Topic: Personal Finance Thread

[newsted]

Oh, I already said that. As you were, then.

I'm pretty sure i did pm you a couple of weeks ago, it was around the time the forum crashed, maybe you didn't get it?

Nah. That was a fuckfest. Got one now.

[Interpolic]

PM me bro, just PM me. I got this. This is my job ffs. Just PM me, stop talking.

Ignores PM

[newsted]

PM me bro, just PM me. I got this. This is my job ffs. Just PM me, stop talking.

Ignores PM

[thomas]

Vanguard's been good to me. 30/70 between bonds and their mid cap+growth index funds. Will migrate more towards bonds as i age. been satisfied.

unmanaged 401k through work that gets max donation + 6% match on the side.

Going to choke to death on pizza before I cash out any of it

[LoveItIfWeBeatU]

Regarding Premium Bonds: -

www.moneysavingexpert.com/savings/premium-bonds

[newsted]

Sigh. I know.

[Dave]

Regarding Premium Bonds: -

www.moneysavingexpert.com/savings/premium-bonds

Comprehensively dismantled. You're essentially investing in the Treasury for f*** all chance of return.

[Dave]

does anyone invest in stocks and shares?

I'm waiting to put some money into them (like £50 a month), any recommendations on a broker for such small transactions?

Does your employer offer a SIP scheme?

[newsted]

does anyone invest in stocks and shares?

I'm waiting to put some money into them (like £50 a month), any recommendations on a broker for such small transactions?

Does your employer offer a SIP scheme?

If you mean SIPP, nobody needs that unless they want a property in there or something weird, and an employer shouldn't do that, it would be wrong. I think we've got one, but they are barmily confident property developers.

[Beren]

He means a Share Incentive Plan scheme, newsted.

[newsted]

OK I'm back in my box then.

[newsted]

Can I just add "Grrr"?

[lovejoy]

does anyone invest in stocks and shares?

I'm waiting to put some money into them (like £50 a month), any recommendations on a broker for such small transactions?

Does your employer offer a SIP scheme?

i am the employer, and no, i don't .

[Dave]

Haha, wondered if that was coming.

[Bimpy474]

Regarding Premium Bonds: -

www.moneysavingexpert.com/savings/premium-bonds

Comprehensively dismantled. You're essentially investing in the Treasury for f*** all chance of return.

True but I've won, maybe i'm lucky, i know there's only a small chance of winning but people play the lotto hoping the same thing. It really is a personal preference thing, I've found them good, and surely if your point about making money for the treasury, that's better than making money for the bankers (no idea if that happens like) ?

[Pip]

does anyone invest in stocks and shares?

I'm waiting to put some money into them (like £50 a month), any recommendations on a broker for such small transactions?

Does your employer offer a SIP scheme?

Is investing in your employer the safe thing to do, though? If they go bankrupt then not only will you have lost your job but you’ll have lost a significant portion of your savings as well.

[Dave]

Well you'd hope obviously they don't go bankrupt.

But there's not particularly any more risk than any other shares investment, surely? If you've got money tied up in a company and the share price bombs then you lose out. The big difference (aside from tax) is with a SIP is you can get matching shares for free, so with mine the share price would have to drop to less than half for me to lose. And the dividends are nice.

But yeah, there's risk with any investment.

[Matt]

Those types of schemes are in the 'nice to have' category. Good to do if you can spare the cash without damaging your other savings plans. You don't want to be relying on any single concentrated holding, let alone your own employer, as a way to save sustainably. I can vouch from personal experience of what happens when it goes wrong.

Lovejoy: When investing relatively small amounts, you need to look to absolutely minimise fees and trading costs. It's also probably not worth investing in individual shares and you should focus instead on platforms which can offer various funds and trusts (eg Fidelity) or a DIY portfolio from the likes of Nutmeg. Make sure you are investing via an ISA wrapper- don't worry if you are also investing in a cash ISA, you can save in more than one as long as you don't go over your allowance in aggregate.

[bobbydazzla]

Am wondering about potential ways for a risk averse person to make their money work a bit harder.

Mortgage almost paid off, savings are in cash ISA's which make little interest but it's an instant access rainy day fund, been paying into pension for years and work chip in too - contributions could be higher but mortgage overpayments have been the priority. No other debt apart from mortgage.

Share trading feels like too much of a gamble. Property investment seems like too much hassle.

40 year old so got an eye on retirement planning but it's not looming.

I don't know too much about other low / no risk investment options so be interested to get some ideas from other people.

[Dave]

Those types of schemes are in the 'nice to have' category. Good to do if you can spare the cash without damaging your other savings plans. You don't want to be relying on any single concentrated holding, let alone your own employer, as a way to save sustainably. I can vouch from personal experience of what happens when it goes wrong.

Mate of mine lost tens of thousands when his company (Connaught) went under.

[Matt]

Share trading feels like too much of a gamble. Property investment seems like too much hassle.

Trading suggests going in and out of specific assets for short-term gain. Put that image to one side and instead consider long-term holidings in a diversified basket of equtiies. It's important to have some kind of exposure to equities and not just hold all cash because inflation will destroy the real value of the savings. Your pension contributions will certainly have an element of equity investment.

