Should I invest my money in an ISA or Government bonds? (Or any other suggestion)
"So you are off to a really good start.  Congratulations on being debt free and having a nice income. Being an IT contractor can be financially rewarding, but also have some risks to it much like investing.  With your disposable income I would not shy away from investing in further training through sites like PluralSite or CodeSchool to improve weak skills.  They are not terribly expensive for a person in your situation.  If you were loaded down with debt and payments, the story would be different. Having an emergency fund will help you be a good IT contractor as it adds stability to your life.  I would keep  £10K or so in a boring savings account.  Think of it not as an investment, but as insurance against life's woes.  Having such a fund allows you to go after a high paying job you might fail at, or invest with impunity.   I would encourage you to take an intermediary step:  Moving out on your own.  I would encourage renting before buying even if it is just a room in someone else's home.  I would try to be out of the house in less than 3 months.  Being on your own helps you mature in ways that can only be accomplished by being on your own.  It will also reduce the culture shock of buying your own home or entering into an adult relationship. I would put a minimum of £300/month in growth stock mutual funds.  Keeping this around 15% of your income is a good metric.  If available you may want to put this in tax favored retirement accounts.  (Sorry but I am woefully ignorant of UK retirement savings).  This becomes your retire at 60 fund.  (Starting now, you can retire well before 68.)  For now stick to an index fund, and once it gets to 25K, you may want to look to diversify. For the rest of your disposable income I'd invest in something safe and secure.  The amount of your disposable income will change, presumably, as you will have additional expenses for rent and food.  This will become your buy a house fund.  This is something that should be safe and secure.  Something like a bond fund, money market, dividend producing stocks, or preferred stocks.   I am currently doing something like this and have 50% in a savings account, 25% in a ""Blue chip index fund"", and 25% in a preferred stock fund.  This way you have some decent stability of principle while also having some ability to grow.   Once you have that built up to about 12K and you feel comfortable you can start shopping for a house.  You may want to be at the high end of your area, so you should try and save at least 10%; or, you may want to be really weird and save the whole thing and buy your house for cash.  If you are still single you may want to rent a room or two so your home can generate income.   Here in the US there can be other ways to generate income from your property.  One example is a home that has a separate area (and room) to park a boat.  A boat owner will pay some decent money to have a place to park their boat and there is very little impact to the owner.  Be creative and perhaps find a way where a potential property could also produce income. Good luck, check back in with progress and further questions! Edit:  After some reading, ISA seem like a really good deal." There are a number of UK banks that offer what passes for reasonable interest on an amount of cash held in their current accounts.  I would suggest that you look into these.  In the UK the first £1000 of bank or building society interest is paid tax-free for basic rate taxpayers (£500 for higher rate tax-payers) so if your interest income is below these levels then there is no point in investing in a cash ISA as the interest rate is often lower. At the moment Santander-123 bank account pays 1.5% on up to £20000 and Nationwide do 5% on up to £2500. A good source if information on the latest deals is Martin Lewis' Moneysaving Expert Website I recommend investing in precious metals like gold, considering the economic cycle we're in now. Government bonds are subject to possible default and government money historically tends to crumble in value, whereas gold and the metals tend to rise in value with the commodies. Stocks tend to do well, but right now most of them are a bit overvalued and they're very closely tied to overvalued currencies and unstable governments with lots of debt. I would stick to gold right now, if you're planning on investing for more than a month or so.
Put £50 away as often as possible, and once it's built up to £500, invest in a stockmarket ETF. Repeat until you retire. US government bonds and bonds issued by companies with a safe track record and consistently high ratings, for the past years, by credit agencies. But the time line of your investment, which is quite short, maybe a factor of choosing the right bonds. If you are not going to touch the money then CD maybe an option or an interest bearing savings account. I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do.  There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier.  Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail.  So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague.  Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares).  Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other  wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose.  US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead.  Some links for further reference:  Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful.  Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds.  I hope this helps! There's not much more, but it's all condensed in a handful of blogs. "Your dec ision is actually rather more complex than it first appears. The problem is that the limits on what you can pay into the HTB ISA might make it less attractive - it will all depend. Currently, you can put £15k/year into a normal ISA (Either Cash, or Stocks and Share or a combination). The HTB ISA only allows £200/month = £2,400/year. Since you can only pay into one Cash ISA in any one year you are going to lose out on the other £12,600 that you could save and grow tax free. Having said that, the 25% contribution by the govt. is extremely attractive and probably outweighs any tax saving. It is not so clear whether you can contribute to a HTB ISA (cash) and put the rest of your allowance into a Stocks and Shares ISA - if you can, you should seriously consider doing so. Yes this exposes you to a riskier investment (shares can go down as well as up etc.) but the benefits can be significant (and the gains are tax free). As said above, the rules are that money you have paid into an ISA in earlier years