Early Retirement Extreme Forums

Early Retirement Extreme Forums » Money Questions

1. 

   proj
   

   Novice
   Joined: Aug '11
   Posts: 22

   Firstly, hi I'm new here; secondly, sorry if this has been asked before, but I can't find much similar discussion here or many other places, which I partly suspect is because there isn't a clear answer and everyone has a different situation.

   I have no debt and about 20K GBP (~$30K) in total savings, all as cash in savings accounts. Yes, it's a fraction of any realistic goal amount, but it's a start, and it's a pretty good amount for someone of my age (24). I've recently taken a more active interest in ERE and been reading a lot about investments, in particular the Permanent Portfolio, and now seems like a good time to start thinking about investing especially considering the below-inflation interest rates I'm currently earning on my savings. However I'm wondering if it's too early to start now, and when it's generally a good time to start investing rather than just letting the cash pile up. As I say, I'm sure there's no clear cut answer, but I'd be interested in guidelines or opinions.

   And a related question - say I invest a chunk of that 20K (keeping some aside in an easily accessible emergency fund of course), what would I do with my monthly savings after that? Let them pile up and invest it all at the end of the year when I rebalance? Investing a small amount every month into a portfolio doesn't seem worth it considering the trading fees etc.. Apologies if the Fail-Safe Investing book covers this, I haven't read it yet.

   I guess the big question overall is whether it's worth investing a small amount and building on it, or better to build up a load of cash then invest it.

   My situation in brief: working full time and earning enough to save £700 per month and currently trying to increase that amount; I don't have a concrete ERE plan yet but I'm quite sure I'll be doing the career thing and accumulating for the next few years at least. Anything else you want to know, just ask.

   Posted 1 year ago #
2. 

   Chad
   

   Expert
   Joined: Jul '10
   Posts: 1,006

   I don't know if there is a good tangible answer to your question, as part of it would deal with market timing and what you plan on buying.

   I will say that I keep $20k in what I consider safe investments as an emergency fund. For me this means $10k in savings accounts/short-term CDs and $10k in very solid dividend paying stocks.

   Too me it sounds like you need to do some more research for your own piece of mind, before you jump in to managing your investments yourself. It doesn't mean you need to spend 2 years researching, but a few key books could help you be more comfortable with your decisions.

   In the end, I think you will be fine however you go about it, as it seems like you are attacking the problem the correct way.

   Posted 1 year ago #
3. 

   George the original one
   

   Expert
   Joined: Jul '10
   Posts: 1,943

   Short answer is that you have a decent bankroll to begin investing. In my experience, you have enough to bring in $100-300/month income without counting capital gains.

   UK investing has some quirks that we don't see in the USA. Check out http://monevator.com to get a handle on them. Also can recommend http://simple-living-in-suffolk.co.uk and http://www.salisgrano.blogspot.com as "voices of experience" (or just plain curmudgeons, depending on your point of view). I'm an American and I find these sites interesting.

   There are ways to invest without fees, if that's your major concern. And, if you're buying company shares instead of index funds, then I find trading fees don't matter as much as you might think provided you're making good investment decisions.

   I think you need to define a goal for your investing. Are you investing for ERE or ER or a traditional retirement? If the latter two, then you will want to take advantage of traditional tax shelters like the ISA. If ERE is your goal, then getting experience in generating an income from the investments is the highest priority.

   Posted 1 year ago #
4. 

   proj
   

   Novice
   Joined: Aug '11
   Posts: 22

   Thanks for the advice so far. I certainly plan on doing more reading before taking the plunge. I've spent a fair bit of time devouring the Monevator archives, not heard of the other two blogs but I'll take a look.

   I don't have a completely solid goal yet, but I'm definitely leaning towards ERE or at least semi-retirement (working part time or some of the year) in my 30s. As I say I plan on continuing to work full time for at least the next few years so being able to use my investment income for anything other than reinvesting isn't a big priority just yet.

   I can't see any reason not to use an ISA - I already have most of my savings in a cash ISA, and from my understanding of the rules I could just transfer a chunk out of that into a Stocks & Shares ISA. Only limitation is the annual subscription but that shouldn't be a concern at least to start off with, and anything above that could be invested outside of the ISA. Unless there are another disadvantages that I've missed? Maybe I need to read more about ISAs.

