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What's A Good Alternative Investment Vehicle To Buying A House?


Saberu
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Whilst I'm under no illusion that I'll be able to retire at 35, I do believe that it should be possible to retire at 55 - and I'm on slightly less than the national average wage.

I'm 29 now and my state pension age will be at least 68 - and probably more by the time 39 years pass. There's no way I intend to work until that age.

My plan however, does involve buying a house. I'm in the process of signing contracts on a 4 bedroom house in a reasonably nice area at a LTV of 67%. I intend to pay down the mortgage until it's 60% LTV and then move to the cheapest available Lifetime Tracker Mortgage available at that time - on an Interest Only basis.

To rent a similar house would cost £600 per month but an interest only mortgage would cost £320 per month if base rates rose to 3% (I know they'll eventually rise above this but so will rents and so will inflation). This cheap accommodation will allow me to maximize my pension contributions.

I'll be putting 24% of my salary to the pension and my employer will contribute 6%. I'm a lower rate tax payer but am in a salary sacrifice scheme where the employer donates their national insurance savings to the plan so giving up £100 salary results in a gross pension contribution of £167.

Using this calculator, I'll have to use 40% of my 25% Tax Free Cash lump sum to pay off the mortgage. I'll then be left with the remaining 60% in my bank and an annuity of 38% of my final salary (in todays terms).

The remaining 60% in tax free cash can be used to live 'comfortably' until my state pension kicks in - at which point, I should have a total income (state + private) of about 65% ot my final salary.

Just writing this post makes me realise how little people are saving for retirement - most in my company have a total contribution, including employers, of 6%.

If I were to work to state pension age, currently 68 for me, I'd end up with a final annuity of 96% of my final salary (in todays terms) and would only need 15% of my lump sum to pay off the mortgage.

Well done having a plan.

You only have the current rules to work on but what if they change in the next 26 years? TPTB are currently saying people aren't saving enough for their pensions. What if they decide to scrap the 25% cash lump sum at 55 before you get there? You couldn't pay the house off and wouldn't have access to any of your money because it's all locked in the pension. You would have to carry on working for at least 13 years (if your retirement age doesn't increase) to keep an interest only mortgage going (if you can get one) and then you might die just before retirement, so never see any of the money you have struggled all your life for.

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you might die just before retirement, so never see any of the money you have struggled all your life for.

It seems odd to me to base much of what you do until retirement age preparing for retirement. Don't forget to squeeze some life in there somewhere.

I think with a goal that long term any planning you do now will be invalid at some point along the line. Things change. My main concern is that no-one else is planning at all, which means if you're one of the few that has any money it will be taken off of you for the 'greater good' in one way or another.

I'd quite like to be rich enough to not have to worry about it. Failing that, I'd say having nothing is better than having a little. Particularly if accumulating that little comes at the price of your youth today.

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You may enjoy reading Fastlane Millionaire - crap title but a surprisingly useful book in terms of setting up a business. He has some advice on how to invest if you become reasonably rich and are still young. He set up an online limo booking service in the early days of the net and cashed out in his early 30s. But his advice may be out of date now though since it was written pre-crash. He was also considering much higher figures than £300K though.

Update the price Bill Gates paid to buy DOS in a hurry to fulfill the contract he'd made with IBM for inflation, and you're in the £300k ballpark. I wonder what became of his business and personal fortune?

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It seems odd to me to base much of what you do until retirement age preparing for retirement. Don't forget to squeeze some life in there somewhere.

I think with a goal that long term any planning you do now will be invalid at some point along the line. Things change. My main concern is that no-one else is planning at all, which means if you're one of the few that has any money it will be taken off of you for the 'greater good' in one way or another.

I'd quite like to be rich enough to not have to worry about it. Failing that, I'd say having nothing is better than having a little. Particularly if accumulating that little comes at the price of your youth today.

+1

In the UK once we have 5.2% RPI with a 0.5% base rate "doing the right thing" no longer pays. What you have is being stolen. It's getting to the point where lots of people may as well just gamble what they have on red or black. It doesn't do enough for them.

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Interesting question by the OP...35 yrs old and 300K pot...

I dont think I'll be saying what might have not already been said...Land (to grow food) and shelter(a house to live in) are the only two meaningful assets...however both are manipulated by strong lobbies and hence dont have to follow common reasoning in terms of value...simple evidence is the fairly well maintained inflation of housing in the UK and the bullish run on agricultural land inspite of a housing crash sentiment ie very poor contruction activity... these two are ususally linked ie good housing activity means more value for land...but the manipulations are clear for all to see...housing inflation maintained by gradual devaluation of currency through a wide variety of things such as frozen salaries, increased cost of living, QE etc etc.... so there exists risk in these classes as well.

