The Money and Savings thread

[Dios]

I thought it would be useful given that PakPassion is such a melting pot of people from all walks of life to have a thread where some of the more experienced members of the forum can give advice to the younger members on how to be smart with money.

I am in my early 20s and have now been at a corporate job for over a year and have accrued a bit of money whereby I need to give some thought as to what to do with it.

Leaving it in the bank is not a smart move in these times of relatively high inflation as your money is essentially losing value just sitting there. The rates offered by UK banks for putting your money into savings accounts or ISAs is a joke.

On the other hand, the FTSE 100 hit record highs earlier this month and equities are looking pretty attractive at the moment however many of us don't have the time, energy or technical knowledge to be active investors. Does anyone have experience with tracker funds or other forms of passive investing and can recommend them or tell others how to get started?

Alternative forms of investment such P2P lending are also gaining prominence. Platforms such as FundingCircle and CrowdCube are offering attractive rates but they are still very new in the market. Again does anyone have any personal experience with these forms of investing?

The discussion does not have to be confined to the UK.

 

[hadi123]

I need to be tight with money too as I am a student.

 

[Little Master]

If you want a hedge against inflation the stock market (either through a diversified portfolio or a low cost index fund) is you best option. If you do not have time to study the stock market I would advice you to go with an index fund. However, if you ask my personal opinion I believe all stock markets are extremely over valued currently and a major correction is around the corner.

 

[ManFan]

Use a Roth IRA. Saves you stress.

 

[ahsan17]

I am from Canada so my experience would be slightly different, but you would be able to adjust fairly easily for your scenario.

IMO, you can't go wrong with buying several index ETF funds. Open an account at a brokerage (fairly easy, can be done entirely online) and start buying ETFs. Here are several model portfolios, depending on how aggressive you want to go, if you were in Canada:

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf

For your scenario, you would want to find model portfolios for UK. If you want to go aggressive, I would suggest a portfolio where you invest 25% into Bonds ETF, 15% into UK equities ETF and 60% into global equities ETF. That is a more assertive portfolio with less bonds and more equities. For your age, I would go with more aggressive or assertive portfolios, but that is obviously a suggestion.

Think about how aggressive you want to go, and find portfolios online that go that aggressive, or post here for suggestions.

 

[Black Zero]

You have earned the money so spend it on yourself.

Do not return (aka investment) it.

 

[srh]

I am from Canada so my experience would be slightly different, but you would be able to adjust fairly easily for your scenario.

IMO, you can't go wrong with buying several index ETF funds. Open an account at a brokerage (fairly easy, can be done entirely online) and start buying ETFs. Here are several model portfolios, depending on how aggressive you want to go, if you were in Canada:

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf

For your scenario, you would want to find model portfolios for UK. If you want to go aggressive, I would suggest a portfolio where you invest 25% into Bonds ETF, 15% into UK equities ETF and 60% into global equities ETF. That is a more assertive portfolio with less bonds and more equities. For your age, I would go with more aggressive or assertive portfolios, but that is obviously a suggestion.

Think about how aggressive you want to go, and find portfolios online that go that aggressive, or post here for suggestions.

how do you make sure that index funds does not contain companies which are not permissible under Shariah rule of Islam?

 

[Abdul]

I'm just tryna chill right now and my bank is stackin' up.

 

[ahsan17]

how do you make sure that index funds does not contain companies which are not permissible under Shariah rule of Islam?

Each index fund lists companies it investments in, and what share of its investments are in that company. You could weed out index funds that way. But keep in mind that the companies they invest in may change, they may add new companies or remove existing ones.

To be honest, this is not really something I concern myself with, so it would be hard for me to give a good answer, but what I said above would be a good approach to go about it.

 

[sshakir411]

What is your risk appetite?

 

[Chrish]

Max out your retirement accounts:

401k
Hsa
Ira

Index the rest with standard 3 way portfolio. Optimize asset allocation based on your age and risk tolerance

 

[Chrish]

If you want a hedge against inflation the stock market (either through a diversified portfolio or a low cost index fund) is you best option. If you do not have time to study the stock market I would advice you to go with an index fund. However, if you ask my personal opinion I believe all stock markets are extremely over valued currently and a major correction is around the corner.

No one can time the market. So it’s important to start investing ASAP if you don’t wanna stand on the side watching others make bucketload. For all we know, tax reform might be coming soon and this bull’s market can go on few more years

Use DCA strategy if lump sum buying makes you uncomfortable.

