Author Topic: Basic investment advice for UK beginners.  (Read 4981 times)

Playing with Fire UK

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Basic investment advice for UK beginners.
« on: July 30, 2017, 09:15:11 AM »
I really like the 7 step investment advice for US folk. Even though it is more complex for us in the UK it would be valuable to have something similar to refer to with questions. Let's keep it as straightforward as we can.

I'm initially thinking:

Save a spare £500 in a current or high-interest savings account.
Pay off high-interest debt.
Contribute to a workplace pension to maximise any employer match.
Save an emergency fund to your liking (3 months expenses is one benchmark) in a separate account.
If you are under 40, don't have a home, want to buy a home, invest in a LISA.
Invest in an S&S ISA until 1) it is full or 2) you decide that SIPPs are more your style (future link to a suitable post).

Having said that...
If the thought of being in debt stops you sleeping at night or you'd rather have a sure thing than the chance of a big win, here is an alternative investment plan. However, you should know that although the returns will be safer, they will almost certainly be lower than the standard plan.

Then your path lies here.

Questions and comments please.
« Last Edit: July 31, 2017, 04:09:26 AM by Playing with Fire UK »

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #1 on: July 30, 2017, 09:15:36 AM »
Snagged for future post.

shelivesthedream

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Re: Basic investment advice for UK beginners.
« Reply #2 on: July 30, 2017, 09:57:35 AM »
I'd be inclined to save up a proper emergency fund before contributing to a workplace pension. It's no good having money tied up until retirement age if you need cash now! And no point paying off all that high-interest debt if you're going to run it right back up because you have an emergency and can't get to any cash!

But I am quite risk-averse...

UKMustache

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Re: Basic investment advice for UK beginners.
« Reply #3 on: July 30, 2017, 11:56:52 AM »
I'd be inclined to save up a proper emergency fund before contributing to a workplace pension. It's no good having money tied up until retirement age if you need cash now! And no point paying off all that high-interest debt if you're going to run it right back up because you have an emergency and can't get to any cash!

But I am quite risk-averse...

Leaving money on the table in the form of an employer match is a guaranteed loss versus not having a large emergency fund and something MIGHT go wrong?

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #4 on: July 30, 2017, 11:58:01 AM »
Good point SLTD, maybe let's group high-interest debt and e-funds together with a note to see something like DebtCamel or MSE for strategy?

If there is a strong consensus I'll change to make it more prescriptive. I've intentionally left out low-interest and mortgage debt for a similar reason - it comes down more to temperament and risk aversion than right or wrong.

shelivesthedream

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Re: Basic investment advice for UK beginners.
« Reply #5 on: July 30, 2017, 12:20:09 PM »
I know this is supposed to be very basic, but would it be worth having two investment paths mapped out? The "standard" one and the "low risk, debt-averse" one? However, I think student loans need a mention as it's very different to the US! Even as a debt-hater, I don't think one should pay more than than the minimum on UK student loans unless you have completed all of the other steps in the investment ladder, and even then only if you really want to. In terms of other debt, I think it would be helpful to put some numbers on a high and low interest rate for noobs. (Having never had any debt other than student loans, I have no idea!)

 
I'd be inclined to save up a proper emergency fund before contributing to a workplace pension. It's no good having money tied up until retirement age if you need cash now! And no point paying off all that high-interest debt if you're going to run it right back up because you have an emergency and can't get to any cash!

But I am quite risk-averse...

Leaving money on the table in the form of an employer match is a guaranteed loss versus not having a large emergency fund and something MIGHT go wrong?

Yup. That is what I would do. But that is because I am very risk-averse (a bird in the hand being worth three or four in the bush for me!) and because I have a very strong emotional reaction to debt. Every time I look at my NW spreadsheet I feel a twinge at my student loan balance and idly fantasise about paying it all off right now. One day I might just do it. I am also the kind of person to pay a mortgage off early. I know the numbers don't add up, but it would feel so good!

cerat0n1a

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Re: Basic investment advice for UK beginners.
« Reply #6 on: July 30, 2017, 12:43:33 PM »
Doesn't this depend to some extent on personal circumstances? Three months salary seems like a huge chunk of money to me - it would be more than enough to replace my car and all of our household appliances. We don't typically have to worry about unexpected medical or legal bills here, nor worry about being made homeless after losing a job. Enough money saved to be able to cope with a car accident, or something breaking or home repairs seems like a reasonable position?

tawyer

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Re: Basic investment advice for UK beginners.
« Reply #7 on: July 30, 2017, 01:26:20 PM »
Doesn't this depend to some extent on personal circumstances? Three months salary seems like a huge chunk of money to me - it would be more than enough to replace my car and all of our household appliances. We don't typically have to worry about unexpected medical or legal bills here, nor worry about being made homeless after losing a job. Enough money saved to be able to cope with a car accident, or something breaking or home repairs seems like a reasonable position?
I think the OP is referring to actual costs (expenses) over three months rather than income (salary). If it only takes you a month to accrue that much, then all the better.

