The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: johnsmith on May 25, 2013, 02:36:52 AM
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Many thanks for reading, This forum has been of immense help already.
I am about to turn 25, and am secondary school teacher living in London looking for advice on how to invest, budget, save.
Earnings -£1800 pm - after tax, student loan deduction(this works like a tax in UK) and Defined benefit pension.
Outgoings (I live with gf, so we split everything and the costs below are solely mine )
- Rent - 650 pm
- food -150pm
-electric,gas,water - 25pm
-council tax - 50pm
-motorbike,petrol, insurance - 30pm (for weekends,shopping once or twice a week, its very old 1995 CB500)
-internet - £25pm (I pay for my dad's also)
-phone - 31pm (contract ends in September, will move to £10)
- fun,going out,clothes - £130 pm
£700 left over for savings each month.
Savings
£15,000 - Tax free high interest savings account earning 4.10% (fixed until May2014, product no longer available)
£5,600 - tax free interest savings account earning 2%
£3,700 - normal savings account - 0.1 % interest (figuring out what to do with this)
Cash for day to day - in current account £1200
This is all really to save for a deposit on a house. London prices are high. Hoping to raise £25k each with gf to buy next year when the fixed interest ends.
Investments
£1100 - In stocks and shares tax free accounts (low cost trackers 0.37% TER UK INDEX and PACIFIC INDEX excl japan)
100oz of silver, 1/2 ounce of gold (physical). (Spot value £2000 - down on when I bought it in August 2012)
One thing I have gathered is I am an awful investor. I bought into the whole end of the dollar scenario and am just thankful I did not do anything silly like 100% silver and gold. I also sold my S&P tracker in November last year, I did'nt loose money but missed out on the massive gains. (Luckily I kept open the UK and pacific tracker and they have done well)
I think what I need to do is pick a vanguard Lifestrategy account in a tax free shelter and just set up a direct debit and forget about it, even re balancing I feel will lead me astray. However I am not sure what bond allocation to go for at my age, or what percentage of my £700 income I should put into it.
Should I sell the current stocks I have and start again with the vanguard fund?
Seeing as I have the pension, this works as career average salary 1/60 accrual rate. So work 30 years and retire on half your average salary for the rest of you life. (pension is to be taken at 65, can be 55 but will be reduced). Does this count as an allocation to bonds?
As you can see I am in a bit of a financial mess and missing a clear direction. I am able to save, I cycle to work and spend very little. My aim is to retire early and be FI.
If you have read this far, thank you very much and any advice you could give would be very welcome.
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Welcome to the forum, johnsmith :-)
You seem to be doing a great job of living on a small amount for London. It looks to me like you are sharing with more than just your girlfriend, given the lowish (for London) rent and council tax amounts? You're also managing to spend less on food than myself.
I don't have any advice regarding what funds to invest in. My IFA has my Stocks & Shares ISA spread across about 10 different funds.
I would think carefully about buying property in London. The capital appreciation can be good but is a bit of a gamble, and rental yields are generally pretty dismal. Are you sure you and your gf want to stay there for at least a decade? And have you worked out what your costs would be compared with renting? I stay in the South East and my partner and I are on fixed term contracts. We are only renting here as it makes no sense to buy in our circumstances. But we do own property further north which we rent out. That might be something for you to consider doing rather than spending £180K+ or so for a tiny London flat, then deciding to move in 5 years time.
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Many thanks for your reply Shandi.
Me and my girlfriend live on our own, in Northwest London. We do ok on rent I suppose(noisy neighbours), but it always annoys me that this is money I am not getting back and is paying off someone else's mortgage. Although I know with a mortgage the wasted money is the interest on the loan.
Ive talked to my partner about moving. I am originally from London, so my friends are all here and it feels like home. However recently i've thought that a move to essex or slightly outside would be a better idea. Food for thought.
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Would you and your GF consider moving even further out of London - say to an international school? I teach at an int'l school in Beijing, and the expat hires are able to save a lot of their salaries. Flats and airfare are included in their packages, etc. If you two are up for a 2-year adventure (or more) abroad, you could definitely save up that 25K and more for investments, while traveling during the holidays.
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Many thanks for the reply
I have thought about it, the middle east looks especially attractive. However my girlfriend has recently got a job in a great school in north London so does not want to move too far away. I am glad you are enjoying Beijing so much, it looks like a great city.
any ideas on investing, saving , allocation from you and other members?
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Ok, here's my take:
1. Don't bother with Ag in the UK, due to tax! Just buy Sovereigns or whatever.
2. DB pension - not sure how much that gets locked in ahead of time (ie, if you only work 10 years as a teacher, do you get 15% of what you would if you worked to retirement?).
