UK - Investing out of university

[Cache]

Hey guys,

New here (as you can probably tell from my post count!).

A Little about me -

21
Just finished college or 'university' as we say here in the UK, been working for around 8-9 months now.

My salary is decent for a grad that didn't go into banking/law/medicine.


My Dilemma -
Im saving around $1000 a month atm, i've saved a decent chunk, I've read a lot about DGI, especially on SeekingAlpha and DividendMantra, and now I want to take the plunge and invest everything I have (80% or so) into equities.

I have stocks in mind, currently I have around $1200 in ARCP (controversial REIT). I have more and more cash being saved each month and I was wondering if I could get some advice from some more experienced people here. I already live pretty frugally (expenses are quite low).
Currently, I am in a massive dilemma, should I save a deposit and put it down on a flat + leverage or go all out on equities. My parents are okay with me staying at home a few more years. I feel like the flat is a good idea, but I hate the idea of being committed long term to something which wont pay me back, plus the opportunity cost of not investing in the market.
Anyone been in a similar situation?

Thanks,

Cache

[RichMoose]

Hi Cache, you've got a great momentum going here, especially for someone who just graduated uni. My advice would be the following for someone in your situation:

1. Stay with the parents for a few more years. Its fantastic for saving! Don't be tempted to purchase real estate quick just because prices are going up. I'm not sure where in the UK you're located, but there's already whisperings (or rumblings) about another London real estate bubble. As well, once you own a unit you're dishing out for maintenance costs, taxes, repair bills, etc.

2. Try get out of the mindset of beating indexes through picking the right stocks, be it dividend performers, dividend growers, etc. I encourage you to try get a copy of a John Bogle book from your library such as Little Book of Common Sense Investing. You will learn fast that its a lot easier, less stressful, and successful in the very long term to simply purchase low-cost index funds or ETF and hold them forever. It's true that many people are successful with dividend portfolio's, but it takes a lot of time in researching financial reports and such.

3. Open a tax deferred retirement account at a low-cost broker and start investing for the long term.

It may be worthwhile to change your Subject Line to "UK - Investing out of university" to attract to UK forum members to give you a hand on good recommendations for point 3.

As far as your dilemma, I took advantage of low cost rent, living with parents and in-laws, until I could afford both a downpayment and total housing cost while still saving at a good rate for retirement. I also purchased my home at the bottom of the market in my area (2011).

[AZlawyer]

Are you at the point where you want to be tied down?  So much can change in the next 10 years - better job in another city, lose a job, marriage, kids.    Maybe you would ultimately want to keep a flat as an investment property, that would be a reason to buy.  Generally speaking, I'm a proponent of waiting to buy until you are ready to be settled for the long term.  Selling property can be quite expensive, and more so if the market has gone down.

Your 20's (assuming you're in your 20's) are prime years for accumulation, and many people miss the opportunity.  I say save and invest as much as you can.  As an added bonus, once you've saved a lot of money, you realize how valuable that money is.  When you've put in the work to save enough to buy a car in cash, you realize how much work it takes to buy that car.  That gives you a great perspective, and makes you think twice about buying something you don't really need.

[Cache]

hey guys,

Thank you for the replies.

1) ETFs - I don't like ETFs, I think they are too diversified, I rather have a portfolio of 10-15 high quality company which increase their dividends on a regular basis. I'm attracted to REITs (O, NNN, ARCP), also attracted to the 'staples' (KO, MCD, PEP, XOM, CVX etc.). I rather take the risk. I will take a look at the book, it may take a little more to persuade me! I know I can't beat the market but I like the idea of having a 10-12% YoC after a few years (minus any taxes).

2) Property - The opportunity cost is huge if I don't take this route, I want to ideally purchase a 1-2 bed flat on the outer skirts of london, but the leverage and commitment ( + broken boilers) is really putting me off, obviously I would want to pay it off asap then remortgage, get a second flat/house and put the first one on rent.

3) ISA - here in the uk we do not have ROTH IRA or 401Ks, we have ISAs. The limit is £15K, I haven't open one this financial year because im still mulling over property vs shares.

4) Saving - by the end of this year I will have enough cash banked to put a deposit down on a small flat.

My biggest worry is that if I do go all out on the equity, I will then have to start all over for the deposit on the house..

Anyone else got any sound advice for this scenario?

Thanks

[daverobev]

You're chosing extra risk for little to no reward, IMHO.

Open an ISA ASAP - as you know it's use it or lose it.

You might not 'like' ETFs but they are likely to be a winning strategy in the long run. You may think you can beat the market - and indeed, some do. But not many, and the truth is doing as well as the market is fine.

Sure, have some play money. 10% of your total, if you like. But put the rest in a basket of UK/international stock etfs and a percentage in gilts.

Returns on property are meh. London is hideously expensive. You're basically trying to buy high.

If you hold US stuff, note you'll lose 15% of dividends as foreign withholding tax.

REITs aren't that cheap. Most places suggest no more than 10% REITs.

You're young, you have years for the market to work for you. Do yourself a favour - let it.

Even 25% each VUKE, HMCX, IWRD, IGLT and you'll be fine.

[Cache]

Hey Davero,

Thanks for the reply. I wasn't old enough in 2008 to understand it's implications on housing when the crash came. I am bullish on property in London because it just keeps rising, and if the house doesn't, the rent does, for sure.

I didn't know about the 15% holding fees, i've received some divs from ARCP into my ISA for last year, i'll have to research into this.

Why would you propose that split? and is this for 10+ year holding with the payouts reinvested?

Thanks

[daverobev]

Hey Davero,

Thanks for the reply. I wasn't old enough in 2008 to understand it's implications on housing when the crash came. I am bullish on property in London because it just keeps rising, and if the house doesn't, the rent does, for sure.

I didn't know about the 15% holding fees, i've received some divs from ARCP into my ISA for last year, i'll have to research into this.

Why would you propose that split? and is this for 10+ year holding with the payouts reinvested?

Thanks

What goes up must come down. If rent get unaffordable, it drops; if wages go up, rents go up. I know, London seems different, but it isn't.

That split gives you local small and large cap, plus global everything, plus bonds (gilts). It's not perfect (probably too UK heavy, though saying that the FTSE 100 is pretty international). Over 10 years it should do fine, keep chugging away at it.

In terms of the REIT, have a look at what they say they pay out, and what you receive. If it's a US outfit, if you have a W-BEN on file 15% should be withheld; if not it'll be 30%.

In an ISA that will be 'non recoverable' - in a normal account you can offset any foreign tax paid against your own bill.