Advice on what to do with savings ( apart from spank them on SPs )

[jaydefo24]

Maybe this is not the place but I figured most regular punters probably have quite a good stash of cash and maybe know the wisdoms of subverting inflation with investments …

So ; let’s say you have 50k in a savings account … what would you do with it to maximise its value and minimise the risk of losing it?

I keep hearing about advice to “dollar cost average” on SandP500 but this is American and I don’t really know anything about stocks and shares but it seems to be the prevailing advice to put money into stocks rather than savings but I’m so confused by the plethoric information out there

[Spunky34]

S&P 500 is just another share index like the FTSE 100, except its for 500 large American listed companies.  I understand that over the last decade it has averaged growth of 9% but of course that isn’t consistent, over the short term you could just as easily lose money as gain money (not unique to S&P 500).  Investing in stocks and shares is very much a long term thing, say at least 5 years.

The point about dollar cost averaging really means drip feeding your money in on a regular basis rather than one lump, the idea being that with one lump if the index loses, say, 3% in a month, you would have immediately lost 3% of your 50k.  If you drip feed that in with monthly purchases, yes you still lose 3% of your initial investment but when the next month comes around your same amount of money paid in buys more shares and the average cost you have paid for them is lower.  Again, this is something which benefits over time.

If you desperately want to eliminate the risk of losing, then simply cash in a savings account is the safest way, but of course you wouldn’t expect the same potential return as you would if you are prepared to take some risk of loss. 

If you have £50k in a savings account, it’s generally more tax efficient to put it into an ISA - no tax on any interest or gains in stock value.  However you are only allowed to pay in £20k per year of new money to an ISA.  However there are still a couple of weeks before the end of this financial year so if you haven’t paid any money into an ISA then you can still put £20k in in the next few days and then another £20k straight after the new finanical year has started so if you act now then you could put £40k into a tax shielded place quickly.  Then you can decide whether/how to invest it. 

However, it’s always worth talking to a financial adviser, especially if you are talking about having large sums you dont know what to do with.  A good IFA will earn/save you a lot more money than you ever pay them.

[jaydefo24]

Thanks for this it’s not like I have so much I don’t know what to do with it, just that middle ground of having a good amount that I could ruin with some poor decisions. But at the end of the day I’d rather spend it all on experiences with SPs but that wouldn’t be wise

[Spunky34]

I get where you’re coming from - it sounds from what you say as though the fear of losing it or making a bad decision is pretty strong in your mind.  If that’s the case then the right answer for you will be different from someone who takes a different attitude (possibly with a higher proportion staying in cash because it’s safe).  It’s that kind of stuff which a good adviser is good at teasing out of you, and giving you confidence that you’ve made the right plan for you. 

Personally I like to make sure I have 6 months general spending in an easy access savings account - I’m not too worried about earning a good return on this because the important thing is that it’s there if I lose my job or something, I don’t have to wait to get it.  After that I split what I have left spare between overpaying the mortgage (over time this will earn me more than having it in savings, although of course once I have paid it into the mortgage I can’t extract it), I have a fixed amount going into my stocks and shares ISA by monthly direct debit (which is split between 5 main funds, which gives me good diversification), I have   an easy access cash ISA which is currently too small to worry about but hopefully that can grow to the point where I might think about putting it into a fixed term savings account for some better interest (but then it would be locked away for the term).  I’m an accountant so I don’t mind managing this stuff myself and I genuinely enjoy thinking about it in the long term. 

One thing I would say is that having a pot of cash shouldn’t ever be something to cause you angst - it’s much better to have it than not!  I find it really helpful to have made a plan and then stick to it.  The only things I really keep a close eye on are my current account and my 6 month cash buffer.  No point in obsessing about the movement on my stocks and shares ISA - over time I’m confident it will go up, and there isn’t much I can do about it day in day out, so why worry?

[RandomGuy99]

It all depends on how much risk you want to take and how long you want to lock it away for.

You don't get high returns on low risk and instant access.

