Savings and Investments

Lordhippos

Lordhippos

Pokémon Master
I know this is a weird topic for an anime forum but if I help one person out it's worth it!

I've always considered myself somewhat financially savvy, but I've come to realise that I should have been doing things differently for the past decade or so. I want to help other people avoid my mistakes. I'm working to correct my own setup as of today.

I am not a financial advisor so any recommendations here are just opinions :)

TLDR of what I was doing wrong:
  1. Over paying the mortgage far too much vs other investments.
  2. Not investing into global trackers either via workplace Pension/SIPP (Self Invested Pension) or S&S (Stocks and Shares) ISA.
  3. Not paying attention to my pension at all.
TLDR of what you should be doing:
  1. Invest in Global Tracker funds via your investment vehicle of choice, make it a routine monthly thing for whatever sum you are comfortable with.
  2. Make sure your pension is matched to the best your employer can offer.
Savings Priority

There is a good video worth watching in the spoiler tag here that covers this. The guy is a bit marmite, so you may dislike his character, but I think he's absolutely right in what he's saying in terms of what people should be doing depending on their circumstances.

Too many people just throw their savings into a low interest current account and then forget about it, rather than putting their money to work.

The first 9 mins of this video will cover basics pretty well.


I'm not going to re-word everything he says here, the order of priority items is covered pretty well. I'll cover some of my key recommendations though based on this.

The rest of what I'm going to say here assumes you have paid off any high-interest debt that is costing you a lot to service, after all not paying interest in the first place is the best first step towards accrual of savings.

Pension Match

The obvious one people often miss is that some employers offer better than usual pension matching schemes. It's worth checking if you are able to get access to a better workplace pension setup than you may have today.

Current full time employer workplace pension schemes at a minimum see you pay in 5% and your employer 3% for a total salary pension contribution of 8%. Source

If your employer offers a better matching rate than this, i.e. they match your contribution to say 8%, then this is the single best investment you can make. This is effectively 50% free money and will beat any other investment.

Pension Funds

How many people hear the term Pension and they immediately go into zombie mode? It's not the most interesting topic.

Have you checked yours lately? How is it doing?

I was shocked when I checked mine and saw how poorly it was performing. I've had a workplace pension since 2007 but it's barely made any profit, I would have been better off in cash savings accounts probably. I basically ignored the pension and it's performance for many years. I have more in savings than my Pension!

What am I doing instead? I've moved my investments (largely) over to global trackers within the workplace pension. These are pension funds that are wrappers for multiple global companies and markets. It means I don't need to think about it, just invest into these and let it run. I figure I can't second guess the whole world!

Stock Market

I always thought of the stock market as sort of gambling, but in reality I think using the global tracker funds (or similar investments) is the only way you can turn some money into a lot of money long term via compounding effect. Cash in a savings account will never grow at insane levels.

Stock Markets have averaged 9-10% per year for the last 100 years or so back tested.

Stocks can go up or down but the general trend is up long term, if you can weather any storms.

If you are able to save some money each month, I'd recommend setting up a direct debit that automatically buys into these funds in some fashion. Which one you use may depend on your circumstances but you can essentially buy the same thing in one of 3 main ways:
  1. Stocks and Shares ISA
    1. £20K per annum limit shared with Cash ISA allowance.
    2. Any gains are tax free.
    3. Short term access if you require the funds, though it's best to put money here you don't need back short term.
  2. SIPP
    1. This is your own self-managed pension fund.
    2. Long term lock.
  3. Workplace Pension
    1. Where your employer pension goes.
    2. Long term lock.
SIPP and Workplace Pension are more tax efficient than stocks and shares ISA but if you value ready access to the funds, I'd recommend putting there instead until you have enough there to cover you in case you need to liquidate anything.

Even doing £100 per month into S&S ISA or SIPP would be better than doing £0, which is what I was doing.

Dollar Cost Averaging (DCA)

This is a strategy where you just buy something monthly without concern for short term movements. This is good for various reasons, but the main ones are:
  • Repeat investment without logic or reason playing any part of it.
  • Your price paid averages up or down as time moves along, so you don't have to worry about timing your buy price.
  • No stress saving for the future.
  • You can do this with smaller sums and it's still worth doing.
My monthly direct debit advice with auto-buy is using a DCA strategy essentially.

Over-paying mortgage

Whilst I do think it's worth over-paying this a bit, I don't think it's worth throwing all of your money at it, if you have options then I'd do a combined-arms approach, some into regular overpayments, some into S&S ISA/SIPP.

This assumes no other debt, as other debt is likely going to cost more than a mortgage on a % basis.

I have overpaid far too much and in reality I should have been investing more into the stock markets instead.