I think there is a general reticence for people to allocate capital to risky investments* because they are inherently loss-averse so they don't want to see a paper loss of wealth. In fact, you have a real loss every year with below-inflation returns in cash investments.

*It's easy to think 'risky' investments means 'a high chance of losing most / all of your capital' but really it just means anything which cannot broadly be considered risk-free- so by this I also mean very low risk / low return products such as those investing in short-dated debt of high quality corporates.

[bobbydazzla]

Share trading feels like too much of a gamble. Property investment seems like too much hassle.

Trading suggests going in and out of specific assets for short-term gain. Put that image to one side and instead consider long-term holidings in a diversified basket of equtiies. It's important to have some kind of exposure to equities and not just hold all cash because inflation will destroy the real value of the savings. Your pension contributions will certainly have an element of equity investment.

I think there is a general reticence for people to allocate capital to risky investments* because they are inherently loss-averse so they don't want to see a paper loss of wealth. In fact, you have a real loss every year with below-inflation returns in cash investments.

*It's easy to think 'risky' investments means 'a high chance of losing most / all of your capital' but really it just means anything which cannot broadly be considered risk-free- so by this I also mean very low risk / low return products such as those investing in short-dated debt of high quality corporates.

What's the best way to start looking into building a portfolio of long term holdings, get involved with a reputable broker ?

And am conscious that I've got a big pile of cash effectively losing value as inflation is higher than interest, but I also like the safety net of instant access funds should something major happen. I keep the ISA's sitting at a specific value and I feel it's worth the small financial loss, for the peace of mind it gives me.

[Matt]

You can earn up to £1000 interest per year tax free outside of ISAs (if you are a basic rate payer, otherwise its £500) so the tax shelter of the ISA isn't doing very much for you (unless you have a substantial amount held in cash ISAs)

The simplest thing to do is to transfer part of your cash ISA to a shares ISA (do not withdraw the funds). Pick a decent online platform (Fidelity and Hargreaves Lansdown are user-friendly) and they can handle all the transfers for you. Alternatively you can start using current and future ISA allowances to contribute a fixed amount per month. You can keep cash in a shares ISA but will attract minimal or no interest.

Don't add cash to any kind of ISA that you think you may need in an emergency unless you're at the end of the tax year and your allowances wil otherwise expire. Leave it as late as possible.

Your point on peace of mind is very valid, it's not just about the numbers.

[LoveItIfWeBeatU]

I know a few people whose whole retirement was based on their staff share scheme shares in..........Northern Rock. They literally lost around £200K of their pension pot in once go. They'd recently retired and were then wiped out. Never put all your eggs in one basket.

Investing in Stocks & Shares is about the only financial area www.moneysavingexpert.com don't comprehensively cover although they do have advice: -

https://www.moneysavingexpert.com/savings/stocks-shares-isas

Professional Financial Advice is advised for stock market investment (unless you want to spend a lot of time on it learning it all yourself).

https://www.moneysavingexpert.com/savings/best-financial-advisers

http://www.bbc.co.uk/news/business-40189970

Why the world's biggest investor backs the simplest investment
By Tim Harford
BBC Radio World Service, 50 Things That Made the Modern Economy

What's the best financial investment? If anyone knows, it's Warren Buffett, the world's richest investor.

He's worth tens of billions of dollars, accumulated over decades of savvy investments. His advice is in a letter he wrote to his wife, advising her how to invest after his death, which anyone can read [page 20, paragraph 6].

http://www.berkshirehathaway.com/letters/2013ltr.pdf

Those instructions: pick the most mediocre investment you can imagine. Put almost everything into "a very low-cost S&P 500 index fund".

An index fund is mediocre by definition. It passively tracks the stock market as a whole by buying a little of everything, rather than trying to beat the market by investing in individual companies - as Warren Buffett has done so successfully for more than half a century.

Bright idea

Index funds now seem completely natural. But as recently as 1976, they didn't exist.

Before you can have an index fund, you need an index.

In 1884, a financial journalist called Charles Dow had the bright idea to take the price of some famous company stocks and average them, then publish the average going up and down.

He ended up founding not only the Dow Jones company, but also the Wall Street Journal.

The Dow Jones Industrial Average didn't pretend to do anything much except track how shares were doing, as a whole.

But thanks to Charles Dow, pundits could talk about the stock market rising by 2.3% or falling by 114 points.

More sophisticated indices followed - the Nikkei, the Hang Seng, the Nasdaq, the FTSE, and most famously the S&P 500. They quickly became the meat and drink of business reporting all around the world.

Then, in 1974, the world's most famous economist took an interest.

Paul Samuelson had revolutionised the way economics was practised and taught, making it more mathematical and engineering-like, and less like a debating club.

His book Economics was America's bestselling textbook in any subject for almost 30 years. He won one of the first Nobel memorial prizes in economics.

Efficient markets

Samuelson had already proved the most important idea in financial economics: that if investors were thinking rationally about the future, the price of assets such as shares and bonds should fluctuate randomly.