is separate - you can't pay any more into the ""old"" one whilst paying into a ""new"" one but you don't have to do anything with the ""old"" ISA. But you might WANT to do something since institutions are amazingly mean (underhand) in their treatment of customers. You may well find that the interest rate you get on your ""old"" ISA becomes less competitive over time. You should (Must) check every year what rate you are getting and whether you can get a better rate in a different ISA - if there is a better rate ISA and if it allows transfers IN, you should arrange to make the trasnfer - you ABSOLUTELY MUST TRANSFER between ISAs - never even think of taking the money out and then trying to pay it in to another ISA, it must be transferred directly between ISAs. So overall, yes, stop paying into the ""old"" ISA, open a new HTB ISA next year and if you can pay in the maximum do so. But if you can afford to save more, you might be able to open a Stocks and Shares ISA as well and pay into that too (max £15k into the pair in one year). And then do not ""forget"" about the ""old"" ISA(s) you will probably need to move all the money you have in the ""old"" one(s) regualrly into new ISAs to obtain a sensible rate. You might do well to read up on all this a lot more - I strongly recommend the site http://www.moneysavingexpert.com/ which gives a lot of helpful advice about everything to do with money (no I don't have any association with them)." "Is he affiliated with the company charging this fee? If so, 1% is great. For him. You are correct, this is way too high. Whatever tax benefit this account provides is negated over a sufficiently long period of time. you need a different plan, and perhaps, a different friend. I see the ISA is similar to the US Roth account. Post tax money deposited, but growth and withdrawals tax free. (Someone correct, if I mis-read this). Consider - You deposit £10,000. 7.2% growth over 10 years and you'd have £20,000. Not quite, since 1% is taken each year, you have £18,250.  Here's what's crazy. When you realize you lost £1750 to fees, it's really 17.5% of the £10,000 your account would have grown absent those fees. In the US, our long term capital gain rate is 15%, so the fees after 10 years more than wipe out the benefit.  We are not supposed to recommend investments here, but it's safe to say there are ETFs (baskets of stocks reflecting an index, but trading like an individual stock) that have fees less than .1%.  The UK tag is appreciated, but your concern regarding fees is universal. Sorry for the long lecture, but ""1%, bad.""" "Assuming you can understand and emotionally handle the volatility, a good indeed fund would be wise. These are low fee funds which perform as well as our better than most managed investments and since they don't cost as much, they typically out perform most other investment vehicles. The S&P 500 is traded as SPDR. Another option is the Dow Jones Industrial Average, which trades as DIA. Average returns over the long term are 10-12%. If you expect to need the money in the short term (5-8 years), you have a non trivial chance of needing to pull the money out when the market is down, so if that's unacceptable to you, choose something with a guarantee. If you're terrified of losing money in the short term, don't think you can handle waiting for the market to go up, especially when every news caster is crying hysterically that the End of Economic Life on Earth is here, then consider a CD at your bank. CDs return much lower rates (around 2% right now) but do not go down in value ever. However, you need to lock your money into them for months to years at a time. Some people might tell you to buy a bond fund. That's horrible advice. Bond funds get lower returns AND have no guarantee that you won't lose money on them, unlike aactual bonds. As you're new to investing, I encourage you to read ""The Intelligent Investor"" by Benjamin Gramm." If you want the flexibility to make additional payments you should favour a flexible ISA. Shop around on comparators and you should be able to find a few that responds to your minimum interest rates Fixed-term ISAs are comparable to a bond: money goes in on day one and then no more deposit are allowed. The rate is fixed for the period. Even though they have a fixed you would still be able to withdraw cash but this would cost you an interest penalty. Not being able to withdraw money is asking the banks to take responsibility on your behalf... They won't do that Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%.  CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate. As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are  the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus  or longer. "What a lovely position to find yourself in! There's a lot of doors open to you now that may not have opened naturally for another decade. If I were in your shoes (benefiting from the hindsight of being 35 now) at 21 I'd look to do the following two things before doing anything else: 1- Put 6 months worth of living expenses in to a savings account - a rainy day fund. 2- If you have a pension, I'd be contributing enough of my salary to get the company match. Then I'd top up that figure to 15% of gross salary into Stocks & Shares ISAs - with a view to them also being retirement funds. Now for what to do with the rest... Some thoughts first... House: - If you don't want to live in it just yet, I'd think twice about buying. You wouldn't want a house to limit your career mobility. Or prove to not fit your lifestyle within 2 years, costing you money to move on. Travel: - Spending it all on travel would be excessive. Impromptu travel tends to be more interesting on a lower budget. That is, meeting people backpacking and riding trains and buses. Putting a resonable amount in an account to act as a natural budget for this might be wise. Wealth Managers: ""approx. 