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Are we too risk averse?

12 replies

TheSimpleLife · 02/05/2011 14:28

Reading a thread on AIBU (about how you got rich and how did you do it), I've realised that DH and I are a bit too risk averse. In fact, I've probably known that for some time.

Since our early twenties we've been relatively careful and saved every month, but we've never invested in anything. I do try and make sure that most of our money is in decent paying savings accounts/ISA's and only ever let this lapse when I was overwhelmed after DD's birth.

We're 35 year old now, with a 2 year old and have about £62k in savings and paid our mortgage off 3 years ago. I am a SAHM currently and probably will be for the next couple of years, then I would like to start a small business to fit round school hours so hopefully may have more money to save. We save about £1500 monthly (and this rarely gets touched) but it just goes into a normal savings account.

I don't know how to shake things up a bit, I crave financial security and I think DH does too, but think we've been a bit too careful. Where do we go from here? What do others do to try and make more money on their saved money? I was happy earning around 7% when interest rates were high, but I feel like we are geting no-where with the current interest rates.

OP posts:
Chil1234 · 02/05/2011 17:09

I don't think risk-averse is necessarily a bad thing. There's a lot to be said for financial security when you see the debt-related problems that blight some people's lives. However, if you think it's holding you back, the answer is probably to seek external, professional advice from someone you trust. Could be a financial advisor for your savings, for example. And if you want to start a business, there are small business advisors that could give you the confidence to be a little more adventurous.

As a single parent I'm pretty risk averse but when it comes to savings I split my investments between 'safe' i.e. Cash ISAs and 'risky' i.e. Unit Trusts, Share ISAs. if I had a lot of spare cash right now I'd be looking at getting a buy-to-let in a popular area and renting it out as a long-term investment. But that's just me :)

noddyholder · 02/05/2011 17:11

I think you are in a great situation and rates will rise Smile In 2 or 3 years you could be getting 7% again.

TheSimpleLife · 03/05/2011 12:54

Thanks both.

DH will be arranging an appointment with the pension guy at his work for increasing his pension contributions (we wanted to do this anyway) and I think he covers investments and things too so that may be an option to find out more.

Chil - I like the thought of the Buy to Let, houses are relatively cheap here so it may be an option in the future.

OP posts:
wolfhound · 03/05/2011 13:07

I think risk-averse is a good thing. Big risks may carry the potential for big rewards but at least (and possibly more) potential for losing everything. I think big risks are for 'surplus' money that won't damage your lifestyle if you lose it all. And I think that most people don't have that kind of 'surplus'. Sounds like you are sensible savers and in a better position than many people due to being careful. Your obvious options are equities, property etc. Property requires work, so depends on your capacity to take that on. Equities - well, the sensible way to approach them is unit trusts etc. (spreading across a wide range of areas) and a very careful look at charges. My experience of equities is that they do not give the returns that one would hope for, but you could put, say £10k into a sensible equity fund. You need to be sure you won't need that money for 5-10 years.

ChasingSquirrels · 03/05/2011 17:36

I am in a similarish position to yourself and am very risk adverse.
I have had cash-ISA's for the last 10 years, but have never had an equity ISA, so intend to start one on a monthly basis this year.
The thing is - you are who you are, would you be comfortable taking more risks? Maybe now you have the backing of a mortgage free house and some savings you would be?

TheSimpleLife · 05/05/2011 11:51

Thanks all, yes maybe we should start taking some small risks with a little bit of money. I've considered taking small risks with a little bit of money, say 10-25% of our savings each month from now on should go into something riskier. I'll have to look into equities and S&S ISA's. Is there a good website which can start me off as I'm pretty much a novice?

I'm glad in a way that we've been careful so far but always wonder how things would have turned out if we'd started investing more earlier. I remember a bloke in work with me about 10 years ago telling me to invest instead of save and I kind of looked into it then and chickened out.

Thanks again.

OP posts:
Chil1234 · 05/05/2011 12:21

Unit Trusts are a good place to start if you want to get into non-cash savings. They are managed funds (i.e. they have a Fund Manager) and usually encompass a number of companies on the stock market. The Fund Managers are professionals, there to make the tricky choices and hopefully make the investment grow, which is a lot less risky than novices like us sticking a pin in the share pages of the Financial Times and hoping for the best :) Choosing a good one is like choosing a good horse in a race... you look at past performance, the fund-manager's track record, the companies in the fund, the company holding the fund... always in the knowledge that even Desert Orchid occasionally had a bad day. Think 'ten years' as the timescale for the investment. This is not short-term stuff and you should only put away money that you won't miss.

You also have to resist the temptation to panic if things dip. I have a Stocks & Shares ISA fund, for example with M&G investments. It's invested in global enterprises in China and so forth. I took it out in about 2007 and invest a fixed amount each month of between £100 and £200. To start with the units cost about £5.00 each and they went on an upward trend. :) Then the Credit Crunch happened in 2008 and they plumetted in value down to £4.00 per unit. :( But I kept buying them... because now I got more units each month for my money... and, three years on they're now worth upwards of £6.50 per unit. Grin

If you go to websites like www.moneysupermarket.com and www.thisismoney.com they often have useful tables of investments, commission charges, past performance, minimum investment amount. If you do your homework you can make a reasonable judgement with a bit of research. If you want an external opinion an independent financial advisor is often a good place to start. But... back to the horse race... sometimes it's just down to luck.

Chil1234 · 05/05/2011 13:15

MoneySupermarket typical table of self-select Stocks and Shares ISAs where you choose the companies. And the same site showing popular ISA funds where you invest in a fund and the companies are selected for you.