That seems paradoxical, but the intuition is that all the predictable movements have already happened: lots of people will buy a share that's obviously a bargain, and then the price will rise and it won't be an obvious bargain any more.

His idea became known as the efficient markets hypothesis.

It's probably not quite true. Investors aren't perfectly rational, and some are more interested in covering their backsides than taking well judged risks. But the hypothesis is true-ish. And the truer it is, the harder it's going to be for anyone to beat the stock market.

Samuelson looked at the data and found - embarrassingly for the investment industry - that, indeed, in the long run, most professional investors didn't beat the market.

And while some did, good performance often didn't last. There's a lot of luck involved, and it's hard to distinguish that luck from skill.

In his essay Challenge To Judgment Samuelson argued that most professional investors should quit and do something useful instead, such as plumbing.

He also said that, since professional investors didn't seem to be able to beat the market, somebody should set up an index fund - a way for ordinary people to invest in the stock market as a whole, without paying a fortune in fees for fancy professional fund managers to try, and fail, to be clever.

Then, something interesting happened: a practical businessman paid attention to an academic economist's suggestion.

John Bogle had just founded a company called Vanguard, whose mission was to provide simple mutual funds for ordinary investors, with no fancy stuff and low fees.

'Bogle's Folly'

And what could be simpler and cheaper than an index fund - as recommended by the world's most respected economist?

So Bogle set up the world's first index fund, and waited for investors to rush in.

They didn't. When Bogle launched the First Index Investment Trust, in August 1976, it flopped.

Investors weren't interested in a fund that was guaranteed to be mediocre. Financial professionals hated the idea - some even called it "un-American".

It was certainly a slap in their faces. Bogle was effectively saying: "Don't pay these guys to pick stocks, because they can't do better than random chance. Neither can I, but at least I charge less." People called Vanguard's index fund "Bogle's Folly".

But Bogle kept the faith, and slowly people started to catch on.

Active funds are expensive, after all. They often buy and sell a lot, in search of bargains. They pay analysts handsomely to fly around meeting company directors. Their annual fees might sound modest - just a percent or two - but soon mount up. Eventually, fees can swallow a quarter or more of a typical fund.

Hope over experience?

If such funds consistently outperform the market, that's money well spent. But Samuelson showed that, in the long run, most don't.

The super-cheap index funds looked, over time, to be a perfectly credible alternative to active funds - and much cheaper.

Slowly and surely, Bogle's funds grew and spawned more and more imitators - each one passively tracking some broad financial benchmark or other, each one tapping into Samuelson's basic insight that if the market is working well, you might as well sit back and go with the flow.

Forty years after Bogle launched his index fund, fully 40% of US stock market funds are passive trackers rather than active stock-pickers. You might say that the remaining 60% are clinging to hope over experience.

Index investing is a symbol of the power of economists to change the world that they study.

When Samuelson and his successors developed the idea of the efficient markets hypothesis, they changed the way that markets themselves worked - for better or worse.

It wasn't just the index fund. Other financial products, such as derivatives, really took off after economists worked out how to value them.

Some scholars think the efficient markets hypothesis itself played a part in the financial crisis, by encouraging something called "mark to market" accounting - where a bank's accountants would work out what its assets were worth by looking at their value on financial markets.

There's a risk that such accounting leads to self-reinforcing booms and busts, as everyone's books suddenly and simultaneously look brilliant, or terrible, because financial markets have moved.

Samuelson himself, understandably, thought that the index fund had changed the world for the better.

It's already saved ordinary investors literally hundreds of billions of dollars.

For many, it will be the difference between scrimping and saving or relative comfort in old age.

In a speech in 2005, when Samuelson himself was 90 years old, he gave Bogle the credit.

He said: "I rank this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese: a mutual fund that never made Bogle rich, but elevated the long-term returns of the mutual-fund owners - something new under the Sun."

Tim Harford writes the Financial Times's Undercover Economist column.

[bobbydazzla]

You can earn up to £1000 interest per year tax free outside of ISAs (if you are a basic rate payer, otherwise its £500) so the tax shelter of the ISA isn't doing very much for you (unless you have a substantial amount held in cash ISAs)

The simplest thing to do is to transfer part of your cash ISA to a shares ISA (do not withdraw the funds). Pick a decent online platform (Fidelity and Hargreaves Lansdown are user-friendly) and they can handle all the transfers for you. Alternatively you can start using current and future ISA allowances to contribute a fixed amount per month. You can keep cash in a shares ISA but will attract minimal or no interest.

Don't add cash to any kind of ISA that you think you may need in an emergency unless you're at the end of the tax year and your allowances wil otherwise expire. Leave it as late as possible.

Your point on peace of mind is very valid, it's not just about the numbers.

Am a higher rate tax payer so that has an impact.

So from your suggestion what I could do is leave the amount that gives me peace of mind in a cash ISA, then put new savings into a Stocks & Shares ISA, up to a maximum of £20k per year at the moment.

Am going to do some reading on S&S ISA's so I know more.