The Optimal Order For Investing Your Money
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Investing vs re-paying mortgage
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00:00 Intro
01:29 Emergency Fund
03:02 Insurance
04:33 Pension Contribution Match
05:09 Paying Off High-Interest Debt
05:42 Pension & ISA
08:14 Overpay Mortgage
08:50 General Investment Account
09:48 Junior ISA & Junior SIPP
10:02 Residential & Commercial Property
10:39 Venture Capital Trust, EIS & SEIS
13:24 Final Tier
Would you change this order based on your personal circumstances? Let me know how and why.
An elephant in the room is interest rates. Use Cash ISA when IR is high, but property when IR is low (leveraging). Yes, I know people have socks and shares ISAs, but if you are working I would suggest you make extra AVCs and get the extra tax relief (instant 20% uplift minimum), and put that into equity in your pension (I see no point in a stocks and shares ISAs if you can do the same within a pension wrapper).
I notice Dave Ramsay over in the US always encourages overpayment of mortgage before maxing out on other related US investments. I was intrigued with this since mathematical it make little sense Shiv he seems to admit. However the reason seems to be related to powerful psychological reasons Shiv I understand. I prefer to invest first due to the cheap money on offer for mortgage purposes.
I was hoping I'd find an answer as to when UK Student finance should enter the question, but it didn't get touched upon. Wouldn't it be considered Tier 3 as well since it's at 7.4% interests atm? For someone who'll definitly pay it off within the next 10 years at the current rate of earning.
Safer to overpay mortgage before ISA for me.
I am planning to move from the UK to Canada in 2030 so what I am doing different is maxing out my Stocks and shares ISA to have the money I need to purchase a house when I get there. I will. Be fortunate to have an immediate pension when I leave the military after serving 22 years and will rely on that. I'm not building up any private pension in the UK but aim to start that when I get to Canada at age 40. I am a little unsure how moving private pensions to other countries works.
Tesla looks like it's going big. I really want to profit from the market this year. I have about $40k I want to invest in the market. My brain doesn't do very well in understanding these things. How else could I utilise the market opportunity?
I suggest you focus on two key objectives. Learn when to sell stocks to minimize losses and maximize gains to start protecting yourself. Second, prepare to make money when the market turns around. I advise speaking with a broker or financial counselor.
Agreed. My portfolio is well-matched for every market season yielding 85% from early last year to date. I and my CFP are working on a 7 figure ballpark goal, tho this could take another year. In my opinion, financial advisors are the most sought-after professionals after doctors.
Please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch if you don't mind.
I'm hesitant to make recommendations like this online so I can't drop her contact here, but you could look her up yourself and contact her if you wish. Her name is Sharon Lynne Hart.
Thank you for this. I'll send her an email, and I hope I'm able to make something out of it.
Thank you Lord Jesus for the gift of life and blessings to me and my family $14, 120.47 weekly profit Our lord Jesus have lifted up my Life!!! A. V
I'm favoured financially, Thank you Jesus $32,000 weekly profit regardless of how bad it gets on the economy.
How
..? Am a newbie in crypto investment, please can you guide me through on how you made profit?
Thanks to Mr Lee Davis.
He's a licensed broker here in the states
YES!!! That's exactly his name (Lee Davis) so many people have recommended highly about him and am just starting with him😊 from Brisbane Australia🇦🇺
This is one of the best episodes I’ve watched, a simple summary of the end to end stages to consider throughout your investment planning journey. Thank you james!!!
Stocks in the short term look more likely to move downward. I Just inherited $500k which I Look forward to invest. what stocks should I look into as a newbie to safely grow my money?
I think the next big thing will be A.I. For enduring growth akin to META, it's vital to avoid impulsive decisions driven by short-term fluctuations. Prioritize patience and a long-term perspective consider financial advisory for informed buying and selling decisions.
Keeping money in the bank is like paying banks and the Government. Here's how it works: The bank gives out your money as loan, and charge interest obviously higher than inflation rate, and then give you, the depositor, interest lower than inflation rate. That means net loss for you. That is why I prefer to invest, and on average, my advisor makes returns that always beats inflation!
To be honest, I've been wary of banks for a while, but I wasn't sure how to speak with an advisor first. Please let me know who your adviser is if it's okay; I need some recommendations.
Anna Rounds Fay is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Thanks for the pointer. I searched her up on the web and I have sent a mail. It was quite easy to find her details
This is such a well put together video. Thank you !