A rule of thumb for an emergency fund that I like is "one month of expenses saved for every percent of the unemployment rate" because it reflects how long it might take to find a new comparable income source in the event of a layoff.

UKMustache

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Re: Basic investment advice for UK beginners.
« Reply #8 on: July 30, 2017, 01:38:53 PM »
However, I think student loans need a mention as it's very different to the US! Even as a debt-hater, I don't think one should pay more than than the minimum on UK student loans unless you have completed all of the other steps in the investment ladder.

I agree with this wholeheartedly.  Someone planning a truly mustachian retirement (between say 30 and 40) would likely be wasting money by overpaying student loans which would be forgiven after 25 years anyway.

Monkeytennis

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Re: Basic investment advice for UK beginners.
« Reply #9 on: July 30, 2017, 01:54:08 PM »
However, I think student loans need a mention as it's very different to the US! Even as a debt-hater, I don't think one should pay more than than the minimum on UK student loans unless you have completed all of the other steps in the investment ladder.

I agree with this wholeheartedly.  Someone planning a truly mustachian retirement (between say 30 and 40) would likely be wasting money by overpaying student loans which would be forgiven after 25 years anyway.

You don't get a choice, its taken out of your payroll assuming you earn more than £25k a year.

shelivesthedream

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Re: Basic investment advice for UK beginners.
« Reply #10 on: July 30, 2017, 02:24:30 PM »
However, I think student loans need a mention as it's very different to the US! Even as a debt-hater, I don't think one should pay more than than the minimum on UK student loans unless you have completed all of the other steps in the investment ladder.

I agree with this wholeheartedly.  Someone planning a truly mustachian retirement (between say 30 and 40) would likely be wasting money by overpaying student loans which would be forgiven after 25 years anyway.

You don't get a choice, its taken out of your payroll assuming you earn more than £25k a year.

No, the MINIMUM is taken out of your payroll. You can absolutely ring up the SLC and make additional payments if you want to. I'm saying you shouldn't exercise that option which is available to you (in contrast to the US advice about paying off their student loans quickly).

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #11 on: July 31, 2017, 12:27:09 AM »
Doesn't this depend to some extent on personal circumstances? Three months salary seems like a huge chunk of money to me - it would be more than enough to replace my car and all of our household appliances. We don't typically have to worry about unexpected medical or legal bills here, nor worry about being made homeless after losing a job. Enough money saved to be able to cope with a car accident, or something breaking or home repairs seems like a reasonable position?
I think the OP is referring to actual costs (expenses) over three months rather than income (salary). If it only takes you a month to accrue that much, then all the better.

A rule of thumb for an emergency fund that I like is "one month of expenses saved for every percent of the unemployment rate" because it reflects how long it might take to find a new comparable income source in the event of a layoff.

Yes, I'm specifically talking about expenses, and I've said "to your liking" because I agree that there is more judgment to be made in the UK. I also dislike e-fund guidelines that are based on income.  I still like three month's expenses for someone with a mortgage, because IMO the risk of getting mortgage arrears and paying at higher rates forever or losing a home is worthwhile paying a premium of low growth or losses against inflation.

Comments?

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #12 on: July 31, 2017, 12:43:47 AM »
I know this is supposed to be very basic, but would it be worth having two investment paths mapped out? The "standard" one and the "low risk, debt-averse" one? However, I think student loans need a mention as it's very different to the US! Even as a debt-hater, I don't think one should pay more than than the minimum on UK student loans unless you have completed all of the other steps in the investment ladder, and even then only if you really want to. In terms of other debt, I think it would be helpful to put some numbers on a high and low interest rate for noobs. (Having never had any debt other than student loans, I have no idea!)

Yes! This is a great idea.

It might seem a bit alien to some of the more experienced or more established posters, but this highlights one of the key things that newbies find challenging and scary when they start sorting their shit out.

Would you suggest wiping the mortgage asap, or splitting excess income equally between an ISA and mortgage overpayments? I feel strongly that getting an employer's pension match should go before paying off a mortgage because it is "use it or lose it".

For the non-debt-averse I think of very low interest as below inflation (say 2% at the moment), low interest as below my pessimistic growth estimate which is 4%, high interest as above ~8% and very high interest above ~12%. Do other people have different or simpler rules of thumb?

shelivesthedream

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Re: Basic investment advice for UK beginners.
« Reply #13 on: July 31, 2017, 03:08:37 AM »
If the thought of being in debt stops you sleeping at night or you'd rather have a sure thing than the chance of a big win, here is an alternative investment plan. However, you should know that although the returns will be safer, they will almost certainly be lower than the standard plan.

Save one month's expenses in a current or instant-access high-interest savings account. [This will weather any problems like car repairs, unexpected bills, payroll problems, etc. You should be able to get hold of the money at any time. Note that it is one month of expenses, not income.]

Pay off high-interest debt. [Guaranteeing that you won't have to make those future interest payments! Compounding works both ways.]