12% gain over 6 years so far"" equates to about 1.9% annual return. Not even beat inflation over that period - so guessing they had it in ultra-safe ""cash"" (a guaranteed way to lose money over the long term). Give them the money to 'look after' again? I'd sooner do it myself with a selection of low-cost vehicles and equal or beat their return with far lower costs. DECISIONS: A) If you decided not to use the money for big purchases for at least 4-5 years, then you could look to invest it in equities. As you mentioned, a broad basket of high-yielding shares would allow you to get an income and give opportunity for capital growth. -- The yield income could be used for your travel costs. -- Over a few years, you could fill your ISA allowance and realise any capital gains to stay under the annual exemption. Over 4 years or so, it'd all be tax-free. B) If you do want to get a property sooner, then the best bet would to seek out the best interest rates. Current accounts, fixed rate accounts, etc are offering the best interest rates at the moment. Usual places like MoneySavingExpert and SavingsChampion would help you identify them. -- There's nothing wrong with sitting on this money for a couple of years whilst you fid your way with it. It mightn't earn much but you'd likely keep pace with inflation. And you definitely wouldn't lose it or risk it unnecessarily. C) If you wanted to diversify your investment, you could look to buy-to-let (as the other post suggested). This would require a 25% deposit and likely would cost 10% of rental income to have it managed for you. There's room for the property to rise in value and the rent should cover a mortgage. But it may come with the headache of poor tenants or periods of emptiness - so it's not the buy-and-forget that many people assume. With some effort though, it may provide the best route to making the most of the money. D) Some mixture of all of the above at different stages... Your money, your choices. And a valid choice would be to sit on the cash until you learn more about your options and feel the direction your heart is pointing you. Hope that helps. I'm happy to elaborate if you wish. Chris." Bond aren't necessarily any safer than the stock market.  Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money.  Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund? A bond fund like VBMFX or similar I think are a good choice. Bonds are far less volatile and less risky than stocks. With your 1-2 year time frame, I say definitely stay away from stocks. Thats a very open question, Depends on the risk you are willing to take with the money, or the length of time you are willing sit on it, or if you have a specific goal like buying a house.  Some banks offer high(ish) rate savings accounts http://www.bankaccountsavings.co.uk/calculator with a switching bonus that could be a good start. (combining the nationwide flexdirect and regular saver) if you want something more long term - safe option is bonds, medium risk option is Index funds (kind of covers all 3 risks really), risky option is Stocks & shares. For these probably a S&S ISA for a tax efficient option. Also LISA or HtB ISA are worth considering if you want to buy a house in the future. "You have a large number of possible choices to make, and a lot of it does depend upon what interests you when you are older. The first thing to note is the difference between ISAs and pension-contribution schemes tax wise, which is of course the taxation point. When you contribute to your pensions scheme, it is done before taxation, which is why when you draw from your pension scheme you have to pay income tax. Conversely, your ISA is something you contribute to after you have already paid income tax - so besides the 10% tax on dividends if you hold any assets which may them, it is tax free when you draw on it regardless of how much you have accrued over the years.  Now, when it comes to the question ""what is the best way to save"", the answer is almost certainly going to be filling your pension to the point where you're going to retire just on the edge of the limit, and then putting the rest into ISAs. This way you will not be paying the higher rates of tax associated with breaking the lifetime limit, but also get maximum contributions into your various schemes. There is an exception to this of course, which is the return on investment. If you do not have access to a SIPP (Self Invested Personal Pension), you may be able to receive a far higher return on investment when using a Stocks & Shares ISA, in which case the fact that you have to pay taxes prior to funding it may not make a significant difference. The other issue you have, as others have mentioned is rent.  While now you may be enjoying London, it is in my opinion quite likely that will change when you get older, London has a very high-cost of living, even compared to the home counties, and many of its benefits are not relevant to someone who is retired. When you retire, it is quite possible that you will see it fit to take a large sum out of your various savings, and purchase a house, which means that regardless of how much you are drawing out you will be able to have somewhere to live. Renting is fine when you are working, but when you have a certain amount of (admittedly growing) funds that have to last you indefinitely, who knows if it will last you." "TL;DR - go with something like Barry Ritholtz's All Century Portfolio: 20 percent total U.S stock market 5 percent U.S. REITs 5 percent U.S. small cap value 15 percent Pacific equities 15 percent European equities 10 percent U.S. TIPs 10 percent U.S. high yield corp bonds 20 percent U.S. total bond UK property market are absurdly high and will be crashing a lot very soon The price to rent ratio is certainly very high in the UK.    According to this article, it takes 48 years of rent to pay for the same apartment in London.  That sounds like a terrible deal to me.  I have no idea about where prices will go in the future, but I wouldn't voluntarily buy in that market. I'm hesitant to invest in stocks for the fear of losing everything A stock index fund is a collection of stocks.  For example the S&P 500 index fund is a collection of the largest 500 US public companies (Apple, Google, Shell, Ford, etc.).  If you buy the S&P 500 index, the 500 largest US companies would have to go bankrupt for you to ""lose everything"" - there would have to be a zombie apocalypse. He's trying to get me to invest in Gold and Silver (but mostly silver), but I neither know anything about gold or silver, nor know anyone who takes this approach. This is what Jeremy Siegel said about gold in late 2013: ""I’m not enthusiastic about gold because I think gold is priced for either hyperinflation or the end of the world.""  Barry Ritholtz also speaks much wisdom about gold.  In short, don't buy it and stop listening to your friend.   Is buying a property now with the intention of selling it in a couple of years for profit (and repeat until I have substantial amount to invest in something big) a bad idea? If the home price does not appreciate, will this approach save you or lose you money?  In other words, would it be profitable to substitute your rent payment for a mortgage payment?  If not, you will be speculating, not investing.  Here's an articles that discusses the difference between speculating and investing.  I don't recommend speculating."