Op could retire if he was able to follow (in my opinion) the three rules to master spending:

1. Make a distinction between what is a need vs. a want.

2. Easiest way to make money is to not spend it.

3. Its not a good deal if you dont need it.

Then he would be able to live quite sensibly and not buy as per the consumer agendas, fritter money on DVDs/CDs, eat dinner for 30 pounds when he can make the same meal for a fiver etc etc... He needs to realise that this is how most retired people perhaps live ie sensibly in the context of poor savings rates and the general insecurity of old age. If he were to retire at 35 with the 300K, he'll also need to turn into a monk to exist perhaps!

If he wanted to ensure that he can have some control on the inflation ripping off his fund, he'll also need to accumulate a good skill set as an insurance policy to ensure he can return to brief periods of work to make some adjustments for losses through inflation. The adsense income highlighted by one contributor would be a suitable example.

But if op wants to actually sit on his backside at 35 and expect the 300K to be a good enough investment pot to live off...its quite unrealistic. The spend it all and get on the dole option comes to mind.

I think the OP would do well to realise that getting an exceptional return (I think 10% after adjusting for inflation) on 300K would also re

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Interesting question by the OP...35 yrs old and 300K pot...

I dont think I'll be saying what might have not already been said...Land (to grow food) and shelter(a house to live in) are the only two meaningful assets...however both are manipulated by strong lobbies and hence dont have to follow common reasoning in terms of value...simple evidence is the fairly well maintained inflation of housing in the UK and the bullish run on agricultural land inspite of a housing crash sentiment ie very poor contruction activity... these two are ususally linked ie good housing activity means more value for land...but the manipulations are clear for all to see...housing inflation maintained by gradual devaluation of currency through a wide variety of things such as frozen salaries, increased cost of living, QE etc etc.... so there exists risk in these classes as well.

Op could retire if he was able to follow (in my opinion) the three rules to master spending:

1. Make a distinction between what is a need vs. a want.

2. Easiest way to make money is to not spend it.

3. Its not a good deal if you dont need it.

Then he would be able to live quite sensibly and not buy as per the consumer agendas, fritter money on DVDs/CDs, eat dinner for 30 pounds when he can make the same meal for a fiver etc etc... He needs to realise that this is how most retired people perhaps live ie sensibly in the context of poor savings rates and the general insecurity of old age. If he were to retire at 35 with the 300K, he'll also need to turn into a monk to exist perhaps!

If he wanted to ensure that he can have some control on the inflation ripping off his fund, he'll also need to accumulate a good skill set as an insurance policy to ensure he can return to brief periods of work to make some adjustments for losses through inflation. The adsense income highlighted by one contributor would be a suitable example.

But if op wants to actually sit on his backside at 35 and expect the 300K to be a good enough investment pot to live off...its quite unrealistic. The spend it all and get on the dole option comes to mind.

I think the OP would do well to realise that getting an exceptional return (I think 10% after adjusting for inflation) on 300K would also re

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Here's another simple idea on reducing your reliance on chasing those future £ paper notes. Capital deferral. How to turn £100 in £729.

----

We had a thread on razors on off topic. Now is the time to buy as they have never been cheaper.

Highstreet/Supermarket single pack price.

£2.50/10 = 25p each

One razor per week for 38 years = 52 weeks * 38 = 1976 razors

=£494 or £13 per year at today's prices.

If we allow for inflation at 2% per year, £13 at 0% for 38 years is £729 at the end of 38 years.

Year 1 = £13

Year 2 = £13.26

13.5252

13.7957

14.07162

14.35305

14.64011

14.93291

15.23157

15.5362

15.84693

16.16387

16.48714

16.81689

17.15322

17.49629

17.84621

18.20314

18.5672

18.93855

19.31732

19.70366

20.09774

20.49969

20.90968

21.32788

21.75444

22.18952

22.63331

23.08598

23.5477

24.01865

24.49903

24.98901

25.48879

25.99856

26.51854

27.04891

Total = £729.49422

---

Buy in bulk

£100/2000 = 5p each

You never have to buy a razor again, so that is £629 in your pocket. Store them safely though!