Save a six-month emergency fund. [This could be in something slightly harder to get at, such as premium bonds or a notice account, but should not be in stocks and shares. If you lose your job or have to stop working temporarily, you will have six months of expenses saved before you run out of money, giving you time to either find another job or arrange to draw down your other investments.]

If you are under 40 and want to buy a home, max out the LISA allowance, investing in index funds. [You get a guaranteed match from the government in addition to the tax benefits of saving in an ISA. If you don't want to buy a home but are not interested in very early retirement, you may want to do this anyway as you still get the match and can access it at pension age.]

Contribute to your workplace pension up to the employer match. [The match is guaranteed additional money!]

Pay off lower-interest consumer debt. [Excluding mortgage and student loans.]

Now that you're debt-free apart from your mortgage and student loans, sit down and have a chat with yourself about your feelings about debt and your plans for retirement.

If you:
a) get cold sweats at the thought of  your mortgage, pay it off. Then invest in a SIPP first if you're aiming for a traditional retirement and an ISA first if you're aiming for an early retirement.
b) feel slightly apprehensive about your mortgage but kind of OK about it, put half your extra cash towards your mortgage and half in a SIPP first if you're aiming for a traditional retirement and an ISA first if you're aiming for an early retirement.
c) feel totally blasé about your mortgage and regard it as healthy debt, put all your extra cash in a SIPP first if you're aiming for a traditional retirement and an ISA first if you're aiming for an early retirement.

If you have such a vast firehose of cash that you've maxed out your workplace pension, your ISA, your SIPP and paid off all your consumer debt and your mortgage, invest in taxable accounts or rental property, depending on your interests and area. Only at this stage, even for the highly debt-averse, should you even consider making additional payments towards your students loans. Interest rates will always be minimal, repayments are linked to income, and they will be forgiven after 25 years. You should only think about paying them off before now if you are literally crying yourself to sleep over them every night.

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #14 on: July 31, 2017, 04:03:17 AM »
Great stuff SLTD!!

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #15 on: August 24, 2017, 11:02:05 AM »
I found this blog post as well, I don't love everything about it, but it I like the thought process and think bits of it could be useful. I especially like the idea of explicitly saying that if newcomers haven't been tracking or monitoring their expenses, they should get on that.

Quote
What are your life goals?
Habit 2# of the 7 Habits by Stephen Covey: Begin with the end in mind. To be effective with your money, you need to know what you want to achieve in life. Is it to retire at 65/60/55? Do you want to live in a bungalow/terrence/mansion? Do you want to drive a ferrari/BMW or a nifty Fiesta? How many kids are you going to have, how many holidays are you going to have in a year etc… You get the picture.
You need to have a vision of what is going to happen in your future to know how to effectively manage your money and not put your money in inapproprate risky investments that might not provide a reliable return.
A different version to this question is ‘What do you need in your life to make yourself happy?‘ because the only logical pursuit in life is happiness.

What is your cashflow like on a monthly basis/yearly basis?
Monthly Earnings (Income) vs Expenses (Outgoings)
There are various ways to monitor this; ie. budgeting, spreadsheets, tracking all spending on one card
I do this very simplistically by tracking my monthly ‘Cash Worth‘ and tracking on Net increase/decrease of Cash Worth on a monthly basis. I can also figure out my savings rate from this.

Kwill

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Re: Basic investment advice for UK beginners.
« Reply #16 on: September 09, 2017, 05:22:16 PM »
Posting to follow. I need to work out (or find) a path for US citizens in the UK since the interaction of the two sets of laws is potentially complicated.

Butterfingers

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Re: Basic investment advice for UK beginners.
« Reply #17 on: October 09, 2017, 06:12:53 AM »
Someone on Reddit put together a flow chart:

https://imgur.com/a/CeXc5

It's not Mustachian in every dimension, but it's a good place to start and would offer an improvement on what 95% of people are currently doing about their financial situation.

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #18 on: October 09, 2017, 06:27:48 AM »
Great find Butterfingers!

I'll look into tweaking this for our needs. I think we need less focus on the first stages (paying critical bills) and more on the lower stages.

I strongly disagree with only stopping pensions at the £1M or £40k/y limit (for a start, if you are a way out, you could stop at £1m and then bust right through the limit with very modest growth). Or find that you have an unanticipated expense come up and find yourself homeless and destitute with a £1M pension pot that you can't touch.

A chart will probably make it easier to highlight alternative paths too (like having a breakaway path for low risk tolerance).

Butterfingers

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Re: Basic investment advice for UK beginners.
« Reply #19 on: October 09, 2017, 07:45:38 AM »
I strongly disagree with only stopping pensions at the £1M or £40k/y limit (for a start, if you are a way out, you could stop at £1m and then bust right through the limit with very modest growth). Or find that you have an unanticipated expense come up and find yourself homeless and destitute with a £1M pension pot that you can't touch.
I'm with you on that. Aside from the risks you outline – going over the LTA or being destitute for a few years until your pension arrives – there's the issue of overkill. If I have a million quid in my pension it means I will have worked too damned long to get there. £350k in my pension will be plenty for me (with some in ISAs too).

