Drip Feed Savings Accounts:
https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
Bank Accounts where you have to drip feed can give you upto 3% but it can be a faff and you normally have some strings attached (not costly ones but things like having your current account with them as well), this guide gives a decent overview, though it’s a little bit about how much effort you can be bothered with. To be fair they are usually pretty easy to setup and its just a monthly reminder to switch some money across, but you need to pick one that gives you decent interest on a decent-enough sized monthly deposit. £50 per month is just way too little to be faffing around with.
Non Drip Feed Savings Accounts:
Best Savings Account (read the whole article – yes some of these banks are not banks you’ve heard of before – but that’s why they are offering higher interest, because they are not as well known brands so need to be more aggressive in what interest they offer to get people to bank with them. 85k is protected by the financial regulator in the (highly unlikely) event that they go bust, so you should not be at all worried to deposit say 20k-40k with them and let that earn 1% interest over the course of a year:
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
Stocks and Shares ISA
Again nothing too crazy about this. This is the main platform through which you should invest in shares. I personally avoid managed funds as these guys charge you a management fee per year to do basically nothing 1% a year compounded for managing your stuff is a really big drag in the long term. The ISA wrapper means a loss can offset against your income but the gains are not taxed. I use Hargreaves Lansdown. Simple to use platform and minimal performance/management fee. I personally try to keep my single stock punts to a minimum and stick it in a bunch of index tracking funds (that just track the FTSE100 at a lower cost). I also invest in gold via this.
P2P Lending (also via an ISA):
https://www.assetzcapital.co.uk/
Peer to Peer Lending can be done within an ISA wrapper (ISAs purely mean that the capital gains or interest you make within the wrapper are not taxable, BUT the losses are still tax deductible). Losses being tax deductible is generally a super powerful thing – imagine a world where you earn 55k in a year, and in year 1 you lose 5k investing and in year 2 you gain 5k investing. Year 1 you can offset the loss vs your income so you get back from the government the 5k*40% tax rate = 2k as a cheque from them once you file your returns. The next year you don’t get taxed on the gains (which would have been a 20% tax). So outside of the ISA across the two years you’d have been down 1k due to the taxes, inside the ISA you are net up 2k. It’s a really big difference! You can see that this becomes more and more useful the more you earn (i.e. the higher the tax rate that you are offsetting against) or the bigger the risks you are taking (i.e. you’d have net made more through tax savings if in this analogy you’d have lost & made 10k).
Anyways – P2P investing is where you log into a platform and can “buy loans” -> i.e. put small amounts of money into lots of business loans. Lots of these loans appear to be for property investment as each loan is collateralised to a certain extent, but by putting small amounts into lots of different loans you still get some diversification benefit (spreading your risk across lots of assets means you are likely to suffer more frequent but small & manageable losses, rather than one big showstopping loss). Most are circa 50-90% collateralised. Depending on the riskiness of the loans they pay between 5%-10% interest. This is another option on the riskier end of the spectrum but if you are allocating 90% of your capital to stuff that’s super safe, it’s worth considering having a small proportion that’s a bit riskier. I personaly use Assetz Capital – the platform is easy to use and they have a “buffer fund” which means you as the investor are protected/compensated a bit by the fund if any of the loans sour.
SEIS & EIS Share Investment:
Read this: https://www.whatinvestment.co.uk/eis-and-seis-tax-breaks-explained-2381293/
The tax-breaks you can get through this make this a “comparatively” low-risk, high reward option in investing. Yes you are investing in high risk companies, but a lot of the downside is being paid for by the government because you are allowed to take a tax break up front on your investment, AND offset any losses against any income you have earnt. This can be handy down the line, cause you are not too far away from being paid money that’ll be taxed in the 40% tax rate bracket so the tax-offset on losses becomes more valuable at that point (and that’ll be a few years down the line). SEIS & EIS is the riskiest thing I am recommending in this and you shouldn’t put too much in. Maybe 10% - 10k type amount. This is the chunk that could easily double over the course of 3 years.
Pension & SIPPS
SIPPs are just a self managed pension – giving you the ability to decide what it should be investing in AND, once again, eliminating the management fees that are entailed by products offered by the likes of Legal and General and co. Perhaps just sticking with your current pension is best whilst you get a handle on everything else. After that you could consider switching to a SIPP to eliminate management fees.
Generally putting money in your pension is also a good idea over the long term, provided you don’t need the money soon for any kind of purchase. The reason why its good is that it, again, can be offset against your income tax. I.e. if you earnt 55k in a year. You stick 5k into your pension at the end of the tax year, file your self-assessment tax return and get sent a cheque for 2k. Hence you’ve taken 5k and INSTANTLY turned it into 7k. The only caveat is that you cant take the money out for a long time of course. However this is a good thing to do long term. So if you are ever in a situation where you are near or JUST over an income tax threshold (so 5k into the 50k say) it can be used as a way of reducing yourself under the 50k bracket again.
Summary of Advice
If I had to summarise what a lot of the things above hinge upon, is that you are trying to tilt the likelihood of making money in your favour by giving yourself the ability to offset losses/investment against your income tax, thereby getting back money that you would have otherwise been lost to the tax man. It converts a trade/bet from something that was 50:50 win/loss into better odds for yourself. The other options are about not having to pay tax when you make money which is effectively taking something that’s structured 60:40 against you to make it back to a 50:50. The point is there is no magic formula where it tells you the specific things that you should invest in that’ll definitely make money at 0 risk to yourself. It’s about spreading your money across a number of bets which will, on average, make money, and when they do – ensuring that they do so in the most tax efficient manner.
Once you have a handle on each of these possible ways of investing and deciding a ratio in terms of how much to put in each type, you can then focus on the detail of exactly what stocks or exactly what loans to put things into. As a young person, with a good stable income, you shouldn’t be afraid to risk a bit more money as these are the years where you can, on a relative basis, afford to do so.
At random, I could suggest something like 40% savings accounts, 40% shares ISA, 10% Gold (within the ISA), 10% split between SEIS/EIS & P2P. It’s worth noting that the latter two are much more illiquid (takes longer to take your money back out once you’ve put it in – P2P lending can be months, SEIS/EIS is 3 years – so a factor worth considering in your plans). I think you as an individual having these things setup and with a small amount in them, allows you to feel them out, get comfortable with the concept, and then down the line once you feel more in control you can start to allocate as you see fit.
Investment Goal:
We briefly mentioned it but you should roughly calibrate the “expected return” of your portfolio to match your goals. Let’s say you want to buy a house in 3 years from now and the house you want to buy requires a deposit of 150k (assuming you save nothing per month from your income). I.e. you need to make 20k from your pre-existing 130k.
(150k/130k)(1/3) = 1.0488 -— > this means you need your investments to make roughly 4.88% per year for that 130k to grow into 150k in 3 years. Hence it tells you that if you are afraid of losing money and stick everything into your savings account at 1% for 3 years you simply aren’t going to get anywhere near the target. So either it means you need to change the target number, or re-think how risky you should be investing. At the very least doing those back of the envelope calculation puts things into perspective.