   Posted 1 year ago #
5. 

   George the original one
   

   Expert
   Joined: Jul '10
   Posts: 1,943

   As an American, I only know that ISAs exist and haven't a clue as to how they're used. On the surface, they sound like a self-directed IRA.

   Posted 1 year ago #
6. 

   dragoncar
   

   Expert
   Joined: Oct '10
   Posts: 1,289

   First, I'd determine what emergency fund I wanted in cash. Then, I'd choose a percent transaction fee I'm happy with. For example, if I pay $10 for a trade, and trade in chunks of $10k, then I'm paying 0.1%. Pick a percentage you'd be happy with -- maybe up to 0.5% or 1% if you know you'll hold for a long time.

   If you are doing PP, I (personally) think you can include your emergency fund in the cash portion. You can accumulate cash until it hits the 35% rebalancing band (or whatever your chosen band is) and then invest the 10% cash bonus. Using the 1% fee max above, that would mean putting around $1000 into gold, bonds, and stock each. In other words, $3k would be 10% of your portfolio, so I guess a 30k portfolio is about the minimum!

   Posted 1 year ago #
7. 

   KevinW
   

   Master
   Joined: Aug '10
   Posts: 577

   If you are doing PP, I (personally) think you can include your emergency fund in the cash portion.

   I agree, although this point is debatable.

   Posted 1 year ago #
8. 

   Dum spiro spero
   

   Novice
   Joined: Aug '11
   Posts: 16

   @George

   ISAs are tax free accounts (well just about) that allow folk in the UK to shelter cash and investments from further tax (there's still a 10% tax rate on dividends). You can have a cash ISA, a stocks and shares ISA, or both and the total limit (currently about £10k/$16k) rises in line with inflation. They're also exempt from capital gains tax, which makes them good for estate planning.

   @Proj

   Have you considered index-linked savings certificates from National Savings and Investments if you're unsure about starting investing now? They're fixed for 5 years (you can withdraw money from 1 year on with lower reward) and offer inflation + 0.5%, preserving your capital.

   Posted 1 year ago #
9. 

   proj
   

   Novice
   Joined: Aug '11
   Posts: 22

   Have you considered index-linked savings certificates from National Savings and Investments if you're unsure about starting investing now? They're fixed for 5 years (you can withdraw money from 1 year on with lower reward) and offer inflation + 0.5%, preserving your capital.

   Nah, that's too boring ;)

   Just kidding, yes I have considered these, and they seem like a good place for any cash I can tie up, it certainly beats the 3% on my ISA.

   I'm still interested by the Permanent Portfolio, but also by the high-yield portfolio idea, which seems easy to get in on without a huge capital. Still plenty of research to do before I make a decision anyway.

   Posted 1 year ago #
10. 

    Shandi76
    

    Journeyman
    Joined: Jan '11
    Posts: 111

    Welcome to the boards proj.

    I use the full ISA allowance each year for a Stocks and Shares ISA. I did transfer in 4 years worth of Cash ISAs too. Most providers charge a transaction fee for that, so if you know you want to use the full allowance for investments then it might be better to just keep your cash EF in a taxable account.

    Posted 1 year ago #
11. 

    ermine
    

    Novice
    Joined: Jul '10
    Posts: 5

    @proj,

    something that might be worth doing is ask yourself what do you want your investments to do for you? And what is the arc of your life/career likely to be in the next few years? That will give you a feel of your investment horizons. For instance, saving for (conventional) retirement in 30 years is very different from saving for a deposit for a house.

    ERE is probably harder in the UK because of the high cost of housing, and while property taxes are very high in the US I don't think they apply to tenants, unlike council tax. Against that, not having to fear the results of no health insurance has got to be some compensation, and growing your own food without land is a little bit easier, if you have the inclination.

    Posted 1 year ago #
12. 

    chenda
    

    Master
    Joined: Jun '11
    Posts: 371

    If you set up a Permanent Portfolio you can keep the gold portion tax free outside an ISA by buying Gold Sovereigns which are exempt from capital gains tax.

    Posted 1 year ago #

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