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #20 on: October 09, 2017, 07:49:01 AM »
I strongly disagree with only stopping pensions at the £1M or £40k/y limit (for a start, if you are a way out, you could stop at £1m and then bust right through the limit with very modest growth). Or find that you have an unanticipated expense come up and find yourself homeless and destitute with a £1M pension pot that you can't touch.
I'm with you on that. Aside from the risks you outline – going over the LTA or being destitute for a few years until your pension arrives – there's the issue of overkill. If I have a million quid in my pension it means I will have worked too damned long to get there. £350k in my pension will be plenty for me (with some in ISAs too).

The horror! Agreed.

dreams_and_discoveries

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Re: Basic investment advice for UK beginners.
« Reply #21 on: October 09, 2017, 12:27:44 PM »
Yeah, surely I'm not the only one with a spreadsheet modelling when to stop pension contributions?

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #22 on: October 10, 2017, 12:42:52 AM »
Yeah, surely I'm not the only one with a spreadsheet modelling when to stop pension contributions?

I have many spreadsheets modelling slightly different variations to this exact question. I don't know the precise answer but it is well before I'm in danger of having a million pounds in there.

skip207

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Re: Basic investment advice for UK beginners.
« Reply #23 on: October 10, 2017, 04:39:00 AM »
I plan to stop around 2022 when I FIRE for no other reason than I wont have the income.
However from my simulations from roughly that point it wont make an major difference if I pay in or not for an extra few years so that's one of the reasons I brought my FIRE date forward from 2025 to 22. 



dreams_and_discoveries

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Re: Basic investment advice for UK beginners.
« Reply #24 on: October 13, 2017, 06:51:12 AM »
Yeah, surely I'm not the only one with a spreadsheet modelling when to stop pension contributions?

I have many spreadsheets modelling slightly different variations to this exact question. I don't know the precise answer but it is well before I'm in danger of having a million pounds in there.


Snap - my main desire is to not run out of non-retirement funds, it's a shame that pension contributions are so tax efficient and I won't take full advantage...

shelivesthedream

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Re: Basic investment advice for UK beginners.
« Reply #25 on: October 13, 2017, 08:24:47 AM »
Can we pin this thread to the top of the U.K. Tax Discussion section? I don't know how one effects such a thing.

Slow road to freedom

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Re: Basic investment advice for UK beginners.
« Reply #26 on: October 15, 2017, 03:09:54 AM »
PTF.
I like the idea of different decision trees for different risk appetites.
I also like the focus of not working for longer than I need to... good thread 😊
I really want to do things other than work... :-)

never give up

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Re: Basic investment advice for UK beginners.
« Reply #27 on: October 29, 2017, 04:50:25 AM »
Wow what an amazing thread. It makes me sad to think only a maximum of 2173 people have seen it. There is information in here that is of a far higher quality than a lot of very expensive financial advisers would provide.

I’m new to the FIRE concept and have come at this over the last week or so completely fresh. My take on this process is documented in the ‘Too cautious UK FI wannabe in compound interest balls up’ thread in the Ask a mustachian forum, so I won’t repeat that here.

However I found budget and costs are crucial. It’s impossible to plan almost anything to do with debt repayment, pensions, ISA’s etc without having a very firm grasp of expenses. So I would say the first step on this path is definitely to understand what’s going out every month swiftly followed by whatever reductions are possible in each category.

With regards to the high priority emergency fund I guess it would be good to have options here for people. I don’t tend to look at car repairs, the odd plumbing, electrical piece of maintenance as an emergency in that I believe they are inevitable. So I budget in car and home maintenance saving pots for these items each year. The pots grow and they take a hit when needed. So I tend to view an emergency fund as “Arghhh I’ve lost my job, oh no it’s ok I have x months worth of living expenses covered”. Plus hopefully some redundancy too so I don’t have to rush and take the job from hell.

As a result people’s emergency funds may differ in size quite considerably depending on the persons cautious/worry free nature and what they define as an emergency. So I guess emergency funds have a few different options:

1. For anyone that has a smaller emergency fund in mind I guess a high interest current account is perfect?

2. For someone with a larger sum in mind I guess something like a 2 or 3 year cash ISA fix could be useful. Just take the interest hit on accessing it early if it needs to be called upon?

3. Some of the lowest risk funds e.g. vanguard-uk-short-term-investment-grade-bond-index-fund could be used I guess although I don’t know how low risk these are. Does anyone know how much it’s possible for a fund like this to lose in a year worst case? Anyone using a fund like this for this EF purpose?

4. I think someone mentioned premium bonds could be a good option for an emergency fund.

Do others use any other vehicles for their emergency fund? I’m currently using option 2.

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #28 on: October 29, 2017, 11:58:08 PM »
To me, the ISA allowance is too useful to 'waste' on a cash e-fund. I think it could be useful when you are getting started (especially as there is the barrier of knowing that if you do take the money out of the ISA then you lose the allowance (give or take flexible ISAs)). You can switch the cash ISA to an S&S ISA at a later date.