Mate, you are a legend. Best financial advisor online
Only really started retirement planning a couple of years ago. Amazing that your tier system is exactly the order that I have done things in. I'm at the bottom of tier 3 and unlikely to drop to tier 4 with retirement just around the corner. Thank you so much for confirming what I've been doing. No financial planning experience, but okay at arithmetic and common sense.
Loving this flow chart 👍
Hi James, great video. I’d love you to do a deep dive on tier 6 in a future video, pros & cons, and which of the tier 6 videos is best for which situation. Also include blood lines trusts and wills in the video content too. Thanks. Cheers 👍
Another great video James. Nice to see a logical flowchart and as always explained very well. Keep up the good work!!
I realise this is just covering the highlights. So just to elaborate on the reasoning for tier 3. Technically I guess it depends on your goals and what you earn but with tier 2 until you earn a lot then that pension contribution match will probably give you a good retirement if you work until state pension age so when you move onto tier 3, you start to think about long term saving/investing and early retirement. And, as I just mentioned, your pension is less likely to be the issue if you earn a lot; first, it would be having enough to bridge any gaps between retirement and pension ages. So you need to invest in an ISA as early and as much as possible. This is the most challenging part of early retirement for most people due to the high tax they'd pay due to the income needed. And then secondly, once you're sufficiently investing into the ISA for your goals, you would think about speeding up on the pension.
Fantastic breakdown on tax-efficient investment strategies! 👍 One key point to remember is the importance of adjusting your emergency fund and insurance coverage as your financial situation evolves, ensuring that you're always adequately protected as your portfolio grows.
Excellent overview & you have made me reflect on my next financial move.
This bloke is absolutely fascinating.
Grade A knowledge for free on UA-cam.
Welcome to the channel. There's a lot more content like this!
Very good video. First time I have seen all the options and some logic put on one page. Thank you.
Spot on my friend. Awesome video! Thank you for all the knowledge and nuggets you had thrown my way over the last month. I have accumulated 180k today. Started with 17k in last month 2024 Investing with Sylvia Nicolas
Wow that's huge, how do you make that
much monthly?
Honestly? I'm so excited. Sylvia Nicolas strategy has normalized winning trades for me also and it's a huge milestone for me looking back to how it all started😃
The first time we had tried, we invested $4,000 and after a week we received $16,400. That really helped us a lot to pay our bills.
Most people are retiring this year and have nothing to show for. But I assure you it's never late to get your financial life together again. All thanks to Mrs. Sylvia for me and my family.
Wow wow please is there any way to reach her services, I work 3 jobs and have been trying to pay off my loan for a while now, please help me..
Hi James, great video once again! General question, I hold US equities that pay dividend within my ISA and am being taxed at 15% withholding tax. Is this something I can claim back?
Excited for this video. Final bit of consumer debt paid off this month. Emergency fund full. Time to invest!
Congrats!
Big up
Not all debt is bad. A mortgage is one of the cheapest form of loan you'll be able to access, and at the moment in the UK it might be more efficient to have your money invested in something with a higher yield than the mortgage, as long as it can become liquid reasonably easy
@@DSVWAREMortgage Rates have gone up in recent years and many with your mindset caught a cold coming off fixed rate mortgages.
@@wl660 it does not matter it rates go up or not, if investing gives you a similar rate or higher than your mortgage. It's better to have your money in a somewhat liquid investment vs have it invested in a house, which is non liquid. I can sell shares and have cash available in a couple of days, selling my house, not so much
Great video as always. Would it be possible to do a video on VCT's and Offshore Bonds? Thanks
Great, very clear and concise overview. Very helpful, thank you!
Thank you !! Just the ticket, been looking for a video like this, a great guide of what to tackle 1st and how proceed, simply brilliant !! Have my thumbs up James.
I’m glad you found it useful!
Great video James. Although I’m confident I won’t get past tier 3 despite my best efforts this is still valuable information for me
Many thanks and all the best
I’m glad you enjoyed your it!
I'm interested in your thoughts on the cashing in the ISA? as that to me seems to give up the flexibility of having two pots one that everything taken from is taxed and one that is not. It seems to me that its does not seem to mak sense to cash in an ISA and then pile it into the pension as then everything is behind the must be taxed wall? so if your pension was paying you 50K and you throw in a load from an is a that you were going to take say 10K a year tax free from now that 10K taken back out via the pension is going to get stung for 40% Tax?
This is a brilliant video, clear and well communicated, but maybe one additional tier - invest in the here and now, spend money on experiences snd trips with your children or by yourself that you won’t be able to do when you are older.
