Talk to me about investing please!

[Enigmasaurus]

I’m clueless

Some context:
We’re mid 30s, 4 small children. Own our own home (mortgaged). Have good professional incomes, though I am currently part time. Household income puts us in the top 5%. We have good public sector pensions.

I read a lot about needing to ‘invest’ and am not sure what that means / how to go about it..

I grew up in a working class family with little money. ‘Saving’ was impressed upon us - as cash in the bank. The only time ‘Investing’ was spoken about, it was in relation to property.
We are fortunate enough to have some money in savings for us and the children, (with a view to increasing over time), and own 2 additional properties.

I’ve been looking at our finances, and feel we should do more with our disposable income. Currently thinking of splitting this 3 ways (savings, mortgage overpayment and ‘investing’). But I have no idea how to go about investing! Considering stocks/shares in a whole market fund (I think...) but where? And how? And how much?? what do other people do?

I appreciate that we are in an extremely fortunate position. Any help / advice / pointers would be very welcome

Sorry if it's been mentioned I have RTFT but high earners can get good tax relief out of a pension as much as 40% return. We also have money in high risk commercial assets (short term) and low risk shares. We use an adviser cost is circa 3% of investment and 1% PA.

Pay your mortgage off first

I'd do both, over pay mortgage and save because as someone said on pension thread... You'll miss years of compounding otherwise..

Miss conduct do you know average rough % you have had...

Thank you all - some very useful insight here. Those who’ve mentioned SIPPs/ pensions - we are likely to reach the maximum LTA on that front on DH’s pension for definite and probably mine as I may look to increase hours once youngest is at school.

We do have a large-ish SE mortgage, but this is currently around 1/3 of our income (and will be less once I’m properly back after this round of maternity leave). We aim to overpay in lump sums where possible. It will run for just under 15 years if no overpayments. I agree in principle with paying this off as a priority, but I really don’t want to wait 15 years before starting to invest. I think we’d prefer to work on both aspects simultaneously.

Cross posted with Gobbo! Same sentiments

Miss conduct do you know average rough % you have had...

They primarily offer what we call index funds - they simply buy and hold shares in every company in a stock market index the FTSE 100 in the UK or the S&P 500 in the US. You get exactly the same return as the underlying index. Some PP have referred to them as trackers.

Over the long run US stocks return about 8% per year:

www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

They're are a lot of ups and downs in that annual average.

Actively managed funds that try to pick winners and losers consistently under perform the market as a whole, for a lot of reasons. Most money in the market now is invested in these passively managed index funds, and you can buy the S&P 500 index fund in the UK from Vanguard.

Here's what they offer in the UK:

www.vanguardinvestor.co.uk/what-we-offer/index-active-products

If you click on the "view performance" link next to each fund you'll see how they've done over time. For a new investor I'd start with the Global Balanced Fund. If you want higher returns and can live with some volatility I'd do the US S&P 500.

HTH.

but I really don’t want to wait 15 years before starting to invest. I think we’d prefer to work on both aspects simultaneously.

Wise plan OP. You ideally want your net worth spread over property, stocks and bonds. Diversification of assets is the key to managing risks. Property is also highly illiquid. You can't sell a room if you need a new car or to do some home repairs.

Miss that's really helpful thank you

The paying off the mortgage one is simple economics isn't it?

Currently borrowing rates are at near an all time low typically a few percent and stocks and shares in that tax safety wrapper of an ISA have a limited amount/person/ annum you can put in and a return of hopefully 5% plus.

I understand the emotional push to pay off a mortgage, but financially is there a pure numbers case for driving this first In our current economic climate?

MissConduct thank you for taking the time to explain. I’ll look into what Vanguard offers in the UK.

Given my risk averse nature, an index fund that I can loosely watch seems more sensible than something I have to regularly actively manage or individual stocks.

Like Loveacuppa, I wish this was more openly discussed. I feel like I’ve had a sheltered upbringing that has given me a narrow view that now needs broadening. It’s very difficult when no-one around you has done / does this sort of investing.

@Enigmasuarus - you're most welcome. Hopefully others will read the explanation and benefit as well.

