James asks: “I want to start investing but I am struggling with my next steps. I have £1000 saved already which will act as my emergency fund and I am saving £300 a month into a savings account.”
Q&A 80 – How Should I Invest My Money? – Shownotes
First of all I would like to say that I am a massive fan of Moneystepper and the Moneystepper Podcast.
Basically, I want to start investing but I am struggling with my next steps. I have £1000 saved already which will act as my emergency fund and I am saving £300 a month into a savings account.
Am I right in thinking that I now need to set up a stocks and shares ISA with an online broke such as SVS securities and set up a direct debit of £300 a month from my current account into the ISA? Then interest gain from the ETF will then be added into the ISA account? Or have I missed some steps?
I look forward to hearing back from you.
Hi James. Thanks for the kind words about the podcast, and thank you for the questions.
This is a bit of a follow on from our last questions, number 79, from Tony who asked about investing with £25 per month, and whilst my response is very similar for James there are a few individual points that I’d like to address.
The first is whether your “emergency fund” of £1,000 in enough. Common wisdom indicates that an emergency fund of 3 to 6 months of expenses is required. However, depending on your current situation (financially, socially, personally, professionally, etc) that figure could be way too little or too much.
How Much To Invest At Once
So, once you have worked out if your emergency fund is an appropriate size, we can then move forward with thinking about investing. You say in your question James that you have £300 per month going into a savings account.
Your plan is to set up a S&S ISA with SVS, and put that £300 a month into the S&S ISA. You can do this James, but as we said to Tony last time, if you are investing money into market tracking ETFs, you will be charged a trading fee (a one-off fee any time you buy or sell anything) of around £8.
Therefore, you need to work out your optimal point where the additional interest earned through your investment compared to leaving it in savings will outweigh the cost of this fee. The point where that becomes the case will change depending on your assumptions and the interest rates on your savings, etc, but I would say that the £1000 mark is a good minimum investment amount when you buy.
photoshop cs6 Invest More Once Every Few Months
As such, if you plan to go with your plan, I would personally put 3-4 months into the savings account so that you have £900-£1200 sitting there, then transfer it into the S&S ISA and purchase the low-cost market tracking ETF of your choice.
That will then grow tax free over time, and the dividends (if paid – this will depend on the ETF you buy) will get paid into your S&S ISA account. You can then add this together with the next £900-£1200 chunk you save and invest the combined amount of the new capital and the old dividends into your next purchase.
This shouldn’t be considered direct invest advice James, but you may want to know that, whilst the amounts vary, this is exactly the approach I personally take to investing.
The benefit of doing this is also that you’ll indirectly benefit from “dollar-cost averaging” by putting in around £1000 each time you buy. Again, I’ll link to articles with more information on that in the shownotes.
I hope that helps James.
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