Having a high savings rate and long notice period is also a good e-fund option in the UK (doesn't work in the US as you can seemingly be fired almost immediately for almost anything). If you have made your peace with debt then a credit card can be helpful for cash flow.

The features that I like in an e-fund are:
A mental barrier to taking out the money
Sufficiently stable so that the value won't crash immediately before you need it.
Not being demolished by inflation
Available if your main current account isn't (so at a different bank - this is a different thing to an e-fund, but it can do two jobs)

I use those regular saver accounts, you set up an SO every month, and after a year, you'll get ~4% interest as a lump sum. If you withdraw it early you get nothing (I consider this a positive feature, because it reduces the temptation to touch it, even though if I had perfect self control it would be a negative feature). Start a new one every quarter or so and when they mature pop the lump sum into investments. The downside is that this takes a lot more management than just having a savings account.

However I found budget and costs are crucial. It’s impossible to plan almost anything to do with debt repayment, pensions, ISA’s etc without having a very firm grasp of expenses. So I would say the first step on this path is definitely to understand what’s going out every month swiftly followed by whatever reductions are possible in each category.

This is a really good point, I'll add it in for the next update. Even a few years into my journey, I'm still finding surprises when I go through my actual spending and compare it to my budget. It's so important to stay on top of expenses and be honest about them (if you are going out every week for "special occasions", they aren't one-offs, they are weekly spending).

MmatoO

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Re: Basic investment advice for UK beginners.
« Reply #29 on: November 18, 2017, 05:51:47 AM »
Out of interest, are we all relying on state pension/winter fuel payment/savings credit/...?
For those of you who plan to retire overseas/plan to travel extensively, have you looked at eligibility of this? Does 'permanent resident' status automatically warrant state pension/...?

You'll USUALLY need at least 10 qualifying years on your National Insurance record to get any State Pension - has anyone asked around re exclusions, additional clarifications on 'usually'? Also, what is the value of the State Pension if below 30 qualifying years?
I assume everybody/nobody is planning to make voluntary contributions to get to 30 qualifying years?

These benefits obviously make a difference when planning you target FI(RE) values of ISA (up to 55 years + helpful top up after), SIPP (from 55 to 65 + helpful top up after 65).
Haha, I can't believe I have a journal!

cerat0n1a

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Re: Basic investment advice for UK beginners.
« Reply #30 on: November 18, 2017, 01:43:08 PM »
Out of interest, are we all relying on state pension/winter fuel payment/savings credit/...?
For those of you who plan to retire overseas/plan to travel extensively, have you looked at eligibility of this? Does 'permanent resident' status automatically warrant state pension/...?

You'll USUALLY need at least 10 qualifying years on your National Insurance record to get any State Pension - has anyone asked around re exclusions, additional clarifications on 'usually'? Also, what is the value of the State Pension if below 30 qualifying years?
I assume everybody/nobody is planning to make voluntary contributions to get to 30 qualifying years?

The answers to a lot of these things depend somewhat on age, as the rules have changed over time, also potentially whether you opted out of SERPS in the past. If you have a login for the government gateway website, you can get it to tell you how many years of NI you've paid (UK residents get credit for time in education) and how much your projected state pension will be. For some people, the voluntary contributions are a decent investment, for others who already have the full 35 years, there is nothing gained by paying more.

There's a pretty decent guide here: https://www.moneysavingexpert.com/savings/state-pensions

MmatoO

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Re: Basic investment advice for UK beginners.
« Reply #31 on: November 19, 2017, 03:41:32 AM »
Haha, I can't believe I have a journal!

dreams_and_discoveries

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Re: Basic investment advice for UK beginners.
« Reply #32 on: November 19, 2017, 08:55:59 AM »
My model includes state pension, and I'm hoping it's still there in some form when I get to state retirement age!

But to be honest it will just be the cherry on the cake, i.e. allow me to go on more cruises as opposed to being a critical part of my budget; taking it out still leaves me plenty of funds in my dotage.

According to their website, I've already got 21 years of full contributions which gives me a £114 a week state pension. I plan to work for 3 more years, and will probably trail some income into the next tax year, giving me 25 years of full contributions.

My plan is then to take off around the world and see what happens, I will keep an eye on my pension forecasts, and if I don't think I'll be working in the UK for another 10 years I'll do the maths on paying extra contributions to get more pension.. given the £114 vs £159 now, I'm not sure it will be worth it with 4 years more contributions. 

And if Jeremy gets in, who know what he'll do to state pensions.

MmatoO

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Re: Basic investment advice for UK beginners.
« Reply #33 on: November 19, 2017, 09:43:50 AM »
Ah, well, I'm closing in on 5yrs :D EU national and all.
Another 5 to get to ~£45/week haha
And I don't really believe I'll need more than another 10yrs or so to FIRE, which would unfortunately only be ~£68/week.

But thanks to that guide, now I at least know where I am :) So let's make that 11 or 12yrs.
Haha, I can't believe I have a journal!