These short articles make the case pretty well:

www.fool.com/investing/2017/02/26/warren-buffett-just-revealed-the-best-investment-m.aspx

www.fool.com/investing/2019/03/01/3-reasons-you-should-be-investing-in-index-funds.aspx

Retirement plans are now being sued because they failed to offer low costs index funds as options:

www.npr.org/2019/08/14/750918282/mit-accused-of-costing-workers-millions-in-cozy-deal-with-financial-giant-fideli

Fees and costs really matter when investing.

Thanks MissConduct - will take a look at the links.
I agree about the fees issue; my investing knowledge is limited but I understand that with the compounding effect that a small fee percentage can massively impact growth.

Been investing and juggling money since I was a teen.

Usually it’s pay off your mortgage, we didn’t but had a complex money go round at the time that meant we chose not to for five years. There was a small window of time when a small amount of people had the mortgage deal of dreams and we were one of them. Be aware when investing of tying up money and losing interest if you need to suddenly liquidate tied up money. Never invest more than you can afford to lose. It’s not especially the best time for returns. DH did some high risk stuff over a decade ago and paid off our entire mortgage, returns that year for us were 20 and 25%. But we have never had another year as good as that.

It’s the long game essentially.

I work in Finance (Compliance) so I have ample experience on what to do (and what not to do!).

There's so many things to consider so perhaps you should have an initial appointment with a financial advisor, the first appointment is usually free and they can give you some helpful information.

Long and short of it is, if you decide to invest you need to be prepared that you may lose some or even all of your money. If you have the capacity for loss then that's fine.

I have two S&S ISAs, one with Nutmeg and another with Moneyfarm. Both invest in ETFs and collectives. The returns are average 3% p.a. so if your mortgage interest rate is lower than this then keep your mortgage.

S&S ISAs are effectively tax free so no capital gains tax or income tax to pay (minus the nominal dividend tax).

The suggestion to read a bit about behavioural investing is a good one, because it talks about things that even experienced investors do, for example selling good investments too soon (because it feels nice to crystallise a gain) and selling bad ones too slowly (because we have to admit to ourselves we got it wrong.)

On the mortgage thing: A decision that saves you (say) 2.5% a year is the same as earning 2.5% a year but a) with 100% certainty b) in after- tax money. So let's say you're paying 2.5% interest and your tax rate is 50%, then you should put the money in the mortgage unless you are 100% sure of making 5% or more on the stock market. So, historically, paying down debt was plan A, but with interest rates as low as they are, and manageable debt levels, you're probably quite reasonable to try and get a decent return from investing.

Thanks all.

Adverse we are not without a reasonable volume of liquid savings - around 6 months of typical living costs with room to cut back if needed - & would continue to save as well as invest. Not expecting miracle market growth but something more than current savings account rates has to be worthwhile!

Butterfly thank you for your expertise. Whatever we choose to invest would be money that we would be willing to accept losing (I won’t say happily as I doubt that would ever be the case!)

Are ETFs better or worse in terms of returns / fees than index funds?

Nermal I see what you’re saying about the mortgage. Our rate is less than 3% for the time being. We are aiming to overpay though there is the 10% limit. Investing would reduce our overpayments but not stop us making them hopefully.

Are ETFs better or worse in terms of returns / fees than index funds?

I know this wasn't directed at me, but I thought I'd jump in. They really have to be looked at individually. There are ETF's with low fees and high fees, just like mutual funds. Vanguard has very low fee ETFs. The biggest difference is that ETF's are baskets of stocks or other investment that trade on an exchange all day long and mutual funds are priced once at the end of the day.

Op first direct do amazing mortgages and you can over pay what you want. There's fee if you pay it all off of course but otherwise pay freely.

@MissConductUS

I've looked at vanguard site for my dc s and s isa.

Would you say mix between index and eft is good idea or just a life strategy? I'm not going to follow what you say and do it I'm just interested in opinions.

Also whilst it may not be the best time for returns, wouldn't it be a good time to buy? ARE eft and indexes the same principle like for example buying shares low, you get more shares for your money?

Thank you MissConduct. I really am clueless

And thanks Gobbo for your (more informed than mine) questions

Sorry to crash in op 😂😂it's piecing jigsaw together isn't it.