Author Topic: [UK] Max out ISA?  (Read 344 times)

Mustachian Panda

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[UK] Max out ISA?
« on: September 09, 2019, 03:24:19 AM »
Hi everyone,

I have been reading for a while the forum but first time posting.

I would like your advice in regards to ISAs in the UK. I am currently in a very fortunate position where I can (if setting a mildly aggressive target) max out my ISA before fiscal year-end. This would mean moving my emergency funds to the ISA (I just opened a VG Life Strategy 100) and allocating a significant part of my salary and bonus to this account monthly.

Questions:

- Should I move my emergency fund? Both my partner and I have a well-paid salary and are in very hot professions at the moment (IT). Also, my company has been recently acquired and even though this is a matter of concern to most, this actually was good for me, since I got a retention bonus still to be paid out, which means it is likely they won't let me go (albeit not guaranteed) due to redundancy. Even if that was the case, I am confident I would get another job quite quickly, which, even if worse paid, would just mean smaller saving rating but not really impacting on the bills payment (we are also downsizing and recently paid off our debt, so one salary could keep us going for a while with minor lifestyle tweaks)

- My partner is concerned that maxing out my ISA would mean allocating too many resources too quickly to the Index Fund, which would be severely impacted in case of a recession, I believe. My plan is to make the contributions monthly or weekly/bi-weekly thus averaging out this risk, but he (as the good risk-averse person that he is) still thinks it shouldn't be done, bearing in mind this would mean me putting away my emergency fund (he has his own).

I wanted to know from you what would you do? Keep the emergency funds or take the opportunity to max out my ISA this year and work next year to have a more robust emergency fund plus working towards maxing out the ISA at the same time from earlier in the year?

PS: I already contribute to max matched % on my pension fund if it makes a difference.

Thank you in advance for your help.

vand

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Re: [UK] Max out ISA?
« Reply #1 on: September 09, 2019, 03:51:53 AM »
Hi Panda, you may want to scoot over to the UK Tax forum (which is really just the main UK forum) where there is lots of good advice.

My own view is that you should not prioritize an ISA over a traditional pension/SIPP as the latter still has the edge under a "traditional" retirement scenario. Traditional retirement is a subset of early retirement, so an ISA is a good wrapper to hold the non-traditional part of your portfolio in, but not at the expense of the traditional part. You "build from the back" forwards.

Here is a good article:
https://monevator.com/sipps-vs-isas-best-pension-vehicle/

Emergency fund money is what the name implies, and you should keep it separate from your investment accounts. Cash is what allows you to invest the rest of your money as you see fit, and in my opinion the #1 mistake I see in most people make in investing is always thinking they must put every penny to work immediately and underestimating the benefits of holding cash.

Also if you are qualifying age then I would rate a LISA above both ISA and pension, as it is the only end to end tax-free wrapper under certain conditions, but it does not have the same regulatory benefits as a pension so don't put all your eggs in that basket (which in any case is only up to 4k/year)
« Last Edit: September 09, 2019, 03:54:37 AM by vand »

Mustachian Panda

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Re: [UK] Max out ISA?
« Reply #2 on: September 09, 2019, 04:03:34 AM »
Hi Panda, you may want to scoot over to the UK Tax forum (which is really just the main UK forum) where there is lots of good advice.

My own view is that you should not prioritize an ISA over a traditional pension/SIPP as the latter still has the edge under a "traditional" retirement scenario. Traditional retirement is a subset of early retirement, so an ISA is a good wrapper to hold the non-traditional part of your portfolio in, but not at the expense of the traditional part. You "build from the back" forwards.

Here is a good article:
https://monevator.com/sipps-vs-isas-best-pension-vehicle/

Emergency fund money is what the name implies, and you should keep it separate from your investment accounts. Cash is what allows you to invest the rest of your money as you see fit, and in my opinion the #1 mistake I see in most people make in investing is always thinking they must put every penny to work immediately and underestimating the benefits of holding cash.

Thanks Vand,

I thought of posting it there but as it was "Tax discussion" forum, I thought this section was more appropriate. My pension is currently being contributed to the max of the matching but doesn't get to the 40K max per year.

I will take a look into the site you mentioned in your post.

And in regards to a LISA, I am 32 and will take a look into that. Both my partner and I are European citizens and unsure if we will remain in the UK for the long term, so buying a house here is not in our immediate goals (unless the help to buy works for other European countries?).

Thank you for your reply.
« Last Edit: September 09, 2019, 04:09:44 AM by Mustachian Panda »