Playing with Fire UK

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Re: Basic investment advice for UK beginners.
« Reply #34 on: November 21, 2017, 04:32:02 AM »
Adding Monevator's comparison tool in here. It's great for seeing which broker is likely to be cheapest for your buying pattern.

Manchester

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Re: Basic investment advice for UK beginners.
« Reply #35 on: January 15, 2018, 06:44:43 AM »
Hi everyone, I could do with some advice from people wiser and more clued up than myself.

I've started on the path to FIRE.  I'm 24, I've not set a retirement goal yet as I'm so far away, my plan is to do as much as possible now and see where I am in a few years time.  I want to start investing, but I want to do it properly.

I've had a look at Vanguard UK's index funds which seem alright.  I wonder if there are any other companies or particular funds you would recommend for someone like me to use?

Realistically I'd be able to put down £500 initially, then invest a minimum of £250 per month moving forward. 

My brother invests in P2P but Index funds seem like the way to go for me.




MarcherLady

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Re: Basic investment advice for UK beginners.
« Reply #36 on: January 15, 2018, 10:10:06 AM »
Manchester, probably the first thing to think about is the investment vehicle - that will impact what funds you can invest in. 

So - are you looking at an ISA? A SIPP?  Or an investment account?  Based on what you've told us here I'd recommend a S&S ISA.

Then work out who you want to use as the provider of that vehicle:  The link PWFUK posted above is great for thinking about who you want to use based on fees, frequency of trading and likely portfolio valuation. 

Then think about your risk appetite - are you happy to go 100% equities, or do you want a Bond buffer? Real estate? 
Work out our asset allocation - 100% UK or a mixture?

Once you have those questions answered, you should be able to check what funds your provider will trade in for your account.  Vanguard ETFs are a pretty good bet, but also have a look at Fidelity - I hear their fees are comparable with Vanguard, though I 'm not sure how widely they are available in the UK. 
One step at a time  ARS says I'm FI.  I'm still coming round to the idea.

Target FIRE: 10/10/2020, but I hang out with the 2021 Cohort

never give up

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Re: Basic investment advice for UK beginners.
« Reply #37 on: January 15, 2018, 10:25:28 AM »
Yep good advice from MarcherLady there. Vanguard are good and are spoken about on here a lot. Fidelity have always seemed very good to me. You don't have to use Fidelity's funds, they are a supermarket of providers so you have a wide choice. Hargreaves are similar to Fidelity but seem more expensive but again they have been mentioned on here.

Going into tax year end there will start to be loads of articles on ISA's in newspapers/websites etc and likely comparison tables between the providers. Worth checking out in your situation Manchester.

As MarcherLady said then have a good think about asset allocation and geographical allocation too. What your timeframe is here for needing to access the funds is probably the most important consideration. If its your FIRE fund then that's a lot different than house/deposit or mortgage pay down in less than 10 years. (Although investing versus mortgage pay down is a whole topic in itself and there are loads of threads on here on such matters.)

If that all sounds complicated Vanguards LifeStrategy funds give you an instant fully diversified portfolio. You just need to work out your Stocks/Bond split.

Manchester

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Re: Basic investment advice for UK beginners.
« Reply #38 on: January 17, 2018, 03:05:23 AM »
Manchester, probably the first thing to think about is the investment vehicle - that will impact what funds you can invest in. 

So - are you looking at an ISA? A SIPP?  Or an investment account?  Based on what you've told us here I'd recommend a S&S ISA.

Then work out who you want to use as the provider of that vehicle:  The link PWFUK posted above is great for thinking about who you want to use based on fees, frequency of trading and likely portfolio valuation. 

Then think about your risk appetite - are you happy to go 100% equities, or do you want a Bond buffer? Real estate? 
Work out our asset allocation - 100% UK or a mixture?

Once you have those questions answered, you should be able to check what funds your provider will trade in for your account.  Vanguard ETFs are a pretty good bet, but also have a look at Fidelity - I hear their fees are comparable with Vanguard, though I 'm not sure how widely they are available in the UK.

Thanks for getting back to me. 

I'm going to do a bit of reading on the various points.  Currently my decisions would be:

I want to start off investing in an ISA.  I have a company pension, there's a small possibility there will still be a state pension and the nature of my business means I'll most likely be able to draw a 'lifetime salary' (which reduces my need for a SIPP buffer later in life?).

I'm happy with 100% equities to start off.  High risk, high reward!  I have around £70k equity in my house as well so my asset allocation is diversified slightly (although I understand a house you live in means very little in investment terms).  I'd also prefer trading in Global and European markets (including Britain).  The idea of an index fund is to spread risk IMO, I'd argue that investing in one country makes the index fund more volatile (wars/politics/natural disasters etc).

Thanks again.

Manchester

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Re: Basic investment advice for UK beginners.
« Reply #39 on: January 17, 2018, 03:39:47 AM »
Yep good advice from MarcherLady there. Vanguard are good and are spoken about on here a lot. Fidelity have always seemed very good to me. You don't have to use Fidelity's funds, they are a supermarket of providers so you have a wide choice. Hargreaves are similar to Fidelity but seem more expensive but again they have been mentioned on here.

