Diversification is something that I talk about a lot when I share details of my business. My Mrs Mummypenny income comes from many sources, be that sponsored posts, freelance writing, affiliate income, product sales, social media posts, public speaking, plus more. It is so important to have many sources just in case one income stream suddenly stops or reduces significantly.
The same principle applies to my money. As in where I hold my investment and my cash savings. This is my current money diversification and my future plans of products that I want to look into once I free up more money for investment.
I own a house
My biggest amount of money I have built up is locked away in the property I live in. I started my journey on the property ladder back in 2002 at the tender age of 25. It was so much easier then to buy a house. I jointly bought a three-bedroom house near Brentwood in Essex for £200k. That house would maybe be double that now!
I have owned three houses so far in my life and have extended the current house I live in. This property journey has created around £250k of equity. Of course, this money cannot be got at easily. I would have to sell my family home to access the money. But it continues to grow nicely.
I slightly regret never buying another house, or maybe keeping the two-bedroom house I owned by myself for a few years. It would have been a nice investment and chunk of monthly income. Hindsight is a wonderful thing.
I have a pension
I have pension fund worth nearly £50k. This is a combination of previous employment pension schemes and money that I pay into my pension now I am self-employed.
My biggest financial regret was not paying into my pension scheme until I was 32. I opted out of the pension schemes during my 20’s and missed out on a huge amount of money, who know what they could be worth now. But it is gone, never retrievable, that money was spent on something else at the time.
I have cash savings
I have money set aside into cash savings, this sits in a high interest current account. This includes my emergency fund, the aim here is to have three to six months. Six months is more sensible for me as self-employed. Three months for an employed person, or what you feel comfortable with.
I also have automated savings accounts with Chip and Plum. Money is moved automatically from my current account periodically based on my spending. I use this money for Christmas.
Plus, I have a cash savings account for holidays, a luxury that we as a family cannot go without.
I have investments
I have a stocks and shares ISA that I pay a regular amount of money into every month. This is money being put aside for the medium term, for at least five years. I am personally saving money in here to allow us to contribute to our children’s university costs (or whatever they chose to do at the age of 18). As with all types of investment there is a risk here that the money I have invested might gain or fall. I have done my research and invested in a firm that comes highly recommended.
I also have junior ISA’s for each of my children that will mature when they are 18.
There are other investments that I will consider once I am happy with having enough in my stocks and shares ISA. I will consider having a General Investment account. This is an account that I can open with any platform to buy funds or shares, but not be protected by the tax wrapper of an ISA. You can only have one ISA be that cash or stocks and shares. There is a £20k annual limit on money to be paid in.
There is also an IFISA, the innovative finance ISA. This is a new way of investing that allows individuals to investing by way of loans through peer to peer lending – where your money is lent to a variety of borrowers or through investment in minibonds where money is typically lent to businesses, in both instances the borrower(s) is due to pay back the amount lent with interest based on the length of the investment.
The innovative finance ISA can offer good returns, higher than savings in cash, but of course there is additional risk that comes with this return. Your investment could fall, the companies could default on the loan. In addition, this money is not protected by the FSCS. Any losses incurred would not be protected by the Financial Services Compensation Scheme (“FSCS”). Additionally, if the IFISA provider ceases to exist or goes into liquidation you would not be able to put in a complaint through the FSCS to be compensated for loss of capital and interest.
A company offering an interesting Innovative Finance ISA solution is Raptor Gold. Here your money will be used to provide Stream and Royalty Financing to third-party mining projects who specialise in gold or other precious metals. They are offering a fixed rate of interest at 8% for a fixed term length of three years, with a minimum investment of £2,000.
Diversification is important
The old proverb is so true with your money. Don’t keep all your eggs in one basket. You can vary your risk levels and have money in different types of investment to experiment with different levels of return. If you have some spare money maybe try something different. Of course, with any form of investment, your money may go up or down.
Please be aware that any form of investment can go up and down. You may get back less than you invested. All investment carries risk and it is important you fully understand these risks and are willing to accept them. The tax advantages of ISAs may change in the future and depend on your individual circumstances. You may want to consider advice from a qualified IFA, just make sure they are recommended by a trusted friend and check their investment levels as some will only work with clients with an investment level of at least £150k. This post was written in collaboration with Raptor Gold.