I have a S&S ISA and a pension - what investment product should I open next?
14 June 2019
Question by Kevin
Hello, I have opened my first Stocks and Shares ISA (Vanguard 60/40) with £5000, and my company pension is the new standard 5%/3% contributions. I have enough easy access savings to cover emergencies and an old Cash ISA with £7000 (transferred to new rate), I was wondering what would be a next good step, add to ISA or open a SIPP for retirement? I'm new to investing/pensions, so I'm looking for more managed accounts until I build up a better understanding of the investment world.
Answered by Boring Money
Sounds like you're doing great work, Kevin!
Your emergency fund
The only money you should keep in savings accounts - including Cash ISAs - is your emergency fund of 3-6 months' expenses, and any money you think you're likely to spend in the next 2-3 years, for instance for buying a new car or changing the boiler. Cash held on deposit is losing money in real terms, so don't keep any more money there than you need to.
After that, I remain convinced that for most of us, the only two accounts we need are a pension and a Stocks and Shares ISA, plus a Lifetime ISA if you have designs on owning your first home one day.
Workplace Pensions
Before you open a separate pension, really get to know the cost structure of your workplace pension.
What is the annual charge of the pension itself, and of the underlying funds in which you are invested?
Chances are, if your employer is a decent size company, that there is an element of subsidy there and the running costs of the scheme are pretty low. It therefore doesn't make any sense to open a separate pension with potentially higher charges.
Don't be tempted by the posh-sounding SIPP. It's just a pension, though with some wider investing options which you probably won't make use of just yet. There's no point paying for functionality you don't need, plus there's real value in keeping things simple, in my view.
Maximum pension contributions
Find out what the maximum contribution is that your employer will match, and pay that much into your pension if you can.
If you have some money spare on top of that each month, pay it into your S&S ISA. As time goes on, and you build up a decent balance in your ISA, you can start favouring the pension more, as tax-relief will always make your money do better in a pension than an ISA.
Find out more
There are some great done-for-you solutions which Boring Money have covered in detail.
There's also some great resources online to help you learn about investing.
Well done so far, keep going and good luck!
