I'm a pensioner - should I invest for two years and then cash it in?
08 July 2020
Question by Dale
Hello Holly, Firstly I would like to thank you for such a wonderful and demystifying financial service you provide which has helped so many. I am one of the baby boomers approaching 75 this summer. I have mostly a cash pot and an aversion to financial risk. I have suffered the chronic savings interest rates for so long which seem to get worse and worse. I know everyone says that you should invest for five years but that is a long time for me. I was wondering whether to open a Stocks and Shares ISA up to £20,000 this year, probably with Hargreaves Lansdown, say for just two years and then perhaps cash it in. Would this be worth doing? Historically how much more interest would I make over this period, over say, doing a one/two year savings bond. I am not particularly au fait with ISAs and would seek something simple. Your thoughts on this matter would be appreciated. Kind regards Dale
Answered by Holly Mackay
Good morning Dale,
Thanks for your email. I hope you are well and managing to stay chipper/have enough food and things to do in lockdown!?
Your question is pretty hard to answer – if I may you are looking to have your cake and to eat it. Cash rates as you say are rubbish and have just got even worse. I suspect once things have calmed down we will see inflation come back harder and so the increase and rise in the cost of living will almost certainly be higher than interest rates. So the buying power of cash will get weaker and weaker.
Savings Champion is a decent website that shows you the best rates for 1 -2 year bonds at the moment. It will be – to use a technical term – stuff all.
You are also right that investments should be seen as a 5 year game at least.
I don’t know why you are talking about a 2 year timeframe – are there circumstances which dictate this or are you just cautious and prefer to keep things relatively short-term? If there is no reason to think so short-term, can you have an amount which is in longer-term savings? My parents are similar ages and they have some shorter term stuff in cash and then some longer-term stuff in shares. Fingers crossed they’ll be around for a long time yet!
Sometimes it is helpful to think about how much you have (State Pension, cash savings, any final salary scheme pension etc) and then to think about your money in a short-term pot (easy access cash), a medium term pot (2 years-ish) and then longer-term (5 years+).
There is no point in investing for 2 years – as we have seen this month things an go pear-shaped and if you then are a forced seller at these times, you’re in trouble. Today – for those with 5 years + timeframes, we may not like the headlines but we don’t need to sell. I’m comfortable that things will come back although I suspect it will take time.
I think if the anxiety of stock markets would be too much for you, and if it really is 2 years – then stay in cash and Savings Champion will help. But if you can set aside a pot of 5 years + money then could some of this go into stock markets? You can open up one stocks and shares ISA in one tax year as well as a cash ISA – up to £20,000 across both?
The FTSE 100 and global markets are low right now so most people would objectively say it is a good time to buy in. If you do, as a novice investor I would stick to something called a ‘multi-asset’ fund which is a collection of investment mixed together for you by experts. You pick between about 5 risk profiles from the most cash like to the spiciest. Have a look at the Vanguard Life Strategy funds on their website – the “20% equity” one is the calmest – will never do great but will be cushioned from the worst – and the “100% equity” one is the spiciest which I’d suggest you should avoid as it will give you a hernia!
Hope that is all helpful and good luck. Give us a shout out if you are stuck or need help at home too by the way – with our community I am sure we can find someone near you to help. Don’t mean to sound patronising either – just trying to help!