Brilliant video, so informative. Thankyou James! 🫡
Fantastic flowchart.
I'd personally put the Overpayment Mortgage as optional in Tier 4 (make sure I do a bit of GIA first)
@JamesShack What is your opinion on investing in Index or managed funds in developing countries where the rate of return is quite high. In fact, even term deposit rates is quite high compared to the deposit rates in EU. Of course, the change in conversion rates and fees needs to be taken into consideration. Looking forward to your views on this, thanks.
Great video!
I am stuck between overpaying my mortgage or increasing my SIPP contributions. I am 34 in a couple of months, and invest around £2,500 per month into my SIPP and about £200 into my ISA. In total I have six-figures between my SIPP/ISA.
I paid a lump sum off my mortgage (£17,000) a few months ago too.
I have a 12 month cash buffer (emergency fund) also.
I keep hearing a lot of different opinions about paying off my mortgage sooner OR increase pension / ISA contributions. At the moment I am doing both, but obviously I could gain a lot more by not overpaying my mortgage in using that money to invest. Any thoughts?
Thanks James. Enjoyed this.
Glad you enjoyed it
I have always pushed ‘emergency fund’ down my investing agenda simply because of the psychological idea that I’m delaying saving for my retirement.
However, our neighbour’s oil tank has just leaked 3000L into the ground and contaminated the surrounding area. Our insurers have decided that we are under-insured (lesson: get a rebuild valuation survey on your house every 5 years). Now we could find ourselves having to fork out £00,000s (doesn’t matter that the neighbour is liable).
Luckily, I received some inheritance which could hopefully JUST about cover this liability. However, it’s made me seriously understand the value of an emergency fund, and its priority in investing. I never would have thought we would be at risk of such a cost.
Keeping a £00,000's emergency fund in case of your neighbour's oil leak would be madness. Make your emergency fund 'reasonable' - and suck it up if something crazy happens.
@@danguee1 if you think about what the advice is on emergency fund (6 or so months of expenditure), we are actually talking about tens of thousands (in the situation of a couple at least).
In our specific situation, without being so fortunate receiving the inheritance monies we have, we would have no way of sucking up such a significant amount. Hence, my new found appreciation for the advice that emergency funds take priority.
That's an amazing video, James! Thank you! I have a very quick question I hope you can help me with. I understand well the additional contributions in DC pensions, but I have a DB pension and I cannot put any additional money into it. Have you got any advice for these types of pensions? Don't get me wrong, I know DB pensions are gold dust and I am very happy about it! It's just a shame I can't put more money into it. Thanks!
Hi James, thanks as always! I have a question - overpaying a mortgage sits in tier 3 but is there a suggested tier for buying a property itself? I guess there's no single answer but are there any general principles behind foregoing some ISA and pension savings to get a foot on the property ladder?
As far as products go, maxing out a LISA > ISA is often the way to go (depending on the value of the place you want to buy).
Whether you should invest or keep the money as cash depends on when you want to buy. I discuss it here: ua-cam.com/video/jCUbBLxtzMo/v-deo.htmlsi=aOELJEMPyxl81uN3
I do all three things on tier 3. S&S ISA to keep me going from 55 to 57, SIPP to keep me going from 57 until I start taking my work pension and paying off the house so that living after early retirement is possible.
Would you still Match workplace pension mine for instance will put 9% in as long as you put 3% or more in.
Proof if you ever needed it of all the tax dodges and efficiencies available to the high earners. Yet they've frozen the limit everyone begins to pay tax for how many years (to the point that the basic state pension isn't far behind being caught up in being taxable income)
Appreciate all the videos you do James and certainly not meant as a knock against you, just shows how many options there are out there.
Folk accessing anything below tier 3 are in theory already paying far more tax than most of us. I'm not one of them unfortunately, but just a thought.
What I would say to this is that most people never pay any tax on investments. They have a tax rate if 0% because they get relief on interest in bank accounts, CGT relief on anything they sell in a general investment account, primary residence relief on their home and never fill their ISA or Pension allowances.
If you are a combination of fortunate and hardworking enough to use up your allowances, the tax rates are very high. If you have paid 45% tax on your income (plus lost your child benefit, interest allowance, pension allowance etc), then you're paying 20% on your gains made using money that's already been taxed, plus then facing IHT on top when you die if you don't use the tax planning tools available.
I'm not suggesting that we all get out our violins for such people, but the previous commenter is correct when they suggest that these breaks are not allowing such people to pay less tax than the typical person, just reducing what would otherwise be huge rates.