3. Investing - oh how I miss the ISA. Open an account with... well, whoever, but I have one with IWeb Sharedealing which is/was Halifax I think. You can do 'regular investing' purchases for £2 a throw.
Then define your asset allocation, bearing in mind:
VUKE - FTSE 100 index tracker
HMCX - FTSE 250 (there is HUKX too which is FTSE 100, but it is marginally more expensive than VUKE)
XESX - STOXX 50 (Eurozone's 50 biggest) which has NO mer at all.
Then throw in a Gilt ETF for fixed income... and then set up direct debit and purchase. Then - literally - forget about it.
If you can, 'max out' your ISA every year. If not, well, £300 a month is a good place to start, IMHO.
In terms of renting - not sure exactly where you are, but there are good train lines in England (I know, I know - you know that). IF you happen to be on a fast line, look 20 miles away from London. For example - Leighton Buzzard (where I happen to have lived, and still own the house there) is 25? minutes to Euston. A little 2 bed house can be rented for under £700 a month. Obviously then you have to add on train fare and it is NOT cheap, but check it out anyway.
The usual advice for bonds/fixed income is your age, so 25%. Perhaps you could buy £100 of gilts, £100 FTSE 100, £100 FTSE250 ('ideally' you want to minimise your commission costs, but the difference between two and three purchases is minimal.. IMHO).
Or if you're happy with the funds, stick at it - I never bought funds (just in my blasted Stakeholder pension which is a pain to move... but I guess it's doing ok). 0.37% is pretty good. I forget what VUKE is - 0.2 or 0.1% I think.
IMHO 'forget about buying in London', at least until a really obvious opportunity presents itself. Just too too expensive. I have a cousin in Loughton (again - good tube links in) which is still expensive, but *actual* London? No way - too much money locked up. But also, I'm not a city guy.
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Enjoying your posts! In the US, I have gained by investing as much as possible in tax free accounts buying financially efficient index funds that pattern the entire market. I also have a pension so it is similar to your current situation. I don't buy metals.
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OP at this point we're not an example for anyone, investment-wise. And many investment strategies are country-specific.
Because we don't live in our home countries and have no plans to do so long-term, my husband and I have struggled with how to invest. Also, our income has fluctuated wildly from year to year, depending on what currency/lifestyle we were going for that year. (This will stabilize in coming years, starting with our next destination.) We come from the UK and US, and currently live in China. We own a small paid-for house in Sicily which we rent during the half-year tourist season, and which provides us with a 2-10% return, depending on what renovations are scheduled for the year. It's a work-in-progress, but eventually we'd like to retire there (or Palermo). We have bank accounts in four countries, and do most of our banking in three currencies.
However, places we're looking at investing: probably Vanguard equivalents in Hong Kong, and options in Singapore if we move there. Also, eventually, a rental property in my husband's chilly beachside hometown in the UK.
Maybe this is helpful, or totally irrelevant for you ;)
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Thankyou for all these replies, they have been of a great help.
It seems that a property has been important for all of you and I think that next year with the help to buy scheme and a decent deposit I should be able to get something decent just outside London, if not I might consider Bristol as an alternative. I admit I enjoy city life and having friends close-by is important .
Investing wise I think I am going to shoot for the stars with a vanguard lifestyle 80-20 fund through an ISA at £450pm. in the knowledge that if in 30 years when it comes to withdrawal and stocks have not proved as successful as in the past, I will still have the decent pension to provide a comfortable retirement,if not an early one.
Again thanks for taking the time to reply,
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Do you read Simple Living in Suffolk? It's a good blog, though the author comes across as a bit cynical. He'd been in a large company for a while before he retired.
Just bear in mind that any easing of purchasing of houses by the government will inevitably have the opposite effect - ie, it will cause the prices of said houses to go up, as the vendors charge more, as the buyers have more cash available. It's one case where first time buyers should get absolutely zero help as it just shoots themselves in the foot. BUT landlords with more than a couple of houses should be taxed properly... IMHO having buy-to-let landlords all over the place is just unfair on people trying to get on the ladder, it just pushes prices up. How you'd do that I don't know - mortgage rates are already higher for BTL, but I guess people with 20, 30 houses can raise finance cheaply.
This wouldn't do me any favours, so don't just think I am biased - house prices need to go down so real people can start buying. Real, British, working people, not multimillionaires or foreign investors. Ah, but protectionism. Tricky.
Anyway. Just a thought.