Which funds to look at

I like to keep things simple, so I have opened up a Vanguard account and created a SIPP and a S&S ISA within it. This isn't a plug for Vanguard, you can do this with other brokers (this would be a do your own research type deal!). I don't get any bonus or referrals for recommending Vanguard over others, it's just one I'm using as the fees are reasonable!

Most of my funds are going into VHVG (70%+) but I will be putting some into the others I've listed here. You could keep it really simple and put 100% into VHVG.

VHVG - Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor
VUAG - Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor
VAFTIGA - Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor
VERG - Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor

Note: The ones labelled ETF you can only buy in multiples of 1, so in the case of VHVG 1 unit costs about £80, so you can't invest less than that each month into auto-buying it. The unit trust one VAFTIGA allows for splitting but I don't recommend going into that 100% as it's too UK focused.

Fees

Whether in S&S ISA, SIPP, or Pension, these funds have fees. In the case of VHVG it's a platform fee of 0.15% and then the fund costs 0.12% ongoing, so expect a fee of around 0.27% annually based on how much you have invested. Some of the others had less fees but none are free. This is typical, and performance should still out-pace the fees.

You can configure Vanguard to direct debit the fees from your account to avoid selling investments to cover them, I think this is the best idea, though expect fees to be taken periodically in this way.

Monthly split of funds

My outcome of all of this is that I essentially have money I can allocate each month, and I'll adjust the values as I go along. I'll probably re-balance this approach yearly.

Once I get paid, I'm currently allocating things this way for fiscal year (April - April) 2024 - 2025:

Mortgage Overpayment: £0
Regular Saver (8% interest) with Nationwide: £200
Vanguard SIPP: £50
Vanguard S&S ISA: £500
Cash ISA (ZOPA 5.08% easy access): £250
Total £1000

£1000 sounds like a lot, but I can do it as my day to day expenses are fairly low, and my mortgage is less than £500 pcm, so I have a good deal of disposable income. I am not in the higher earner category though wage is OK, so this kind of thing isn't totally impossible!

This strategy works with smaller sums though. SIPP figure is just a nod to getting this started more than anything. I've transferred a couple of my old workplace pensions over to the Vanguard SIPP.

Going into 2025 - 2026 I'll likely reduce cash ISA and increase S&S ISA instead, I just wanted a certain figure in the cash ISA first. I may also increase the SIPP a little up to say £100.
2026 - 2027 I'll definitely be adding some mortgage over payment here, even if it's only £1-200 per month.

Questions/Comments

Ask away!
 
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It's only in recent years that I've understood how pensions work and how investing works. I feel so angry for not knowing any of this stuff before - and I've made it my mission to try to educate my pals, so they don't make the mistakes I made. I've helped them to come out of the default investment plan for their work, and to instead understand the indexes available and the funds associated with them. In doing so, they now pay more attention to their pension in general, they're interested in it and they're excited for what it can become in the future, and have upped their contributions because of it. I feel quite proud for having helped them with that.

Good on you for redirecting mortgage overpayments to investing. You'll be far better off for it in the long run.

If anyone reading this is overwhelmed by the idea of saving money and getting your finances in order, I highly recommend Damien Talks Money https://www.youtube.com/@DamienTalksMoney/videos - browse a few random videos of his that catch your eye. It's a great way to ease your way in to understanding how personal finances work, how to save money efficiently, and how to build for the future.
 
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I feel like modern finance is a subject that most people don't really understand, either due to lack of interest (pun intended!), or simply being something that gets put on the back burner because other things are going on in life.

I think the best method here is educating yourself via advice from professionals, there are some good resources on Youtube such as the guy you linked and the one I did, worth checking out a few videos from each to get a feel for things!

Thing is I've generally been pretty good with financial stuff, I own most of my home which has a good value attached to it, it's just that my mindset here was that overpaying the mortgage and then redirecting cash into whatever else I wanted later was the right move, and I was stuck in that method for far too long, so it's not that I'm doing badly per se, more that I could be doing better. My house is an illiquid appreciating asset that I can't release money from easily, and beyond 40% equity you're at the best mortgage rates you can get.

Reality is that a bit of everything seems sensible at this point, so my plan going forwards will include:
  • Cash ISA and S&S ISA for short term funds if needed.
  • SIPP and Pension for long term investments which I treat as money I won't have access to for a very long time.
  • Some mortgage overpayments so that I clear it quicker but not stressing it too much.
If I liquidated all of my savings today and paid those towards my mortgage I'd still owe > £100K on the mortgage today, so I've realised no matter what I do this is a long term game. As long as I have access to short term funds I have options and peace of mind, which allows me to put more into investments for longer term.