What I will say is that the very wealthy do sometimes achieve lower overall rates than some of the middle class who earn enough to pay the highest rates but not enough (or don't have the knowledge) to get advice on how to reduce tax.
Great video as ever, James. Where would an Onshore Bond fall onto the mix in your view? Thanks
Excellent video… especially the bit about life insurance and critical illness cover. No one expects the worst but when it happens ….trust me it happens when you least expect it….that insurance is an absolute life saver
Well said.
My normal salary is £43K but last year I was put onto overtime work and it was only in January I realised that I was going to go over the £50K threshold and start paying 40% tax and halve my savings allowance. Belatedly I asked payroll to pay my overtime directly into my company pension. However, I was still going to go over and so made a voluntary contribution based on the overtime money I had made, I plan to cover this in a self assessment tax form to reduce my tax in this financial year. I wish I had been sharp enough to have spotted this last year and had my overtime put straight into my pension back then. Hope this helps others.
At least you noticed before it was too late and now you know for the future.
And now we know thanks to you!
Hi James, I've been paying into a S&S LISA for retirement purposes, as a lower rate tax payer, for the last few years. However, I'll soon be a higher rate tax payer. Would the advice now be to leave the LISA to grow and open a SIPP and pay into that instead?
7:53 First time I’m hearing about the pension allowance taper, which is going to impact me in a few years
As a protection advisor. Thank you for putting insurance in the correct place.
IF YOU ARE READING THIS. GET INCOME PROTECTION. That is your number 1 priority. Your workplace cover is shit (even if its 12 months sick pay). Make sure you get the income to kick in after your sick pay ends. Once you have this you can look at other things like life cover and critical illness.
But for goodness sake, protect the one thing you cannot do without. YOUR INCOME!!!
@9:00 GIA - general investment account - or what the rest of us in Europe call our stocks and shares/brokerage accounts. You don't know how lucky you are in the UK with ISAs.
We are lucky indeed. No one realises!
Great videos @JamesShack. Any chance you could do a video around approaches for people with mixed pensions e.g. I have one defined contribution with a current employer and two defined benefit from previous employers (one which is set at 63 the other at 65) both which allow a tax free lump sum. Im wondering if it would be best to take the lump sum from the pension I can't draw until 65 as in theory I would have less years to take payments before the inevitable happens. There is also a possibility that my DC pension might reach the threshold for the maximum tax free lump sum before when i intend to retire.
It is a time and value equation.
You know the time constraint is mortality. My lump sum would take 22 years to receive on the drip. This would be taxed as income.
Would I live long enough to benefit?
The value side is about how much £100k will be worth as the years tick by.
If invested, how much can it generate?
I intend to put mine into ISAs, to draw as tax-free income.
At what stage would you save for a house deposit if not already on the property ladder?
Hi James. Would really appreciate you re-visiting student loans and where you think they fit in this table (for parents) given they now fall into the high debt box in tier 2. I've done my own analysis, and am now taking steps to mitigate the risk to my children that i see, but welcome a fresh professional view (not least because your own last video on this thorny issue is over 3 years old). Many thanks.
Really expensive debt like overdrafts and some credit cards should be paid off before everything else. You can always use them for emergencies if they arise. This is not a commonly held view but with some overdrafts and cards having rates of over 30% you simply have to focus on paying them off or you will never reach tier 1 never mind any of the others. Great video 👍
Well said, and that's exactly where I am now. I will prevail!
Absolutely. Martin Lewis's biggest tip. You can't save for emergencies if you're servicing interest. Here in the UK you can get good 0% purchase cards, and balance transfer deals to help.
Personally, I have a few months rent and bills set aside, and I pay into an ISA, and a FTSE dividend fund. I need to sort out some insurance now.
I would hope that it is a commonly held view! Paying down high interest debt is a guaranteed return far higher than any short-term and risk free investment returns. The psychological benefit of removing that weight from around your neck is greater than that derived from a similar gain in investments and it puts you in a position where, hopefully, you can eventually make the positive change from debtor to investor with no negative impact on finances and family circumstances.
@@davem.4003 indeed, however, many financial commentators say emergency fund building and pension matching take priority
@@davem.4003 strangely amongst financial commentators they seem to favour building an emergency fund and making workplace pension contributions before paying down high-interest revolving credit
Around Tier 3 / Tier 4 (and after maxing out ISA and pension), might you prioritise maxing out Premium Bonds (£50k per person) before moving to next step? I'm planning to do that, before paying off mortgage and investing in GIA, given that Premium Bonds wins are tax-free. Obviously this depends on your mortgage rates, and how much profit you expect from GIA.
