If you’ve come here expecting to find out where in my house I keep all my cash, you’ll be sorely disappointed. However, you can take a look at the type of accounts I keep my money in the hope that I’ll have a comfortable retirement.
Although there are quite a few money bloggers around, I find that many seem quite reluctant to talk about their personal finances. And they’re not alone as money still seems like quite a taboo subject, even amongst family and friends. So, I’ve decided to share with you where I put my spare cash and my plans for retirement.
I’ll admit that I’ve been fairly lucky career-wise. My job, I hate, but it does come with a decent pension. So since the age of 22, I’ve automatically had money taken from my wages and I’ve now got a decent amount saved. But, I still don’t think it’s enough for us to live comfortably enough when my wife and I reach retirement. My wife is self-employed and has no pension at all, although has some money in a Lifetime ISA.
We will qualify for the State Pension, but this isn’t generous and would be quite difficult to live on. It also depends on both of us being able to continue to work until 68. And, who knows if we will still be together then? Rumour has it that Kelly Brook is trying to get my number…
Over the last couple of years, I have reached the stage where I can save a little bit of money. Not much, but it all counts. The issue that troubled me was finding somewhere that gives decent returns.
When I was younger, my savings went into an ISA which paid around 7%. But with interest rates at current levels, I would be lucky to earn 0.5%. And with such a small return, I always think what’s the point in saving? When you consider the rate of inflation sits at around 2.5%, that means any money you put away for a year will actually be losing value.
To explain that further to anyone that doesn’t know about inflation and using the figures above:
If I place £1000 in a savings account, 1 year later it will be worth £1010.
However, I’m saving for a TV that’s cost £1000. but due to inflation, a year later that TV cost £1025. As you can see, I am actually £15 worse off.
There are some decent savings accounts out there, but these are very short term. For example, the Nationwide Flexdirect account pays 5%. But this is only for 1 year and for a maximum of £2000.
As you can see, I’m not keen on keeping my savings in cash.
Stocks and shares ISA
So, I decided to invest my money. It’s something that I’ve always been nervous about doing in the past. The warning that your investment could go up as well as down has put me off. Plus, I was never really confident about what to invest in. Knowing my luck, I would put all my money into a firm that was about to be closed down.
But then I found out that there were investment companies out there that would invest for you. And they wouldn’t place your money into just one firm, but many which would minimise any risk.
After some searching around, I heard some good reports about a company called Fidelity. Using a very simple tool, you tell Fidelity about yourself and your financial plans for the future. You also tell them how risk adverse you are when it comes to investing. Perhaps you want to gamble a bit and try and earn some big returns? Or maybe slow and steady is your investment choice? Either way, there will be a product for you.
I opted for a stocks and shares ISA. ISA’s are limited as you can only pay in £20,000 per year. Well, I say limited but I would never get close to that amount. But ISA’s are great as you don’t pay tax on the money you make.
Now, investing in stocks and shares might seem scary, but you shouldn’t look at it as one day you may wake up to find that you’ve lost everything.
The stock market moves up and down often, but history has shown an upwards trend over the long term. Between 1973 to 2016 the average annualised return of the S&P 500 Index (the 500 largest companies listed in the US) was around 11.79%. That means that if you invested £1000 in 1973 and left it, by 2016 it would be worth £116,041.81. That would leave a nice retirement pot for someone who invested at a young age.
To show you how much the market can move, I checked my Fidelity investment on a Monday, which showed an annualised return of 10.42%. However, due to a lot of uncertainness in the market, that had dropped to 7.32% by the end of the week. That’s quite a drop in just a few days. But taking it into perspective, I had still made more in the long-term compared to a cash ISA.
And, the markets returned to normal within a few days.
Plus points – Possibility for far greater returns compared to a cash ISA. Not tied in for long periods.
Minus points – You can never guarantee returns and there is a potential for losses. Usually takes 2-3 weeks to withdraw any money.
Another way I decided to invest was by using a Lifetime ISA (aka LISA). LISA’s were introduced in 2017 as an extra encouragement to save. Anything you deposit into the account will be topped up 25% by the government (to a maximum of £1000) until you reach the age of 50. You can only open the account if you’re under 40 and there are penalties if you withdraw the money before you reach 60.
You have the choice of a stocks and shares LISA or a cash LISA. Of course, the cash LISA is the far safer option but will open return around 0.5% on top of the 25%. The stocks and share LISA has the potential to return you far more but there is also the potential that your investment loses value.
There are a limited number of LISA options available, but I opted for the stocks and shares account from Nutmeg. Nutmeg is another company I had heard good things about, and like Fidelity, you can choose your level of risk. What I love about this account is that the stock market would need to fall drastically if I was to lose money.
Nutmeg has a handy app as well that calculates how much your savings could look like after 1 year and when you reach 60.
Plus points – 25% bonus (maximum £1000 each year), and a potential for better returns than a cash ISA.
Minus points – There is a penalty if I want to withdraw my money before I reach 60 (unless it’s due to terminal illness). As with any other stocks and shares ISA, no guaranteed returns and a possibility to lose money. Can only be opened before reaching 40.
Finally, I have used some clever technology to help too.
Plum is an app which links to your current account. It will then analyse the money going in and out of your account and using a clever algorithm, automatically decides how much you can save. Of course, if you don’t want to, you can cancel any savings from the click of a button.
When my money goes into Plum, it is split into two parts, with half of it being invested and the other half kept in a cash pot. Like Nutmeg and Fidelity, with Plum you can invest in stocks and shares with a host of different funds. Each of these funds differs in their potential returns versus the risk.
The money that goes into the cash pot doesn’t gain any interest, but I use it to save up for treats or bigger purchases every few months.
What I love about Plum is that because it only involves small sums, it’s an easy way to start investing. And as you can see, it’s given me some great returns so far.
Plus points – Great for novice investors, with a choice of funds. No long tie-in and easy to check performance.
Minus points – On top of usual investment fees, there is also a £1 monthly fee. That means smaller investments aren’t great value. Will take a few weeks to withdraw your money.
So that is me and my savings. Please note that none of the above is meant and as financial advice, just an overview of the products I have. If you decide to invest, always make sure you know what you’re getting into and read the terms thoroughly!
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