 

[srh]

Each index fund lists companies it investments in, and what share of its investments are in that company. You could weed out index funds that way. But keep in mind that the companies they invest in may change, they may add new companies or remove existing ones.

To be honest, this is not really something I concern myself with, so it would be hard for me to give a good answer, but what I said above would be a good approach to go about it.

so you dont make sure that you are earning halal income?

 

[ahsan17]

so you dont make sure that you are earning halal income?

As far as my investments are concerned, no I don't ensure that they only invest in 'halal companies'.

 

[srh]

As far as my investments are concerned, no I don't ensure that they only invest in 'halal companies'.

why is that? is not Islam wants you to earn halal income?

 

[Little Master]

No one can time the market. So it’s important to start investing ASAP if you don’t wanna stand on the side watching others make bucketload. For all we know, tax reform might be coming soon and this bull’s market can go on few more years

Use DCA strategy if lump sum buying makes you uncomfortable.

Or you could do some research and look for relatively stable and undervalued stocks. I am not asking anyone to stand on the side and watch other make money. I was just cautioning against investing in index funds as these would be hit very hard when correction comes.

 

[Varun]

I'm heavy on Indian equities via mutual funds.

Works out well for me and helps surpass the prevailing rate of inflation.

 

[Pak_Jazba]

Mutual funds is the way to go. The type of fund though, is dependent on your risk apetite and age.

Further, just a question, what do people here consider to be a good portion for savings from their monthly income?

 

[jusarrived]

I dint bother about savings untill I was in late 20s , but am doing fine . Give your self a break and spend some of it on yourself at least for first few years .

As for what you do with your savings , it depends on your risk appetite . I honestly think untill you hit 35 , its stupid not to take calculated risks with your money . you can go 50% into equities ( not without researching ) , 25% MFs and rest to less riskier options .

 

[Buffet]

Practice delayed gratification, save and keep investing. If you have skill and temperament to find undervalued companies then do it else simply stick it in index for coming decades. Don't be scared by 50% drop in index, it will happen few times in your life so sure.

 

[Chrish]

Or you could do some research and look for relatively stable and undervalued stocks. I am not asking anyone to stand on the side and watch other make money. I was just cautioning against investing in index funds as these would be hit very hard when correction comes.

To each his own. I am young and full time employed so I will take more risk. You can buy stable stocks but your returns would be much lower.

People have been waiting for "correction" since 2013 and it's still not on horizon. You might as well start predicting lotto numbers.

 

[Chrish]

Total market index funds are actually considered pretty risk averse and even if they are hit hard, past research has suggested your holding will recover once market takes bull's route again. So, if you index for long term you will come out ahead in the end.

The only thing to keep in mind is to buy more when the blood is flowing on wall-street during recession.

 

[Dios]

What is your risk appetite?

Obviously I don't want to be throwing money down the drain but given that I am young and have stable employment and all of my expenses are being met at the moment I am willing to tolerate risk. No point locking my money away for paltry returns in 'safe assets'.

 

[Asif khan]

Do due diligence, research and then invest in cryptocurrency.

 

[sshakir411]

Obviously I don't want to be throwing money down the drain but given that I am young and have stable employment and all of my expenses are being met at the moment I am willing to tolerate risk. No point locking my money away for paltry returns in 'safe assets'.

The assets to buy are your judgement call so do some research on Mutual Funds, Index Funds, and ETFs...Going with a Mutual Fund is a good option but Index funds are usually slightly lower-cost. Start off small (1/4 of your savings) with an Index fund and see if it makes sense to you and then invest more.

Here's some reading material:

https://www.cnbc.com/2017/06/14/index-funds-are-the-smartest-way-to-invest-your-money.html

https://www.nerdwallet.com/blog/investing/how-to-invest-in-index-funds/

http://guides.wsj.com/personal-finance/investing/how-to-buy-a-mutual-fund/

 

[Chrish]

Do due diligence, research and then invest in cryptocurrency.

Wouldn't touch it with ten foot pole.

 

[Chrish]

Boglehead forum and their wiki has the best available online info on investment for people living in USA. Many people who post there regularly are millionaires; they have been there, done that. Some of the analysis is fascinating and informing.

 

[Asif khan]

Wouldn't touch it with ten foot pole.

Your loss.