You could stick it in a Zopa savings account paying 3.21%

Or a bond or the stock market or a 5 yr fixed rate savings account

[faquin1]

Assuming you work and are a higher rate tax payer, Stick it in your pension. You get tax relief at 40% and tax top-up at 25%. And what with the abolition of the pension ceiling by Mr Hunt which I feel is wrong, the rich get richer...

[RedKettle]

Assuming you work and are a higher rate tax payer, Stick it in your pension. You get tax relief at 40% and tax top-up at 25%. And what with the abolition of the pension ceiling by Mr Hunt which I feel is wrong, the rich get richer...

unless you want access to the funds before you are able to draw benefits!!

[NelsonH]

Find a good Independant Financial Advisor, IFA.  Get a properly managed fund.  Pay the charges. This comes out of the fund growth.

I did this ten years ago following retirement.  100K then stands at 210K today.

There is probably no other sure way to find the right IFA, except some kind on personal recommendation.  And this will be crucial.  I found mine via the accountant, that I used when in business.

You can access cash from such a fund on demand at any time.  You can transfer into such a fund any ISA money you already have and it stays ISA money.  Every year you can switch any non-ISA money in the fund, into the ISA part.

Such funds are part of the offerings of big providers, mine is Aviva, but only available via an IFA.  They are managed by smaller, less well known fund-managers. You can switch this if they don't seem to do well enough.

They are not risk free but you get to choose between three levels of risk.

Charges are not very low or very high, between 1 and 2% perhaps.  But a good fund manager has been able to exceed that by several times, more or less every quarter for 10 years.

This is not for money that you need for living on.  And 50K is really only about the minimum amount that will work, otherwise the charges will look too much.

[maxxblue]

If you desperately want to eliminate the risk of losing, then simply cash in a savings account is the safest way, but of course you wouldn’t expect the same potential return as you would if you are prepared to take some risk of loss. 

Saving cash in a savings account when the interest paid on the account is lower than the rate of inflation, as is currently the case, is in effect losing on your investment. 

[GingerNuts]

Saving cash in a savings account when the interest paid on the account is lower than the rate of inflation, as is currently the case, is in effect losing on your investment. 

As long as the account is FCS protected you'll at least never lose your money. With other investments you could potentially lose everything.

[RandomGuy99]

Assuming you work and are a higher rate tax payer, Stick it in your pension. You get tax relief at 40% and tax top-up at 25%. And what with the abolition of the pension ceiling by Mr Hunt which I feel is wrong, the rich get richer...

If you don't need the money immediately, then putting it in your pension would be good.

The average pension savings for people aged 55 up to the state pension age is almost £37,000, according to the latest figures from the Office for National Statistics. That is a tiny amount and will get you about £100 a month as a pension.

Most people need to be putting a lot more into their pension.

[Henry767]

Assuming you work and are a higher rate tax payer, Stick it in your pension. You get tax relief at 40% and tax top-up at 25%. And what with the abolition of the pension ceiling by Mr Hunt which I feel is wrong, the rich get richer...

Can you explain the "tax top up at 25 %" please? I've never seen any outside additions to my pension

[JontyR]

What are your aattitudes towards property OP?

There are other headaches but that amount could be a decent deposit on a buy to let. And you always have an asset that could / should increase in value as well as bringing in an income.

There are things which make this a less attractive option than previously (interest rates / tax on income via this source) but...

[maxxblue]

As long as the account is FCS protected you'll at least never lose your money. With other investments you could potentially lose everything.

You will not lose the actual money under FCS protection (up to value of 85k), but the value of it will decline in the circumstances I describe. The FCS protection will protect up to 85k of savings, but not over that amount, so in theory it is still possible (although improbable) to lose some cash savings. 

[estats]

what would you do with it to maximise its value and minimise the risk of losing it?

These two statements are very contrarian to each other, as often increasing a risk premium comes with increasing returns.

Some others have given good suggestions.

My first belief in this current financial environment is wherever possible you should pay down debt you have at any cheaper rate, e.g. overpay a long term fixed mortgage you have before you have to refinance. The era of ultra low interest rates is gone IMO and so this is most wise.

