Investing for DC

[Mohbie]

We’re just looking at starting to invest for DC and have a 2k lump sum to start which we have saved hard for over the last few years. We’re fortunate to have been able to save and know not everyone is in that postion.

I think from there we could probably invest about 100 a month if we tighten our belts on things like takeaway etc.

TBH I thought this would be a good ‘help with first house deposit’ if we invested for 30 years from today.

but it’s shocked me (in a good way) when I’ve used the investment calculators on some of the sites and assumed an 8% annual growth rate. Obviously it would be stocks and shares and the reality is we could lose it! But...

If it did grow 8% every year in 30 years we’d have a fund of 161k!!! Most of which would be accrued interest. Again, obviously this would rely on the stock market funds continuing to perform as they have done, but I just think that’s crazy to think about!

Thought I’d share and hope I don’t get too much hate but it genuinely shocked me that compound interest worked this way and I kind of wish we had been taught this kind of thing in school.

Yes - compound interest is pretty extraordinary !

This should be taught at school!
Unlikely to loose it if use cheap tracker funds or similar.
If you have the time listening to the meaningful money podcast and reading monevator.com are great education for you/kids when/if they're teens/older

Don’t put it in his name. Too much at 18 years old

Keep it in your name and gift

4% is a more realistic long term rate and don’t forget that it’s not linear growth, some years will be negative.
The ‘experts’ are suggesting some bumpy years ahead with very low returns.
I have a stocks and shares ISA destined for my Grandson, it’s done exceptionally well this year but I’m not expecting 25% gains going forward.

Thanks @BorgQueen yeah that makes sense! Fingers crossed 🤞

It’s in my name and in Vanguard so low fee

8% is very high - 4% is more likely. But yes, compound interest grows a lot over a long time.

Bear in mind inflation can significantly reduce the value, especially in the context of housing where the capital cost of a house has outstripped RPI etc in many parts of the country for a long time.

£161k in 30 years time could buy you far less than today in terms of a house deposit.

For context, in the seventies, my grandmother was able to lend my father £2000 which was a decent deposit on a property (the average property cost under £20k in 1975). The same in 2005 would have been worth far less when you probably needed to spend 10 times more.

So it's a good idea to invest but be realistic that that money may end up equivalent to more like £25 or £30k in today's house price terms.

Compound interest doesn't really apply to investments - that would be savings.

We started a pension for DD when she was little (she's only 13 now) - the idea being to give her the longest possible period of investment until she retires.

Yes op, what makes me sad is people ago keep their dc money trapped in pb or normal bank accounts doing absolutely nothing.

You would struggle to go wrong with vanguard!
It's usually selling funds that are a little of everything.
Buying into funds that cover the UK or USA stock market are self cleaning so if say a company like Marks ant Spencer stops performing it just drops out.
And is replaced. Much better than buying individual shares.
My dc isas have been averaging 25% for the past few years.

And yes op, tragic it's not taught in school.
Stocks and shares are still presented in a sort of gamble way in fact ie people buying and selling regularly and this is what most people think stocks are.

Hang on. Playing devil's advocate here. Please ensure you get advice on this before you put it in your name and choose a fund. It might cost you initially for advice but long term you should make more gain.

It might be more beneficial for it to go in child's name. What happens if you die? Who knows what will happen to that money if you do? Might not go the right way.

There are so many more complications.

It's not interest.

It's also pretty unlikely to get 8%, where did you read that? I work on the basis of 3-4% for my investments.

Also, inflation is currently c5%, so 8% adjusted is really 3% anyway!

I'm normally on tne ball with this. But have been struggling for my Daughters money. She has £10k sat in a normal savings account I have control of. I save £200 per month. I was looking at other savings accounts as this one has dropped even further, but it sounds like I should look elsewhere for her.

I have a cushon stocks and shares ISS for myself but I'm nowhere near the threshold.

Do you recommend Vanguard? (Or any other isa?). Sorry for the hijack.

@Mohbie 8% would mean taking more risky investments. I inherited money and saw a financial advisor and I'm investing in stock market and am using pretty safe / lower risk investments and will get around 5%

Vanguard are pretty good in terms of fees. But they have loads of funds so you need to do your own research. Plenty of articles and YouTube videos about them to look at.

(Disclaimer - I invest in Vanguard funds, amongst other funds and individual shares).

I don't use vanguard yet because I didn't know about it when I opened my isa up.
I use hargreve and will move at some point to vanguard because fees eat into your profit.
You can however buy vanguard basket products through platforms like hargeves.

Just whatever you do invest in something safe and sensible. Not pine forests, mini bonds, wine... Remember, if it seems too good to be true (and anything promising an 8% return at the moment is), don't invest in it. Also Google whatever it is with "scam" and "Financial Conduct Authority" to check there aren't any warnings out about it. Also just because something says it's regulated by the Financial Conduct Authority doesn't mean it's safe or well run. All it means is that the FCA gave them a license originally. While the FCA tries to root out the actual scams, there are plenty of cases of people losing their life savings in FCA regulated companies (Google London Capital Finance or minibonds to get a flavour).

8% a year is very optimistic not to say unlikely, usually around 4% average is considered realistic. And you need to factor in inflation so in real terms you may only get 1-2%. But you’re right that it’s generally a good idea to invest for the long term. I also hope you have your own future covered.

There’s a reason Einstein said compound interest should be the eighth wonder of the world!
Everybody needs to understand this and have basic financial literacy.
By the way, 8% is actually conservative. I made on average 20%+ for the past 8-9 years by educating myself on stocks and doing weekly reading. It’s not that hard for vast gain.

I also don’t rate Vanguard. There are far better funds if you are investing for the long term. Think global equities

Compound interest was definitely taught to me at school

Do you have a private pension?

I have a S&S ISA with Nutmeg in my name for my daughter. My intention is to transfer to a S&S LISA in her name when she is 18 (or similar scheme if that ceases to exist by then).

@Fretfulmum

I also don’t rate Vanguard. There are far better funds if you are investing for the long term. Think global equities

Intrigued… what would you recommend then?

@canyoutoleratethis I don’t recommend anything as I’m not a registered IFA. It all depends on level of financial literacy and risk levels. As OP is investing for the long term, they can afford to take a higher risk approach. Vanguard is decent if you dont have a high level of financial literacy and you want to buy and forget about it for years. But also doing so, won’t bring you good returns. By being more proactive and looking at global equities and managing owns one portfolio regularly, there are far greater returns to be made. Just look at Microsoft stock and its annual gains. That’s just one example