This article appears as part of the Money HQ with Ben Stark newsletter.

So far, I’ve written a mixture of practical pieces with some clear tips for growing and protecting your money, and some personal pieces on how I think about money.

This week I want to offer a simple model for considering investing. I use this almost daily with clients, and my wife and I use it in our own planning as well.

I call it 3 pots, and it’s really straightforward. Before I get into the model though, a word of caution. Unless I know someone’s situation in detail, the most common answer I give to a direct question is ‘it depends.’ Everyone’s situation is unique.

Even where things seem similar to a friend or colleague, the reality is that you could both require something completely different. I’m sharing this on the understanding that you won’t base a decision solely on this, and you will seek advice if you aren’t sure.

Now, let’s set the scene. You have some cash in the bank, possibly from savings, or a bonus, maybe an inheritance or even the sale of a business. You realise it’s perhaps more than you need today, but having never invested and/or taken advice before, you aren’t really sure where to start.

Here is how I’d encourage you to think about it.

  • Pot 1 is your emergency fund.
  • Pot 2 is the money you plan to spend over the next few years.
  • Pot 3 is what’s left.

Pot 1 is different for most people. Your experiences and views on the amount of risk you’re willing to take will determine this number, but a reasonable place to start could be 6-12 months of bills. This is the pot that provides cash in a hurry for an unexpected bill or emergency. You don’t want to have everything invested because even liquid, easy access investments take several days from giving the instruction to having the money in your account.

This money should be in an instant access savings account, so you can access it immediately, if required.

Pot 2 should be straightforward. Think about your plans over the next few years. Perhaps you’re thinking about doing some work on your home, buying a new car, taking a particularly expensive holiday or helping children with a property purchase. Of course, the items in here are limitless; what’s important is you identify them, and note them, along with an approximate cost.

Depending on the timing of your plans, you could consider a term deposit account, where the money is tied up for a period of time before you need it in return for a better interest rate.

Finally, Pot 3 is whatever is left. It is reasonable to assume at this point of the exercise that the money left here is money you don’t have clear plans for over the coming years, and could remain invested over the medium to long term (typically 5 years+).

The Herald:

On that basis, if invested, it’s reasonable to say that volatility could be smoothed out over the medium to long term, and you are unlikely to be in a position where you must access this money at a particular point in time.

Not needing this money in the short term is important, because having to access your investment when markets have fallen means you must accept the loss in fund value. As investments go up and down, this is a situation which is likely to occur at some stage. By ensuring pot 2 covers your plans and pot 1 holds your emergency fund, you should have the time to let pot 3 recover from any downturns.

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If you work through this exercise, you should be able to clearly label pots of money, and therefore more clearly understand your spending expectations over the coming years. As well as being a simple process to work through, my clients have told me that they feel more in control of their investment decision making and more relaxed during periods of market volatility.

I’d encourage you to give this a try. If you are invested already, do the amounts line up? If not, perhaps it’s time to review your approach, and make sure it lines up with your plans.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact me on 0141 374 0054 or email