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I am 40-something, live in London, who paid off my mortgage early and converted monthly payments to savings.

Given the global volatility, I first focused on building up a cash reserve in case of economic crash / and or "flee money" from the UK; have now hit £50k which should be enough contingency (I realise how grateful I am to be in this situation!) and considering diversifying.

So I :

  • am saving approx £1250 a month

  • have approx £50,000 in savings (mostly in ISA, some in foreign notes)

  • effectively have no family or dependants

  • have no investments apart from my private pension - transfer value of ~£65k - am aware this is low (yearly pension of ~£2k at current projection)

Am not sure of my options, not looking to tie up money for years for what could be a low return (if any).

  • an ISA or other savings have returns around 1% at best, much lower than inflation

  • Don't want to invest in stock / shares as they require a longer-term outlook than I am comfortable with right now

  • peer-to-peer lending looks an ethical choice, but also rather "wild west". Given the scale of money I'd likely invest, am not happy with the level of risk involved

  • a lump sum pension investment appeals, but of course this locks the cash away for 10-20 years

From my point of view, because I am saving so much each month, just adding monthly savings to an ISA acts as 30% interest.

Given I'm wary of the risks of short-term investment and pessimistic view of longer-term investment, are there other options (including spreading of risk) that I have overlooked?

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  • Looks like you've ended up with two accounts - see money.stackexchange.com/help/merging-accounts for how to get them merged
    – GS - Apologise to Monica ♦
    Nov 23, 2017 at 12:32
  • You are considering giving up 100% of your investment returns. Don't confuse the 30% you are adding each year (which is commendable!), with the wasted opportunity of having cash under your mattress instead of invested.
    – Grade 'Eh' Bacon
    Nov 23, 2017 at 14:26
  • Low-risk short-term investments pay low interest rates. You can diversify into other low-risk short-term investments, but that doesn't help much.
    – Simon B
    Nov 23, 2017 at 23:48

2 Answers 2

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When it comes down to it, long-term investments pay better than short-term ones. If nothing else, there's less administration and less financial risk for the provider. That's why 2, 3 or 5 year savings accounts pay better than instant access ones.

Higher-risk investments pay more interest (or dividends) than low-risk ones. They have to, or nobody would invest in them.

So by locking yourself out of any long term and/or risky investments, you're stuck with a choice of low-interest short term ones.

There are plenty of investment funds that you can sell at short notice if you want to. But they are volatile, and if you cash out at the wrong time, you can get back less than you invested. The way you lower risk is either to invest in a fund that covers a broad range of investments, or invest in several different funds.

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I would say your decision making is reasonable. You are in the middle of Brexit and nobody knows what that means. Civil society in the United States is very strained at the moment. The one seeming source of stability in Europe, Germany, may end up with a very weakened government. The only country that is probably stable is China and it has weak protections for foreign investors.

Law precedes economics, even though economics often ends up dictating the law in the long run.

The only thing that may come to mind is doing two things differently. The first is mentally dropping the long-term versus short-term dichotomy and instead think in terms of the types of risks an investment is exposed to, such as currency risk, political risk, liquidity risk and so forth. Maturity risk is just one type of risk.

The second is to consider taking some types of risks that are hedged either by put contracts to limit the downside loss, or consider buying longer-dated call contracts using a small percentage of your money. If the underlying price falls, then the call contracts will be a total loss, but if the price increases then you will receive most of the increase (minus the premium).

If you are uncomfortable purchasing individual assets directly, then I would say you are probably doing everything that you reasonably can do.

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