----

Another poster on HPC posted about the Alpha Strategy book, I've not had a chance to read it in full, but it's free here: http://www.ebook3000.com/The-alpha-strategy--The-ultimate-plan-of-financial-self-defense-for-the-small-investor-By-John-A-Pugsley_113942.html

Edited by MrTReturns
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  • 2 weeks later...

Price Drop TV

I watch this now and again to gauge what the public are buying.

Yesterday nearly 200 gold chains (24K plated) 2 ounce in weight sold, even before the price was displayed on the screen. The presenter hinted that it would go for under £20 at the start, and the price of gold is going through the roof, and it was a good investment.

This morning a different presenter said something strange was going on in Price Drop TV land in the past few months. He said they could not shift socks which traditionally make good Christmas presents (only 10 weeks to go). This he had not seen in 9 years of being on the channel. He was selling 9 pairs for £4.99 (£7.99 P&P), (the lowest I've seen them go for).

Investment wise - the socks would be more useful.

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  • 1 month later...

Here's the deal.

You go to bed in your mid-twenties. Net worth one pair of underpants.

You wake up the next morning. Suddenly you find yourself twenty years older with a net worth of £700k.

Would you make that pact with the devil?

I did. I worked six and seven days a week, self employed in an industry I had no passion for. For one period (lasting 14 years!) I never took a holiday which lasted longer than a week. All for the security of the mighty dollar.

It got to the point that I'd had enough and quit. All my spare cash is currently in Ftse 100 high yield stocks. I have some equity tied up in foreign property I'd like to liquidate to improve my income situation.

Until then I live by the Micawber principle of spending less than I have coming in. In the last year I spent less than £10000 and reinvested the rest. That's as much fun as it sounds! Although I wasn't profligate while I was working it's still at least a 50% cut in spending. You feel that. I'd like to point out I'm not married nor have I any kids so I'm not inflicting this current frugality on anyone else. I actually feel sorry for the guy in the same situation as me only with the addition of the nagging wife!

If I had any advice to give it would be to make happiness your prime object rather than the pursuit of money for it's own ends. I worked like a demon for the best part of twenty years and came out the other side feeling spent and still not psychologically sure of a secure financial future.

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  • 2 months later...

I reckon you can buy freedom for £300k - provided you're happy to live on beans and blackberries foraged from the hedgerows.

Spend £100k on a flat or small house in a cheapish part of the country. You're not planning to work so no need to be close to employment.

That leaves £200k to invest. Whack in high yield equities to give 4.75% or so. That gives you £9500 pa. Reinvest £1500 (or stash it in some other way) as a safety margin - leaving £8000 pa.

If you're happy to ride a bike, use the library and eat cheaply - that's ample to live off. Or you could keep trudging into the office every day to pay for bling.

:lol::lol: Yes please!

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  • 1 month later...

Here's another simple idea on reducing your reliance on chasing those future £ paper notes. Capital deferral. How to turn £100 in £729.

----

We had a thread on razors on off topic. Now is the time to buy as they have never been cheaper.

Highstreet/Supermarket single pack price.

£2.50/10 = 25p each

One razor per week for 38 years = 52 weeks * 38 = 1976 razors

=£494 or £13 per year at today's prices.

If we allow for inflation at 2% per year, £13 at 0% for 38 years is £729 at the end of 38 years.

Year 1 = £13

Year 2 = £13.26

13.5252

13.7957

14.07162

14.35305

14.64011

14.93291

15.23157

15.5362

15.84693

16.16387

16.48714

16.81689

17.15322

17.49629

17.84621

18.20314

18.5672

18.93855

19.31732

19.70366

20.09774

20.49969

20.90968

21.32788

21.75444

22.18952

22.63331

23.08598

23.5477

24.01865

24.49903

24.98901

25.48879

25.99856

26.51854

27.04891

Total = £729.49422

---

Buy in bulk

£100/2000 = 5p each

You never have to buy a razor again, so that is £629 in your pocket. Store them safely though!

----

Another poster on HPC posted about the Alpha Strategy book, I've not had a chance to read it in full, but it's free here: http://www.ebook3000.com/The-alpha-strategy--The-ultimate-plan-of-financial-self-defense-for-the-small-investor-By-John-A-Pugsley_113942.html

Do you really use a razor a week?

My Mach 3 blades last me a month!

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  • 2 months later...

Yeah I agree...it is sad that now that people live to work and not work to live, I think the idea of retiring young is good if your not happy at work but there are

plenty of people that actually enjoy their jobs so might wish to continue working regardless

i think 500k would at least get you Heinz beans :)

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