October 19, 2015
|By Consulting Group|
The brief for this blog was to imagine I was a 32 year old with £15k to invest, and write about where I would put it and why. Given that, touch wood, my wife and I will complete on our first home purchase on Friday, the truthful answer is a leveraged property bet! However, for the sake of a more interesting article, I will imagine a second pot of £15,000. The first port of call would be to set £5k aside as a safety net – I now have a boiler and a roof to think about after all!
From next April, tax changes mean p2p lending might be an option, as the interest won’t require a tax return. Although interest rates for lending to individuals through companies like Ratesetter and Wellesley are lower than business loans through FundingCircle or Thin Cats, the process is easier and more secure; loans are aggregated so you are realistically not affected by an individual default, and these firms are much more focused on user experience. My personal preference, having used them before, would be Wellesley. However, despite all this, the reason why I would not use p2p lending for my safety net is that I might need to access it instantly. Even with early access functionality, instant availability is not guaranteed. For that reason I would use one of the high interest current accounts currently available, probably through Lloyds.
With a wedding, mortgage deposit and safety net behind me, I can think longer-term for the remaining £10k. The popular choice for this type of investment is a pension, and although I don’t currently pay higher-rate income tax, there’s a reasonable likelihood that I will in the future. There is no point in putting money into a pension now, tying it up until I’m 55, and receiving tax relief at 20%, when I can invest it now, retain access to it, then put it into a pension once my earnings have risen and get tax relief on it, plus the investment returns, at 40%.
I believe the best way to invest this money is through Bux; I can purchase non-leveraged CFDs, which receive dividends and pay no financing charges, in major indices from the UK, US and Europe, for 0.06%. Selling them incurs the same cost, and holding them costs absolutely nothing. I can buy and hold a portfolio with £2,500 in the FTSE 100, £1,000 each in the S&P 500 and the NASDAQ and £500 each in the French, German and Dutch main indices for £3.60.
However, the ideal Bux customer would be a more active trader than described and, as a result, Bux has made a deliberate choice to gamify the trading process; friends I’ve spoken to are put off from investing by the interface and informal terminology. Nonetheless, the app is attractive and easy to use and hopefully Bux and similar products can become the future of low-cost self-directed investment.
At the moment Bux only covers major stock markets, and I would like some exposure to small caps and emerging markets. This means I will also need an account with an execution only platform. Hargreaves Lansdown not only gives me choice, they make it clear I have the choice. For these less developed markets I would consider actively managed funds as well as passive funds or ETFs, but I would like to have the option. I can visit the Hargreaves website without an account and see that I can buy small cap or emerging market ETFs from providers such as Vanguard or iShares. From other providers those ETFs are either not available, or there is no option to search for investments without opening an account. The Hargreaves site isn’t perfect, especially on mobile, and I’d rather not pay 0.45% for an ISA, but in the end I would, because it has what I need and makes it easy to find it..