The Daily Mail's 'Thisismoney' is offering Cash and Stocks ISA tips on how to choose a good one and has some recommendations listed. I find that site very good on financial matters generally.

As for independent financial advisors (and they really have to be independent) it's best to get a personal recommendation from someone. There are good ones and bad ones.

cheeznbreed · 05/05/2011 18:51

Hmm.

OP, Many people here will be reading your account situation with a mixture of wonderment and envy- you've both done very well for yourselves. There are few people of your age with such a large amount of savings, no mortgage and a family. Congratulations, if there were more like you the country would not be in nearly as bad a state as it is now.

That said, I'd suggest that your number 1 priority is to keep your situation on a similar track. Firstly I'd suggest that you establish exactly what you would like to achieve in the medium-long term. Does a tertiary education for your child/children seem like a possibility? Will your husband like to retire early? Once you have an idea of that, then you can start to work out whether your current (excellent) course of saving £9,000 a year will let you achieve your desires. If not, then time to look elsewhere.

A note of caution regarding buy to let. You need to be very sure of the sums, as it can turn sour rapidly, especially in the current market. People generally think of the monthly rent cheque whilst conveniently forgetting management fees, empty periods, repair and maintenance, groundrent, letting agent fees, strife with tenants etc etc. The net income may be comparable to a savings account, all told. But the extra risks are massive. I'd say that, converse to accepted wisdom in the UK over the last 10 years or so, buy to let is one of the riskiest things one can embark on. Partly due to the risk of leveraged losses if a mortgage is involved (ie a 70% LTV mortgage on a place that falls in price by 30% means 100% of your deposit is lost) but also because it is a very illiquid asset (ie it's difficult to sell quickly).

See some sold prices near me- carnage.

www.houseprices.co.uk/e.php?q=138%2C+sn2+1fe&n=100

www.houseprices.co.uk/e.php?q=16%2C+sn2+1fd&n=100

I'd say that if you are not happy with the prospect of a 30% drop in the value of a property you would buy, then leave it alone. It is not a 'safe' investment, despite all the media spin and the British obsession with it. Many have and will lose their shirts over property. The market is not in a good position, just because prices have dropped a bit does not make them 'bargains'. Property is still massively overpriced compared to long-term averages, and seems likely to revisit those levels in due course.

There is no reason to balance what you feel is an 'over cautious' approach with a reckless one. In my opinion, your current path has been common sense, and not over cautious, and others have been reckless. The 'norm' has been skewed towards too much easy debt and little consideration of repayment. It may appear that others are doing better, but the reality is likely to be very different. If anything demonstrates this properly, it is that you have no debt and lots of assets, and most other people(especially your age) have loads of debt and little 'net' assets, even if they do have a smart car/big house etc. Debt is public enemy number one for people's quality of life as it robs resources to pay interest.

If you would like to start a business in future, the best thing to do is keep saving as cashflow is the killer to start with. As for investing, the work adviser sounds like a decent place to start(I assume he is an 'internal' guy rather than a salesman who visits the office) but do be wary of commission-based salesmen, as they can often recommend unsuitable products in order to maximise their paypacket. A fee-based IFA would be a place to start. Maybe some managed funds would be worth looking at in order to gain some equity exposure, but it is definitely something you'll have to take an active interest in if the best results are to be obtained. Be suspicious of funds with whopping management fees. The adviser will explain all this better than I.

Overall though, A*, keep up the good work and don't worry, you're in a great position so keep it that way.

TheSimpleLife · 07/05/2011 00:25

Thank you all very much for the detailed replies. I appreciate the time you took to write.

Chil - thanks for the links, I'll have to have a nose this weekend. Hope your stocks and shares go well!

Cheez - those links are shocking! Just shows how much it can go wrong! I don't think I'd consider a Buy to Let for a long time. I do think properties are massively overpriced at the moment, and by the looks of those links - the market here locally still has such a massive way to drop as prices are still holding, but no-one is buying.

Apparently, houses in my town, had the greatest rise in the UK (in terms of %- or was one of the top towns) over the last decade, so they'll probably crash much more as they're even more inflated. It's true that houses have lots of maintenence costs, if I'm just thinking of my own home, it's expensive to maintain and it's quite small. I'll leave well alone!

I don't know why (think it must be a mid life crisis) - but been looking at everyone around me lately and feel like the poor relation. Everyone has such nice 'stuff' - houses, cars and the like and ours seem very ordinary in comparison, but I guess you can't judge a book by its cover. Thanks for reminding me of that.

I'll have to double check that guy that DH has his pension in work with. I mean we'll have to go through him for all the employee pension stuff, but not necessarily for anything else.

Thanks. x

OP posts:
ChasingSquirrels · 07/05/2011 09:53

You do know that you are (unless you mix with very well off people) far far wealthier than those people around you though.
Your house is paid off and you have savings beyond anything that they could imagine having at this point.
You can change that - you aren't the poor relation, you could buy a much more expensive house (with your equity, savings and a huge mortgage) but that's not what you have chosen (sensibly imo). Ditto new cars.

BUT, maybe you could also spend a little more on a day to day basis if you want to enjoy things a bit more?
You HAVE GOT financial security - and you are saving a significant amount a month, if you want to use some of that monthly amount for now - then give yourself the permission to do so.

cheeznbreed · 09/05/2011 17:21

No probs, happy to try and help. Debt is the modern evil to avoid if at all possible. Your lifestyle will be enriched immeasurably in the decades to come by your freedom from it. Best of luck with your chosen investments/strategy.

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