emergency fund and as the money you're aiming to put into a LISA.

    In, say, March 2019 you can make the choice of subscribing to the LISA or paying a bit off the mortgage. Remember that the LISA becomes unavailable for new subscriptions once you turn 50. For some people it would be attractive to keep the LISA to 60 and then start withdrawing money tax-free to plonk into a SIPP. Double whammy! Anyway, after 50 you would presumably expect to concentrate on a SIPP - to avoid higher rate tax - and either or both of clearing the mortgage and filling ISAs. The savings landscape may have changed long before then, which is why it might prove wise to use LISAs while they are available, and use SIPPs (or whatever) to avoid HRT while the 40% tax relief is still available. You can always hope to clear the mortgage eventually with tax-free money from LISAs and SIPPs.
    Free the dunston one next time too.
    • Oliver1191
    • By Oliver1191 14th Feb 18, 12:43 PM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    Thank you Valiantson.

    "Putting money into pensions will be more tax efficient. It doesn't matter how much tax you pay at the higher rate, you are a higher rate tax payer. Pension contributions will reduce your tax bill, so they are an efficient form of investment for your future. If you don't want to access TPS flexibilities, then you can always increase contributions into your SIPP."
    It's not that I 'don't' want to access further flexibilities. Although you previously convinced me that the TP is a good deal to stay in, i'm not clear on whether accessing the flexibilities is a good deal.

    I'm not convinced that sounds like an emergency fund. You shouldn't be dipping into it on a regular basis: it's meant to be for emergencies. Any spending that could reasonably be planned for should be separate, e.g. new tyres on a car. Emergencies are immediate and unexpected demands on your finances, e.g. your boiler breaks down, or, more importantly, you lose your job.
    Yes, you're right. I was trying to live off 600 a month (for food/social/car), and found that I was averaging 700 / 750 a month. As a result, I've re--budgeted to 850 a month to cover most expenses comfortably.
    • Thrugelmir
    • By Thrugelmir 14th Feb 18, 12:46 PM
    • 58,226 Posts
    • 51,586 Thanks
    Thrugelmir
    How do you intend addressing the equity loan? Overpaying the mortgage would potentially help provide the equity to remortgage the entire debt.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Oliver1191
    • By Oliver1191 14th Feb 18, 12:46 PM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    Thank you AJ23.

    Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.
    This would give a sense of increasing 'peace of mind'. But with interest rates so low, do I risk loosing a lot more money had it been invested? The 'opportunity cost' is what i'm concerned about. If investments do well, in the long run they could pay off the mortgage...
    • Oliver1191
    • By Oliver1191 14th Feb 18, 12:49 PM
    • 48 Posts
    • 13 Thanks
    Oliver1191
    How do you intend addressing the equity loan? Overpaying the mortgage would potentially help provide the equity to remortgage the entire debt.
    That's a very good question Thrugelmir. It's not one I really have the answer to, other than eventually extend the mortgage to include it.

    The equity loan interest rates are quite cheap (I think it was 1.75%) when I do have to start paying it back. I'll need to look at that closer to the time (2 years away yet).
    • Thrugelmir
    • By Thrugelmir 14th Feb 18, 12:49 PM
    • 58,226 Posts
    • 51,586 Thanks
    Thrugelmir
    But with interest rates so low, do I risk loosing a lot more money had it been invested? The 'opportunity cost' is what i'm concerned about. If investments do well, in the long run they could pay off the mortgage...
    Originally posted by Oliver1191
    How long will interest rates remain low and investment returns exceptionally good?

    There are very specific reasons for why things are as they are. It's not because companies are performing spectacularly well (in general).
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • TheShape
    • By TheShape 14th Feb 18, 12:52 PM
    • 1,267 Posts
    • 1,075 Thanks
    TheShape
    So take the bonus...but is waiting until 60 an issue - I might be able to get financial independence before that?

    Equally, with channelling it into S&S ISA / SIPP / savings account, do I run the risk of getting really stung if mortgage interest rates go up?
    Originally posted by Oliver1191
    Although the LISA can't be accessed (without penalty) until 60 you would at least know that it's accessible from that point. If you wish to retire before 60 you could then use different savings and investment products that are accessible before this.

    If you can save at rates higher than your mortgage rate you could save rather than overpay the mortgage and have a cash fund that could be used more flexibly, perhaps overpaying the mortgage if it gets you to a lower LTV. Once you've overpayed, the cash is often then not accessible.
    • ValiantSon
    • By ValiantSon 14th Feb 18, 12:53 PM
    • 1,622 Posts
    • 1,393 Thanks
    ValiantSon
    Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.
    Originally posted by aj23
    Not necessarily. The mortgage rate can make other options more efficient. Paying a mortgage off first is not always the best option.
    • kidmugsy
    • By kidmugsy 14th Feb 18, 1:07 PM
    • 10,384 Posts
    • 7,070 Thanks
    kidmugsy
    Once you've overpayed, the cash is often then not accessible.
    Originally posted by TheShape
    Strong point, that. We used to have a "flexible mortgage" whereby we could borrow back any overpayment. It proved really convenient.
    Free the dunston one next time too.
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