This is tailored specifically to the UK I suppose?
In Belgium car loans are cheap, like 4% right now, which might be a lot lower than in the UK..
Also company pension plans work differently - either your employer has it, or doesn't have it, but there is never a personal contribution involved, it's all done automatically.
Hi James, thank you very much for your contents, very informative and clear.I have a work pension scheme with my employer which enrols me automatically with a well known provider. I find that the total annual charges are relatively high, between 0.8 - 1.3 %. I am considering to pay in the work pension only the amount that my company matches and then pay the rest into a SIPP, where, in theory, I should be able to get the same tax relief (via tax relief claim, my employer does not top up the NI into my pension) and to allocate the investment personally with potentially lower fees. What would be your suggestion? It would be great a video on this topic to compare the different scenarios and actual charges/saving.
If your workplace pension is a salary sacrifice pension, then it may be more tax-efficient to pay it rather than a SIPP because you also save on NI.
If you don't like your workplace pension platform, you can often partially transfer out of it into an SIPP.
So you keep £100 in there, and keep getting your employer conts, but the rest is being managed in your own SIPP.
Yes, it is a salary sacrifice. I'll check the details about the NI further then. Thank you James.
@JamesShack why did you put SEIS/EIS into TIER 4 and ISA in TIER 3? They both are risky, they both are free from tax and in addition EIS and SEIS have tax relief. Seems to me they should be in same TIER.
This video could not have been timed better. Thank you, James.
What is your thoughts on using a HELOC to pay down a mortgage and is this possible in the UK? - my property related fixed costs are higher than I would wish but I do have 12 months emergency fund saved - now I’m struggling over my next move with my 5 year fixed deal coming to an end next year. Invest or overpay the mortgage? I’m in my mid 40’s and feel I’ve missed the investing boat 😢
I have to disagree in "First do this, then this". For most people it will be better to start with the later stages from the beginning or at least when the previous haven't finished.
You might lose some % of the theoretical gains. But many people will quit when they don't see small results from the start. It might be such a motivational gain for your emergency fund to have some dividends from your parallel investment.
Very informative video ,could you create more video about tier 5 and 6 as there less content available on them tnx
Another excellent video with high quality graphics. These should be part of every 18 year olds education in life.
Question: what to do about student finance. Surely buying a house would make more sense than paying off my student loan? Since after 30 years it’s wiped off?
Great video and I love the visualisation of the process being a visual learner. One question though, you omitted to mention about investing in Gilts in the GIA as a way of investing once maxed out on ISA and Pension. I am planning to sell my main residence and move back in to my rented house then sell the rented house once established as our main residence. The profits to then be invested in gilts amongst other things as they are free of capital gains. Is there a problem with this plan?
Gilts are free of capital gains, but you will pay income tax on the coupon.
You can buy individual gilts that trade below their par value, meaning that some of the return is tax-free. However, buying individual bonds is quite fiddly. You really don't want to buy the wrong one!
I've never seen a retail investor who has done this; I've only seen advisers/DFMs do it for clients holding large amounts in gilts.
But that's not so say you could not do it.
Asset allocation should always come before tax efficiency. So make sure you don't end up putting lots in gilts to save a bit of tax when perhaps it should be invested in equities.
@@JamesShack many thanks for reply. Must admin I have been listening to Ramin. This plan is a few years away so the situation may change. Thanks for your excellent tips. Just hope my idea of moving back to rental property for a year will flip OK to enable Main Residence Relief.
This is my fifth year after retirement. I’ve been following the 4% rule thing, but this isn’t really how hard I expected things to be. I still have about $460k outside funds in my IRA to invest in stocks. Pls how do I take advantage of this?
Thanks for this video, really helpful. I imagine most people would be at tier 3 and if they did a good job of these they'd be well sorted for life. I'm overpaying my student loan right now to get rid of it asap and would like to put those loan deductions I get, back into my pension. My company does the 3% but I imagine I could choose to pay more for tax relief, even if my company doesn't contribute more.
James, I have no debts. A few k's in ETF and Private pension that are both growing at a massive percentage since I started investing (with your help) 😊.
Should I slow down my investments and save for an emergency fund?
Hi James, could you please clarify the new isa rules regarding moving funds from 1 platform to another...
