Pension - do I increase it or invest elsewhere?

[planetit]

surely x amount invested in a good interest account over a long period will bring an excellent return on the original amount invested when the interest compounding is taken into consideration

Milan.

Hang on. 18K for the long term, and you advise him to keep it in CASH?

You're mad. Have you never heard of inflation?

[milanbenes]

Planet IT,

how are you doing this fine morning ?

won't compounding interest on 18k gbp over say a 20 year period beat the inflation ?

Shall we do the maths ?

Milan.

[NoddY]

Drip feed the lump sum from a high interest account into the stockmarket over several years - trackers if your nervous, and split between several markets. This assumes that the lump sum is your money and not your Ltd.

[wendigo100]

surely x amount invested in a good interest account over a long period will bring an excellent return on the original amount invested when the interest compounding is taken into consideration.

I think compound growth in some sort of equity arrangement will far outstrip any interest account.

Having said that, I don't like most pensions. Your money disappears into a black hole, and what you get back at the end of the day seems to be at the whim of a board of directors once investment staff, company shareholders and the government have creamed off what they want. And the investment staff might be crap.

Index-tracker ISAs are supposed to be pretty good; they are fairly transparent, have lowish management costs, you can cash them in any time and do whatever you want with the money, but there's an annual limit. Alternatively, you'll get a good price on Chelsea NOT winning the league this season.

[planetit]

Planet IT,

how are you doing this fine morning ?

won't compounding interest on 18k gbp over say a 20 year period beat the inflation ?

I’m fine thanks Milan. Off to Ireland to rally the Mini Cooper S tomorrow.

Your cash investment should just about beat inflation, but it won’t beat equity or property in the long run. And if it did the banks would probably go bust so your investment would be the last of your worries. What tax vehicle you use for the investment is down to personal circumstances.

[AlfredJPruffock]

>

Some for the Glories of This World; and some
Sigh for the Prophet's Paradise to come;
Ah, take the Cash, and let the Promise go,
Nor heed the rumble of a distant Drum!

In other words beware of pensions ....


-- Omar Khayyam

[IR35 Avoider]

won't compounding interest on 18k gbp over say a 20 year period beat the inflation ?

The length of time isn't directly going to make a difference to whether you beat inflation. Interest rates on cash are related to current base rates which in turn are related to inflation. If you are a higher rate tax payer the real rate you earn on cash could well be negative on average, meaning the longer you save the less you have.

The above describes what happens in normal times, from time to time countries have crises as a result of which cash suddenly and irreversibly drops to a fraction of its former value, or even to nothing. The longer you have the money in cash the greater the risk of suffering this type of event. Remember the story of the German guy who cashed in his 25 year endowment policy in the 1920s and bought a loaf of bread with the proceeds. (Before WWII endowment policies only invested in bonds, which have the same susceptibility to inflation as cash.) If his money had been in real assets like land or property he would have been fine. (I was going to say shares as well but not sure about German shares at that time - there are numerous examples of stockmarkets where had you owned a tracker fund your fund would have fallen to zero and stayed there, when the stock-market disappeared during some political calamity. One would hope this isn't a risk we still face though.) When you are invested in real assets the question becomes not how many pounds/euros/dollars are my assets worth but what fraction of my assets is the pound/euro/dollar worth. In other words the asset is a better store of value than the currency.

So most of the time most of your money should be in real assets.

[AlfredJPruffock]

The length of time isn't directly going to make a difference to whether you beat inflation. Interest rates on cash are related to current base rates which in turn are related to inflation. If you are a higher rate tax payer the real rate you earn on cash could well be negative on average, meaning the longer you save the less you have.

The above describes what happens in normal times, from time to time countries have crises as a result of which cash suddenly and irreversibly drops to a fraction of its former value, or even to nothing. The longer you have the money in cash the greater the risk of suffering this type of event. Remember the story of the German guy who cashed in his 25 year endowment policy in the 1920s and bought a loaf of bread with the proceeds. (Before WWII endowment policies only invested in bonds, which have the same susceptibility to inflation as cash.) If his money had been in real assets like land or property he would have been fine. (I was going to say shares as well but not sure about German shares at that time - there are numerous examples of stockmarkets where had you owned a tracker fund your fund would have fallen to zero and stayed there, when the stock-market disappeared during some political calamity. One would hope this isn't a risk we still face though.) When you are invested in real assets the question becomes not how many pounds/euros/dollars are my assets worth but what fraction of my assets is the pound/euro/dollar worth. In other words the asset is a better store of value than the currency.

So most of the time most of your money should be in real assets.

Good Point IR


Modern example of cash dropping to a fraction of its former value is Argentina.

Have you noticed how Gold has been hitting record highs recently ?

[milanbenes]

Planet IT,

I wish I could come on one the classic rallies,

still I have my dreams and in the not too distant future,
benes invoicing limited will be safely installed in the benes pad
in cee where there is a heated garage ready for completing
the restoration of an inherited classic which will be prepared
for classic rallying

question, if you had a rear wheel drive front engined 60s
car, and you wanted to prepare it for classic rallying and you
weren't concerned with it being absolutely original, what engine
if you had a choice would you put in it during the restoration,
not so long ago it was popular to use the Fiat twin cams, what
other options are there, and what other engines are popular
for retro fitting for classic rallying ?

Thanks,

Milan.

[IR35 Avoider]

All other things being equal, do I increase my modest pension, increase my ISAs, knock it off the mortgage, or do something else with it? Purely on likely benefit after (say) 25 years.

If the money is in your own hands, or can be got there without losing 40% to government, knock it off your mortgage. Unfortunately both property and shares are expensive at the moment. I also think one paid for property that they live in should be the first priority for anyones savings.

If the money is in the company and can't be taken as dividend (e.g. IR35-caught) then put it in Pension to avoid 40% tax and NI. Choosing investments won't be easy though. I would consider a cheap bond fund for the short term then switch to tracker if/when shares offer better value. (Actually my pension money is all in insurance company commercial property funds at the moment, an excellent choice over the last five years but possibly not going to do to much going forward. Some funds are closed to new money and the Legal and General fund is 30% in cash because they can't find anything worthwhile to buy with the money.)