If it is a safe environment you want for your money (while accepting there are no 100% certain things in life), then a cash savings or cash isa account should yield a 4% return. Cash isas come with tax benefits, but amounts are limited to £20k per year, standards savings do attract tax after £500 or £1000 interest, depending on your tax bracket.

A lot of people don't factor in inflation, remember that is eating away at everyone's savings while it remains high. Currently no savings account of note is paying more than the inflation rate, so everyone with savings is losing spending power in the economy, i.e. their savings are eroding.

As you take more and more risk you can potentially generate more return, but you really should get financial advice on these sort of matters, and then consider often this advice isn't a golden bullet to wealth.

Your time horizon is also key, any investments you should have a longer term time horizon, 5 years+ and you should consider whether you want your assets liquid (such as cash) or illuquid, (such as property).

You would also be wise to have a balanced range of savings and investments. An emergency fund where you could expense your life for 6 months worst case that is highly liquid, then a range of financial products in different areas.

Also please consider the capital gains taxation system is changing in the UK, so that is another factor to consider.

Personally to me on £50k I have a high tolerance to risk and it wouldn't bother me to lose it. I would of hedged a large portion of it on gold and silver and would trade derivatives. I'd base what to trade on a lot of macro economic research and on quite short term market sentiment. I returned 47% on my money last year, a lot of the time by shorting markets, but I fully accept eight in ten people who trade in this way lose money and often quite quickly and I could easily be one of them. If I trade in this way I use leverage, stop losses and take profits with the broker to then trade again. But I strongly believe this isn't wise for most people.

[Sattob]

I've invested quite a bit in start-ups using the EIS route (SEIS is also available). Yes, the risk is high, but you do get either 1/3 or 1/2 of your money back immediately, and no Capital Gains Tax at the end (and the returns are typically 3x investment). If you want to be more cautious then an EIS (or SEIS) fund, which uses experts, and diversifies to minimise risk. I've invested directly and via a fund. However, the risk of failure is high, and the money can be locked away for years. Figure on at least 5 years, although one company I looked at sold after 18 months for around 2.5x starting price.

[NelsonH]

I don't like putting voluntry contributions into pensions.

If you die early the money is just lost. If you want the money out the tax penalty is high.

You've lost control of it really and that's not for me.

[Doc Holliday]

The FCS protection will protect up to 85k of savings, but not over that amount, so in theory it is still possible (although improbable) to lose some cash savings. 

Remembering of course it is £85k per person, per financial institution, so you can split it up more than £85k between different accounts. You do of course have to be very careful that the two accounts are not part of the same umbrella organisation/bank, as it will then only be £85k between them.

Also for a joint account it is £170k

[Stevelondon]

I just invested over £100K into my grandchildren 

[Blackpool Rock]

I don't like putting voluntry contributions into pensions.

If you die early the money is just lost. If you want the money out the tax penalty is high.

You've lost control of it really and that's not for me.

If you die before the pension has been converted into an annuity then your entire pot is part of your estate, may even be tax free but i'm not sure on that.
In fact if you have started taking money out as drawdown then the money is also yours (or your estates) to keep

In any case if you have started taking money out then you are limited to how much you can put back in, was £4K but now £10K from the budget a few days ago

[Pillowtalk]

I don't like putting voluntry contributions into pensions.

If you die early the money is just lost. If you want the money out the tax penalty is high.

You've lost control of it really and that's not for me.

Pensions are about the most tax efficient way of investing money, particularly if you are a higher rate tax payer.

[RedKettle]

I don't like putting voluntry contributions into pensions.

If you die early the money is just lost. If you want the money out the tax penalty is high.

You've lost control of it really and that's not for me.

Simply not true unless you have bought an annuity.  In fact likely to be an IHT free transfer to your family.

You have the ability (generally) to take 25% as tax free cash and the rest will be taxed as income - which is exactly the same as the income would have been if you had not made a pension contribution!  Growth in the pension fund is tax free.

No real loss of control once you are 55 - then you have incredible flexibility as to how and when you take the cash.

I think you are basing your view on very out of date advice and perhaps an old structure pension fund.