If i put this years allocation of 20k into vanguard for example but in 6 months time i decided i would like to move the funds to 212 as i would like to buy individual stocks or some other non vanguard fund would this movement of funds be within the current isa rules?
Yes you can do that.
James,
Have stumbled upon your channel and.. wow.. was blown away. Thank you so much for doing this.
Quick question on the waterfall which may be relevant to others here:
My wife and I have relocated to the UK a decade ago, hence, given our age can’t achieve full state pension status. So question is whether topping up to to achieve full state pension status is a high tier allocation of funds in your view.
Thank you
Ah yes, a good point.
Generally, yes its one of the best investment you can make but it depends on your situation.
I've made a video on this below. However, the deadline has now been moved to April 2025.
ua-cam.com/video/fG_D-JFdwBM/v-deo.htmlsi=S3KBzcA96iXwPSxH
3:13 “there’s a low probability that your house might burn down, and if it does, your screwed….what if you die”. Shack, 09.04.2024 never a truer word spoken, preach brother 🙏
@jamesshack would this be your recommendation on what to do with a windfall of cash?
It depends on your personal situation and goals. There may be reasons why you want to change this order up.
But this is the path that most people should be following.
Sound advice as usual and a good time of year to give it. When I was young there were no people like you around. I learned gradually. I was always a saver, good habit from my parents. My first monthly pay as a trainee was £39.50 per month, that was back in 1973. I joined the pension fund immediately.
I’ve raised two children and put them through university. Yes for all the younger boys and girls watching you will have to change your plans at some stage. You will need all those insurances. However if you can follow the advice given by James you should be “comfortable” in retirement.😊
Thanks for the comment and wise words Ian.
Very interesting video!
I have a question regarding pension contributions: you seem to be limiting it to the point where your company stops matching it (in your example, 7%), but you said nothing about going for potentially much higher contributions to avoid the 60% tax brackets. Is it a good strategy, vs. taking the hit of this tax bracket but moving further in the tiers you have described? (for instance I am currently putting 40% of my qualifying earnings in my pension, waaayyyy beyond the matching threshold of my company).
The order of the unmatched pension versus ISA was the only part I wondered about. For me, there's a balance between the two dependent upon your current ISA balance, your income and your age. For example, if you earn £120k and are a parent of a toddler, it would be insane not to pay at least £20k into your pension.
James does touch about this at 7:15 into the video, but not in a lot of detail
I talk about this at 7:08.
I did a recent video on it too ua-cam.com/video/pE2V83OybUo/v-deo.htmlsi=CsWkUSCt7zASs6Sk
These recent NI reductions, I've increased my pension contributions to 8%, with 6% matched from employer. I don't miss them and it helps with reclaiming tax and child benefit tax.
This is absolute gold, thanks James!
I'm 26 and very fortunate to be in a high-paying job, but I dont have anyone close to me that is familiar with financial planning. I know it sounds dramatic, but I think it's fair to say that your channel has changed my life. I actually understand how to build a better life for me and my family now, which I can't thank you enough for, but here's a little something.
P.S. I would be very interested to understand what the *real* returns of investing in property are, once all the associated costs are factored in. People keep telling me it's the "best" investment, but what do the numbers really say?
Wow Sam, thank you so much! I really appreciate it.
I’m glad to hear you’re feeling confident about the future.
Property is so varied. Some turn out to be good some bad, just like companies. But the problem is that you can’t diversify in the same way as stocks.
It’s also very reliant on leverage, which makes it higher risk.
It’s very much a personal decision based on whether you want to be actively involved in it.
My dad was a property developer, he did pretty well, but personally I hate the hassle.
As James say, never underestimate the hassle of letting property. Sure you might get lucky and have an easy ride, but more likely not. There has been times where it was lucrative but these days with property prices so high and the government cracking down on landlords with tax etc, you'd really need to work for your return. Might well be better off financially putting that effort into your job.
Hey @unencoded depending on how much you earn it might be worth getting a financial advisor. I was in a similar situation where family’s only advice was “buy a house” and that was it. I’m always pleasantly surprised at how helpful financial advisers are in my very specific circumstances, and they have a great network to tap into.
