Help me think this over please

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1

I have built up a little profit since starting out my investment journey in Feb 2023.

Before I explain further, I am very happy with my FT ISA and see it as a lifelong project.

Soā€¦I.am currently considering purchasing a house in the next 1-18 months (not found one just yet) and I would need to effectively empty my ISA for the deposit. (And start overā€¦its only been 18 monthā€™s so Iā€™ll claw it back).

I am also at a crossroads with my portfolio as Iā€™m unsure the direction I need to take it in to reduce volatility in case of temporary loses affecting my ability to pay any deposit.

Soā€¦

Considering the potential to need fairly instant cash, the issues I have areā€¦

A fear that a crash could come and wipe too much capital out (which I would otherwise ride out if I didnt need instant cash) * I am not prediciting a crash but its always a possibility.

The fact I am well below the Ā£20k limit to re-deposit if desiredā€¦

And a lack of confidence or understanding in any short term / safe investmentsā€¦

It crossed my mind that one play I could make would be to close all my positions over the next while (when I feel the price is right) and let the funds sit in my very small Premium Bonds accountā€¦ temporarily.

The draw is zero risk, 3 day cash out and the small chance of winning more than the ever decreasing savings rate (and not losing much if i dont).

Only until

  1. I use the funds as a deposit on a house
  2. My plans for purchasing a house are cancelled (very possibly)

And

I am more confident in the market and how I want my portfolio to look going forward.

To be clearā€¦i am NOT suggesting Premium Bonds are the best investment or that anyone should change their own plans for their FT accountā€¦I am simply looking to remove all risk for a maximum 18 monthsā€¦likely less.

So I ask (and thanks for reading this far) what are the other considerations I should make, whats wrong with this plan and what would you do in this situation?

Obviously none of this is advice and I wont take any comments as such either.

I am using this thread merely to think out loud and seek opinion and or education on alternatives. I wont be rushing into anything.

Thank you

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2

I had a similar dilemma a few years ago, you dont want to watch the market go up and miss out but you also canā€™t afford for the short term risk.

I think it mostly depends on the following though regarding the redemption;

  1. How much of it is needed to get a house you would like and can reasonably afford for example if a house you want is 140k you likely ā€œonlyā€ need 14k+ fees and so could perhaps leave some in ?

  2. Have you factored in legal, broker, survey, mortgage fees etc or do you also need to save for those so you ideally donā€™t need a secondary loan for them.

  3. Remember that from whenever you choose your dream home its going to take probably 3-6 months before the lawyers and banks have sorted themselves out and are ready for you to get your keys and handover your blood sweat and tears for probably 25 years.

  4. Are you sure you are going to be living wherever you are living long term and if not do you have a plan for if you need to sell and prices have gone down can you stomach a potential loss over 3-5 years ?

After all those take out what it is likely you will need and not anything more. I donā€™t think premium bonds would be the way I would go in this environment as rates are so high you can collect an almost guaranteed 4-5%APR in a savings account the next 6 months before rates begin to taper down which will be slow anyway. Obviously possibility to ā€œwin bigā€ on premium bonds but unlikely.

Just my thoughts (not financial advice) need to cover myself to be sure!

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Thanks for posting Andy.

Your thoughts on the idea of a house purchase are interesting and largely reflect my own.

My main dilema is that if lets say the market crashed 10% for 6 months, that would potentially kill my chances of having sufficient funds.

Thats where the idea of mostly cashing out and going into Premium bonds for as short a period as possible (max 18 months but probably 12 or less) comes in.

It would either be instant access savings or PBs and my personal preferences would be PBs for simplicity (I already own a few).

I did also consider UK Treasury Bonds but Im not sure I fully understand them or they are likely to return much in that timescale.

4

First time buyer or not?

Your deposit generally shouldnā€™t be in stocks if youā€™re planning to buy within the next couple of years. As youā€™ve already identified this is due to the short term risk.

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5

Another option is parking the cash in something like SONIA inside the ISA for around 5% return. Thatā€™s what I would do.
Treasuries would achieve the same tho your money is locked for a month each time so less flexible.

PBs too random for my liking and savings accounts obviously are taxable

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Thats the issue.

When i started investing, it was not part of my plans to potentially need the funds in a short time scaleā€¦ so Iā€™m mulling over the best course of action until things become clearer and my future plans are settled.

7

Thanks Panikā€¦I have no knowledge of SONIA so i will research that and add it to my considerations :+1:

8

Money for an upcoming house deposit should never be in stocks and shares. You mention that a ā€˜crashā€™ of ten percent would prevent you buying a house, ten percent is nowhere near a crash, how would it set you back if we lost 50 percent?

If you have an ISA put it in a cash fund or withdraw and put in one of the instant access saving accounts paying around 5 percent .

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Wellā€¦ realistically thereā€™s nothing to mull over, if youā€™re going to use the money for a house within the next couple of years then having it in stocks is generally not a good idea. You have no idea if that money will exist in a year if itā€™s invested in equity.

You could put it in low risk options, treasuries or savings.

If your under 40 and are a first time buyer and arenā€™t buying for at least 12 month then the best option is to open a cash LISA and put it there.

If that doesnā€™t apply then you can move it into treasuries in your Freetrade ISA which is getting above 5% at the moment.

But shares is usually not advised by anyone

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10

Thanks Matty.

Yes this is an unforseen possibility. Until recently.

I am very aware that S&S are not where i should have my money just now, given my potential change of plans, so Iā€™m mulling over my best move for the short term until my plans become clearer.

11

Any Matty is right. A 10% drop isnā€™t a crash, itā€™s not even a blip on my radar

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I get that :rofl:

My point was I need low to zero risk for the next 12-18 months until I clarify my future plans.

And Im seeking feedback and ideas on options.

I appreciate the posts.

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13

Surely just stick it in treasury bonds in the FT app?

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Yeah I think the Treasuries would be a decent place to put it, ~5% and low risk.

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15

Unless a LISA is an option, then yeah treasuries at the moment seem like an easy option with one of the highest current returns

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Im open to considering Treasury Bonds but Iā€™m unclear on them.

Am I right that there is a 1 month commitment and the current rate has averaged in around 5% ( taken over 12 months)?

So what is the low risk? Can they default or lose money?

Can your money be tied up for longer than one month?

Whats the absolute worst case scenario with these?

Its the uncertainty and the one month tie in that is so far making me unsure.

17

Its the UK Government, if they default weā€™ve all got problems. However with this government, maybe you are right to ask :rofl:

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Agreed. In finance, treasury bills are usually used as a proxy for the ā€˜risk free rateā€™. Itā€™s theoretically the lowest risk investment possible on the market.

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19

Found this article from FT which explains everything

https://freetrade.io/uk-treasury

No mention of fees so I assume there arenā€™t any?

Something to consider :thinking:

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Currently no fees and they have said they will announce in advance if/when they introduce fees.

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