How should I invest my money so I can use it for income one day?

30 July 2021

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Question by Lydia

I am 28 and have £15,000 in savings which I want to invest in order to beat inflation and work towards an annual income in the future.

Having bought my first home, opened a pension account with my employer and a buffer of cash, it looks like a stocks and shares ISA might be a good place for me to start?

Having researched robo advisers and platforms such as Charles Stanley and Vanguard, I'm now lost in the endless pros and cons for each.

Should I split the money between several platforms? How would you invest this money for a long term investment of 10+ years with the hope of eventually generating an income from my money?


Answered by Farida Hassanali

Hi Lydia,

Firstly, congratulations, it sounds like you’re in a strong position and thinking about all the right things. It’s great that you have your cash buffer set aside (we recommend at least 3-6 months of expenses) should anything happen as this is always the first place to start to take care of the short term and ensure your investments can be left in place for the long term.

It sounds like you don’t need to save for any expenses coming up in the next few years, so an ISA is a great place to invest for the medium to long term (5 years +). As you’ve found through your research, the harder part is working out where and how.

Picking a provider

It can be confusing with so many providers available, each offering slightly different features. Though you could split this across several options, you can only contribute to one Stocks and Shares ISA a year.

I would suggest picking one option to start with and seeing how you get on. If you really wanted to try some different accounts, you may be able to arrange partial transfers in the future or pay your contribution(s) elsewhere in the new tax year, from 6th April 2021.

A robo adviser will ask you some questions to assess your risk profile then recommend a portfolio that they will adjust as necessary, so you don’t need to think about it at all. With the Vanguard platform, you can choose one or a mixture of Vanguard funds to invest in. With the Charles Stanley platform, there are thousands of funds available, but with greater charges for the additional flexibility.

Think about the costs

Lower costs are good because that means you get to keep more of your money. So, thinking about the options in order of costs, from the cheapest to the most expensive:

  1. If you’re happy to pick a fund then you can do that cheaply with Vanguard, though you are limited to only Vanguard funds.

  2. If having choice is important to you, go with a platform that offers funds from several providers such as Charles Stanley or an equivalent.

  3. If you’d rather someone else picked and managed the investments for you then a robo adviser would be best.

How to invest the money

With the where hopefully decided, the next question is how to invest with your chosen provider. As mentioned above, determining your risk profile will be part of the process with a robo adviser and this will decide your investments.

For options 1 and 2 above, you will need to select the funds. With your long-term timeframe something with a high equity allocation may be suitable, and I would suggest looking at the Vanguard Lifestrategy 100% or 80% funds to provide you with a simple, single fund solution.

If you’d like to have a go at picking some funds yourself, the Funds Investment Guide has a lot of great information and a list of popular funds picks to help you get started.

Just be aware with investments comes the risk that the value of your money can (and will!) go up and down. The longer the money is left invested, the more likely it is to provide a positive return, which is why we recommend investing for at least 5 years.

Make saving a habit

When you want to start taking an income from the ISA, then it’s worth reconsidering the strategy, but I don’t think that’s something to worry about just yet. Just remember that how much you can take out will be directly linked to how much you save so review your budget and consider a monthly contribution to which ever ISA you choose to set up.

I hope this helps.

Farida

Answered by

Farida Hassanali

Financial Planner

I’ve always wanted to be a financial planner and pleased to say I’m one of those people that really loves their job. I graduated from Loughborough University with a degree in Maths with Economics in 2007 and have been in the financial planning profession ever since and am a volunteer member of the CISI Financial Planning forum.