Once i became a landlord i realised i was a useless tennant as the ones we have make multiple (albeit reasonable) demands for repairs and improvement s which we always do immediately. Overall, while we have seen perhaps a 20% capital gain in 5 years we have this year 'broken even' on all the cashflows (IRR). So 0% return and negative real returns This includes imputed rent while we lived in it. People tend to look at sale price vs purchase price when evaluating housing. They ignore: transaction fees and taxes, insurances, repairs and maintenance costs (which can be hefty) and mortgage interest. Property only stacks up if you strike it lucky (eg buy just prior to an interest rate dip or in an area that blows up) or make significant improvements OR are prepared to be a slum lord and squeeze the tenants as much as you can. Sadly i think many people take that last option. BUT if you have deep pockets and time i think developing vacant land or redeveloping urban sites can be massively great returns...just not for the avg punter who generally lacks the capital resources for this. I have a projected long run 6-7% return going forward on real estate assets for retirement planning. A number i came to after modelling future interest rate and capital growth guestimates. I think that is 'about' a fair guess for most residential type investments. IMHO.
Thank you all, I really appreciate your thoughts here.
It sounds like I really should consider working with a financial advisor (no prizes for guessing where I'll start there 😁), and property is an awful lot of work. Super helpful to hear from those with real-world experience and a view of overall returns. I think sticking with index funds will work best for me!
very interesting thanks
Lots of good stuff in there James, and food for thought as well, thank you.
Really good James but I would say get your personal insurance done ahead of building an emergency fund. For me it's a part of my monthly household expenses.
That's a fair comment, and well done for getting it sorted early!
Can you do a vid specifically on self employed finance etc
Hi James, great video as always! Just wondering where your figure of 200k for the GIA comes from? Is this just where CGT really starts to build up, or any other considerations? Thanks!
I wanted to pick something to give viewers an idea, but it really depends on your situation.
Many people end up with a large GIA because they receive a lump sum either from selling a home, a business or an inheritance.
Say that's £500k. If you're an HRTP, you're likely going to end up paying quite a bit of tax on that. However, if you can squirrel that into ISA, Pension, and JISA allowances over the next five years or so, there's probably no point in doing anything more complex.
The GIA brings maximum flexibility at the cost of tax efficiency, whereas tiers 5 & 6 bring OK tax efficiency with poor flexibility.
I have a client who has £1m in a GIA (split between him and his wife). He is starting a new company, so right now, flexibility is the most important thing for him. The fact that they have no other income also makes the GIA easier to manage.
On the other hand, I have some clients who are high earners, maxing out all of their allowances, now building up a GIA, and we're recommended VCTs even with a small GIA (
@@JamesShack that makes a lot of sense, thanks so much!
Hi James. What would you recommend (regarding pensions) for people working for the NHS and enrolled in the NHS pension scheme? Would that be worth to have a private pension as well as the NHS one?
If you don't think your NHS pension will be enough or if you want to retire earlier, then yes it can be useful.
Do you have any questions about the more complex tools in the final tiers?
Would love to see a deep dive video into FIC!
Great video - Id like to know why the 200k threshold for GIA? Tier 5 is by far the riskiest and even though its accessible without an IFA - private eq is not for the fainthearted so maybe pushed to tier 6? finally - the last wrapper, the investment bond will need a full @JamesShack treatment with onshore vs offshore, providers, fund offerings etc
I’d like to know the best (tax efficient) options for passive income pre retirement
Another great video James!.... My question would be - Investment strategy for GIA account (assuming you've already max'd out ISA/SIPP contibutions etc.).? Should strategy change if retired? Mine only has accumulation Funds (not ETF or ITs or Shares for tax simplicity), and plan to sell chunks each year below the CGT allowance, to move into ISAs..... a video on this would be super.
Also that Oversea's Bond thing could be useful for people downsizing and suddenly having a big chunk of money to invest.
I liked the video, lots of good information! I have a question that I am sure others are now thinking... When does it make sense to cash out ISAs into pensions from a purely tax perspective? Is there a tipping point when this should be done?
Whenever you feel like you no longer need the accessibility of an ISA.
Another addition alongside the SIPP and ISA would be the SSAS, but perhaps this is implicitly included in the Family Investment Company given it is a pension exclusively for a Limited Company?
Student loan is 7.7% percent now. The b words. Is it worth paying it off?
I have some really inexpensive life insurance that I purchased long ago, which I keep, but I have less insurance now than what I used to because I'm 'self-insured' for events that I used to insure to account my risk.
Question for James (and all): in which tier would you put ‘UK primary/secondary private education for your dependants’?
That would sit outside of this framework. The vast majority of people fund private education from income. So, during that period, whenever it comes, you would have less money to save towards this tier structure. You may even move down a tier.
Even those that "save up" to fund private education tend to still fund it entirely from their income and save little or nothing, but because they saved a lot beforehand, that money remains invested and keeps compounding.