Going into tax year end there will start to be loads of articles on ISA's in newspapers/websites etc and likely comparison tables between the providers. Worth checking out in your situation Manchester.

As MarcherLady said then have a good think about asset allocation and geographical allocation too. What your timeframe is here for needing to access the funds is probably the most important consideration. If its your FIRE fund then that's a lot different than house/deposit or mortgage pay down in less than 10 years. (Although investing versus mortgage pay down is a whole topic in itself and there are loads of threads on here on such matters.)

If that all sounds complicated Vanguards LifeStrategy funds give you an instant fully diversified portfolio. You just need to work out your Stocks/Bond split.

Thanks for replying.  I've had a look on Fidelity, it's a really helpful website.  There are so many different sites out there so it's nice to have them in one place.  I'll keep an eye out for the articles.  I read about them most days but unfortunately I can read and read information and struggle to comprehend it or take it in - I've decided the best way to combat this is to sign up to this forum and ask questions in a like minded community.  People like yourself and MarcherLady really help me remain motivated!


I've been the proud owner of my home for a couple of years now.  She is more risk averse than myself.  We pay bills 50/50 but our money is kept seperate.  I've told her she can use her spare money to pay down the mortgage and I'll use mine to invest, so we'll burn the candle from both ends.  My ideal retirement would involve lots of travelling so I'd most probably sell my home or rent it out when I'm FI.

poppydog

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Re: Basic investment advice for UK beginners.
« Reply #40 on: January 17, 2018, 06:55:40 AM »
With regards to the state pension, you may find Mrs PD and my approach of interest.  When we retire this April I will be 63 and she will be just a month or two shy of 60.  We will both get the state pension from 66.  We've both had forecasts from the government.

My plan has been to save a pot of money (virtually) separated from our main FIRE pot, to pay ourselves the equavalent after tax amount of the state pension from this pot until we receive it.  I've worked out this pot will need about £57K for us but this approach will allow us to move smoothly from our pre-state pension to the post-state pension phases of our retirement without any significant variation in income.

carasel

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Re: Basic investment advice for UK beginners.
« Reply #41 on: January 17, 2018, 07:08:20 AM »
Does anyone perceive a danger in starting investing so soon before Brexit? I realise that for those of you already invested any losses just mean cheaper shares and it'll go up again eventually, but it seems more risky to buy my first shares when people seem to be expecting the economy to take a hit soon. Might it be better to wait and start then or is it always better to just start ASAP and ride out any problems?

As a background I currently have my savings in a 2016 cash ISA (£29k getting 1%), so would have to transfer the full balance to a S&S ISA. I'm considering the 80% equity Vanguard Lifestrategy. I also have £5k more in a normal savings account getting 5%, and a mortgage, but it's only 1.75% so I'm leaving those alone. My husband also has a low interest cash ISA with a few grand in, so we have a good emergency fund. We're 28 and have a baby, so I guess I'm a little risk averse.

cerat0n1a

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Re: Basic investment advice for UK beginners.
« Reply #42 on: January 17, 2018, 07:31:32 AM »
Does anyone perceive a danger in starting investing so soon before Brexit? I realise that for those of you already invested any losses just mean cheaper shares and it'll go up again eventually, but it seems more risky to buy my first shares when people seem to be expecting the economy to take a hit soon. Might it be better to wait and start then or is it always better to just start ASAP and ride out any problems?

The stock market already knows about Brexit - the current price of shares in each company represents the consensus view of what is going to happen. Individual pieces of news will still make prices go up and down of course but a certain probably of say, exiting with no deal, is already factored in.

The Vanguard Equity Lifestrategy 80 isn't only investing in the UK (although it does have rather more UK bias than I would like.) It holds a mix of world and UK shares and a similar mix of world and UK corporate and government bonds. Even within the UK part of the holdings, it's the case that 65-70% of FTSE-100 earnings are made overseas. So the main effect of Brexit on many of our leading shares is through the pound going down (making those shares go up) or the pound going up (making earnings in US$ correspondingly less valuable.) Those of us who had investments outside the UK before the referendum have done very well (in pound terms) as as result.

So while Brexit may be bad for the UK economy, it doesn't follow that it will be bad for the price of your Vanguard fund - it could well move in the opposite way.

poppydog

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Re: Basic investment advice for UK beginners.
« Reply #43 on: January 17, 2018, 08:17:19 AM »
Carasel - at your age (28) any Brexit downside (or upside - no-one knows) will barely show as a blip on the growth of your lifetime of investments over the years.

Vanguard Lifestrategy 80/20 is a perfectly good investment vehicle I think.
« Last Edit: January 17, 2018, 09:12:51 AM by poppydog »

londonstache

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Re: Basic investment advice for UK beginners.
« Reply #44 on: January 17, 2018, 09:37:43 AM »
Does anyone perceive a danger in starting investing so soon before Brexit? I realise that for those of you already invested any losses just mean cheaper shares and it'll go up again eventually, but it seems more risky to buy my first shares when people seem to be expecting the economy to take a hit soon. Might it be better to wait and start then or is it always better to just start ASAP and ride out any problems?