Of course still need to live and spend cash here and now, so don't need to invest every penny you get, but if you don't need the money then it's a good idea to put it into short or long term investments, easy access Cash ISA is a good parking space as long as it's flexible you can withdraw it at any time for instance.
 
Stuff can move quickly and I think I've locked in exactly what I need to do for a little while, slight adjustment from above but this is my current plan.

Trading 212 opened a cash ISA, backed by FCSC, at 5.2%. This is one of the best rates on the market.

Looking at what else they did, they also do stocks and shares ISA, and further they can hold all of my Vanguard ETF's I wanted, and I can buy them as fractional units, on top of this I can also choose to auto-invest on a schedule. It also seems like this is actually cheaper than holding them with Vanguard directly...

So armed with this knowledge, I set off on a mission.

Cash ISA open

First of all I opened the Cash ISA. The rates are 5.2% AER so this takes into account compounding effect of interest on itself. This is a first for me though... it pays interest daily!

2KF9PcR.png

3.5p interest per day at this level, this is barely worth it, but as you add more that will increase until it becomes somewhat noticeable. At £10K this is £1.39 per day for example. Still not exciting? not really, but £1.39 * 365 = £507 so a good rate of return in a year still.

Stocks and Shares ISA open

Next I opened a Stocks and Shares ISA, simple enough again, this also offers 5.2% AER on "uninvested cash" but this is riskier than in the Cash ISA as they do this by lending your money out short term, you can turn this off, but I figure it's fine as long as I don't leave thousands of £'s here, and I have no intention of doing this.

Investment Pie

Once opened I put some cash over to it and then I added an investment pie. Consider this pie a wrapper for other investments.

Edit - Originally I had 60% in VHVG and some in the ones in the picture below but I've since changed to 90% VHVG and 10% VFEG to replicate what the All World one does with less ongoing fees.

I like the Vanguard ones but there were plenty of other fund options as well!

2YSLaTm.png
Edit 27/05/2024, I'm going to keep it more simple:
This roughly tracks the emerging market % of the VWRP (All World) one but has less ongoing fees Vanguard Asset Management | Personal Investing in the UK | Vanguard UK Investor

Auto-investment

Next I setup how I wanted to invest, there is a lot of flexibility here, but I ultimately decided that daily sounded fun. So I've set this up to invest daily for £20 per day. The minimum investment the Pie allowed was £10, so this would be flexible enough to cover basically anyone wanting to do something similar (and indeed you don't need to do daily, they had a lot of choice).

The projection below is clearly subject to change, and investments can go down as well as up, but I figure daily will give me a pretty awesome spread of prices. If we get a larger stock market drop then I can also increase £20 to say £30 or £40 per day for a while and it will simply buy more. My plan here is to DCA so buying more almost constantly.

So far as I can tell there are no trading fees directly with this so I can invest small cap figures routinely without penalty like this.

S5buMqV.png

Funding the Auto-Investment

I'm intending to use trickle down funding, what this means is that I will deposit all cash into the cash ISA monthly to cover things where it's fully protected, and acts as a sort of holding pen, and then periodically I will move enough funds over to the S&S ISA to fund the £20 daily charge the pie eats up.

The interest rate in both should be the same but the cash funds in the S&S ISA are at slightly more risk whilst earning interest, so I will just have to keep that in mind and not over-commit uninvested funds, no more than a few hundred £ or so at most, once I get the hang of things I may just do this monthly for example. I could also turn this feature off if I wanted to, it's optional.

I wish I could set this just to fund from the Cash ISA directly as needed... I haven't found a way to do this yet.

Moving ISA

I'm now moving over my Vanguard S&S ISA and my ZOPA Cash ISA over into Trading 212, this will give me all my ISAs in one place for now. I will keep the SIPP open with Vanguard directly.

Outcome

The outcome here should be a fun to watch dynamic of interest coming in daily, and then making daily investments into these funds, so I can see progress being made continuously. I'd love to earn enough interest to fully cover the investments daily charge but alas I can't do that yet.

Worth noting that these funds are well covered under £85K total sum, I am miles off that here, but a nice future problem to have maybe.

Final Note: These are my insane ideas and my choices of funds, but that doesn't mean copying me is a guarantee of success! Worth doing your own research into these things as well!
 
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At the risk of endlessly replying to myself, I would feel remiss if I didn't mention that anyone who is a FTB and is saving for a home deposit should look at the LISA, this allows you to get 25% free top up money from the gov each tax year, capped at £4K deposited + £1K free cash.

This can only be used as a FTB for buying a home, or for later retirement savings, but really I think it's best for home purchase only. It's a good way of getting some extra deposit but you have to qualify as a FTB. If not you can withdraw but you lose the 25% bonus cash.

I didn't mention this before now as a lot mentioned above and also it's not a focus of mine as I'm not a FTB.
 
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