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.

Also gold bars/coins / Rolex (if you can get on a waiting list) / whisky are also good investments and not subject to any sort of inheritance tax if you’re looking for an alternative. My dad has bought these sorts of things for my sons over the years for them to have when they are older

There's some really good info on the Moneyvator site (especially their "slow & steady" articles & broker/platform comparisons). You can learn alot about investing from there.
With small pots of money you want to keep fees to a minimum and keep things simple. (I use ETFs rather than funds because once you have over a certain amount funds start costing more money to hold).
For a child personally I wouldn't bother with bonds and would just buy something like an all-world tracker (or for slightly less volatility but higher cost something like a developed world tracker eg Vanguard FTSE Developed World ETF [VEVE] and a small amount in an emerging market investment trust eg JPMorgan Emerging Markets IT [JMG].)
Remember you can also start a SIPP for them at any age which, although they can't access it til they're 55+ they get a tax rebate on it - free money!

I went to an incredibly mediocre comprehensive school and was taught about compound interest.

Isn't it on the maths curriculum in year 8? It's a fairly basic mathematical principle. Surely it's still being taught in schools?

We were always taught it in the context of getting into debt. They didn't see as potential investors I suspect.

@Fretfulmum

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

What does "think global equities" mean? Also, Vanguard have global equity funds, so not sure why you'd suggest they don't.

To be clear, I don't think anything of value is exempt from inheritance tax (excluding some types of trust funds). But only c5% of estates pay it so it's a puzzle why people get their knockers in such a twist over it. Plus you only pay it on the bit over the nil rate band anyway.

And there is no tax to pay on gifts - if you save money then gift it to someone, there is zero tax to pay.

Pensions will not be drawable until min age 57 for people who are kids now, and quite probably older.

There's no tax to pay on money in an ISA nor when you draw it out.

Investing in non UK stocks is fine if you want to learn about tax rules in every country, pay tax there and pay exchange rate fees on dividends. Beware - the US now considering taxing stock gains even without the gains being realised. This stuff is an accounting nightmare and is why I only invest in UK based stocks or funds (they can hold foreign stocks) and within my ISA - no tax return reporting.

Some good points on this thread, although important to bear in mind that we have had a very long bear run over the past decade. My investments have gone up 25%. That doesn’t mean that they will continue to do so! Hence the 4-8% growth mentioned upthread. Obviously the longer that investments are held and the more flexible withdrawal date/a are the less volatility matters.

No tax on gifts that fall below a threshold. Last time I looked it was £7k per year but gifts made within X years (I forget how many) of death become subject to inheritance tax (to stop people gifting their estate as they approach their final years).

There is no tax on gifts within any threshold, any amount. Honestly, you can gift a million pounds, no tax.

Gifts where the gifter dies within seven years are added back into the estate for inheritance tax purposes. But there is no tax on the gift. The estate may pay tax if it, plus the gift, is above the nil rate band (on the amount above the band). But the recipient doesn't pay tax.

It's also a sliding scale from seven years. After seven, zero, but increasing the closer to death the gift happened (for obvious reasons).

You may, of course, be thinking about potentially exempt transfers, which is up to £3k per annum, which would not be added into the estate. And various other potentially exempt transfers (too complex to go into).

But no, there is no tax on gifts. Wherever you "looked" either it was wrong or you misunderstood. Or, post a link.

Meant a bull run… not a bear run…