As a background I currently have my savings in a 2016 cash ISA (£29k getting 1%), so would have to transfer the full balance to a S&S ISA. I'm considering the 80% equity Vanguard Lifestrategy. I also have £5k more in a normal savings account getting 5%, and a mortgage, but it's only 1.75% so I'm leaving those alone. My husband also has a low interest cash ISA with a few grand in, so we have a good emergency fund. We're 28 and have a baby, so I guess I'm a little risk averse.

Just a quick note to say £29k in an ISA is an excellent start, particularly given the mortgage and baby. Well done!
I'm all in Lifestrategy 80% for my S&S ISA. By far the biggest advantage is how 'boring' it is - no rebalancing, no other funds, no work. Only decision is how much to contribute each year.

MmatoO

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Re: Basic investment advice for UK beginners.
« Reply #45 on: January 17, 2018, 11:02:42 AM »
I must admit I don't understand the fascination with Lifestrategy funds.

Wouldn't it be better to split it into three or four funds that better follow their particular index, that allow you to better manage your exposure (e.g. to better capture the world economy) and are also cheaper? Say:
- Fidelity World (0.15% cheaper, 93.4% R-squared and 1.10 Beta),
- Fidelity Emerging Markets (not part of Lifestrategy, 96.72% R-squared, 1.02 Beta),
- HSBC European (0.20% cheaper, 93.54% R-squared, 1.00 Beta) and
- HSBC FTSE 250 (0.09% cheaper, 94.80% R-squared, 1.00 Beta)...
Haha, I can't believe I have a journal!

cerat0n1a

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Re: Basic investment advice for UK beginners.
« Reply #46 on: January 17, 2018, 01:20:30 PM »
I must admit I don't understand the fascination with Lifestrategy funds.

The thing is, it's simple, very cheap and replicates what most people want from a portfolio. You pick an asset allocation and stick with for decades without having to make any decisions. That's what works best.

You're comfortable with selecting and allocating between multiple funds and quoting beta values etc. Not everyone is. Additionally, the rebalancing is done for you with Lifestrategy (and potentially the slightly lower charges from holding multiple funds are outweighted by trading costs necessary for rebalancing?)

Personally, I hold 7 different Vanguard ETFs, for the reasons you give, but if I was in my 20s and just starting out, I'd stick to Lifestrategy 80.

poppydog

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Re: Basic investment advice for UK beginners.
« Reply #47 on: January 18, 2018, 03:54:02 AM »
I must admit I don't understand the fascination with Lifestrategy funds.

The thing is, it's simple, very cheap and replicates what most people want from a portfolio. You pick an asset allocation and stick with for decades without having to make any decisions. That's what works best.

You're comfortable with selecting and allocating between multiple funds and quoting beta values etc. Not everyone is. Additionally, the rebalancing is done for you with Lifestrategy (and potentially the slightly lower charges from holding multiple funds are outweighted by trading costs necessary for rebalancing?)

Personally, I hold 7 different Vanguard ETFs, for the reasons you give, but if I was in my 20s and just starting out, I'd stick to Lifestrategy 80.

+1.  Excellent advice for the OP I think.

londonstache

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Re: Basic investment advice for UK beginners.
« Reply #48 on: January 18, 2018, 04:36:12 AM »
I must admit I don't understand the fascination with Lifestrategy funds.

Personally, I hold 7 different Vanguard ETFs, for the reasons you give, but if I was in my 20s and just starting out, I'd stick to Lifestrategy 80.

+1.  Excellent advice for the OP I think.

+1 from me too. Also from what I understand behavioural factors are one of the primary reasons people miss out and I would be potentially prone to the temptation to 'hold on' to a fund that was performing rather than rebalancing frequently, letting my allocation drift. LS is set and forget.

never give up

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Re: Basic investment advice for UK beginners.
« Reply #49 on: January 18, 2018, 10:58:59 AM »
Yes each to their own. If the LifeStrategy funds had a 1.5% charge I could understand the criticism but for not a lot more than the other funds quoted investors benefit from both stock/bond rebalancing and geographical rebalancing. They are also exceptionally well diversified in just a single fund.

For anyone that doesn’t know much about investing and who otherwise may be put off by terminology of worrying how to rebalance manually (so much so they may give up and just stick to cash) the LifeStrategy funds or funds like them, are excellent.

You can make it slightly more complicated by choosing two funds, a world index tracker and a bond fund at Vanguard or anywhere else. Some world trackers exclude the UK so may need a third fund (a UK tracker) to compliment the world fund. This gives the advantage of choosing your UK allocation but again may be a complication someone does or doesn’t want.

If I could go back to when I was 24 as Manchester is now, doing any of these would have been better than just saving in cash accounts for a house. So congrats for looking into it and investing properly from a young age.