You should be able to at least complete tier 1 whilst paying for education; if you can't, then you should be questioning whether that is actually affordable.
Hi James, is it ever efficient to overpay/pay off the postgraduate loan - knowing that I’ll be earning over 65k for the foreseeable
Here's where I get stuck should I leave my SL because if I where to lose my job I wouldn't have to pay it but I would have to pay down my mortgage still
Is there anyone that could make a video like this for Spain?
Brilliant video, it's ashame they don't teach these thing at school
Tier 3, not to bad, not sure I'll be on to tier 4 any time soon.
Good video
Another great video and one to save to my specific folder for priceless info such as this. I’m looking to become a financial advisor and feel like I’m switched on with the first few tiers after gaining good knowledge from channels like yourself. The latter tier or two were things I’ll learn about in time and wasn’t particularly aware of but keen to learn about for when the time comes and I’m the one giving advice 😊
Right, I'm firmly on Tier 4 and I'm not that old. Kids pretty much sorted, so I'm right on the cusp of a change of finance investment.
Perfect timing. TYVM! 👍
Interesting useful video. Wonder what percentage of people in the UK can now manage to save up an emergency fund to last them more than a month. A Jan 2024 survey (finder) reckoned 25% of us have £200 or less in savings. Inequality appears to be out of control.
What about overpaying student loan to reduce debt. Current interest rate is 6% 😢😢?
Hi James,
I have 5 years to target retirement date at 60 y.o. I have 16k in ISAs and hope to add about 6k p.a.
I currently salary sacrifice at 15% + 6% matched.
When should I look to start drawing down ISAs and upping pension contributions?
Is there a minimum wage restriction?
I already have full 35+ years of NI contributions.
I had intended to use the ISAs as tax-free income, but now you mention it, it makes sense to add 28% to a pension that will only attract 15% income tax. The only catch being, I had intended mainly to use my SIPP for inheritance purposes.
Would I then be better withdrawing the 25% tax-free lump sum, and investing that in ISAs?
I will also have a DB PCLS of around £100k that I would be looking to do the same with, so it would take a number of years, with mine and my wife's allowances being 20+5(uk)%.
Another great video. Just a personal observation, after many years of investing I have given up on the 10% satellite part and keep 100% core . I’ve either lost money or the core fund has always outperformed in the long term. Also given the low allocation to satellite , even if you managed to attain alpha then it won’t make so much impact. In the past even with 90 percent core I was basically admitting and rightly so I had no idea of what will do well or not so investing 10 percent of hard earned money would be based on sheer hubris.
I am glad you enjoyed it!
For some people, VCTs have a place both from an asset allocation and tax planning perspective.
But other than that, the satellite portfolio is there to help scratch an itch. If you don't have one, don't bother!
Yip, back to forms of stock picking with satellite, I avoid too.
The satellite part could be something that interests you. One of my late Father's best investments was Lego train sets - about 400% return in 20 years. One tip on that though is that items marketed as "collectables" tend to be very poor investments. Unless, of course, they are sold by Royal Mint and made of gold or silver.
@@MrDuncl agreed on Lego sets. Great investment along with original Star Wars figures from the 70s and 80s- boxed of course.
Great content James. Thanks so much for this quality free content!
How does the taxman know your paying into a sipp for the relief? I'm a higher rate taxpayer with a work based pension and curious. I'm tier 4 and 48.
If you contribute to your pension via salary sacrifice, your contributions aren't taxed at all, so there's no relief required.
But if you contribute after tax, HMRC won't know automatically! You *have* to ask for the additional higher/additional rate tax relief from HMRC either over the phone/web chat or via self-assessment.
If you don't, that tax relief is lost and it could easily be thousands of pounds!
Great Video James, as usual, i'm 55 and Currently Tier 4. I have property with Pension, ISA all maxed out. No Mortgages.
I wish I had seen this video in my 20's.
At 9:00 you mention that one might want to stop contributing additional money to the pension when “it’s already too big”. Could someone explain the rationale behind this note? Is it because of the maximum size of £1m, where all money added thereafter will be taxed heavily?
Yes. It can still make sense to contribute to a pension beyond £1.07m if you still think you'll get more tax relief on making that contribution than the tax you'll pay when taking it out of the pension.
Thanks James!
Great video James 👍
Where would a student loan fit into this? Would it be possible to do an analysis of when/if it’s worth overpaying or clearing a UK student loan?
No need to worry about mortgage as I don't make enough for it. Lmaooooo. Just going to jump for retirement savings. But great video.