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  • FIRST POST
    • Davethepioneer
    • By Davethepioneer 15th Sep 17, 11:08 AM
    • 21Posts
    • 0Thanks
    Davethepioneer
    Help
    • #1
    • 15th Sep 17, 11:08 AM
    Help 15th Sep 17 at 11:08 AM
    Good Morning.

    This is my first time posting and I'm not sure if I have this in the right category so I shall apologise in advance if not.

    So I'm 41 years old, married and have two young children and I own a very small business that I run from home, it's been running 12 month and is not running st a profit yet but will be. My wife works full time and our house is currently valued at £240,000 - £250,000

    Anyway I'm about to receive some money in the region of £600,000 and £700,000 which basically has to last me the rest of my life. So my mortgage is with the Halifax and because of the Bank of England base rate I'm hardly paying any interest. I can pay off as much of the mortgage as I want without any fees so if I wish to pay £10,000 of I can and there are no fees or penalties etc.

    Anyway as it stands I owe at the last mortgage statement £118,000 and I have a loan which I got for my extension and that is £21,000 I have £2000 on my credit card and that's pretty much it apart from my car which I pay £350 per month for and then after 3 years I can pay the remaining balance or use the vehicle to trade in or hand it back and walk away.

    So in my head when I receive this money the best thing to do would be to pay the mortgage and loan and credit card off then I'm own nothing to nobody.

    If I worked of getting the minimum which would be £600,000 then that leaves me with £459,000 we would want to put £10,000 away to finish our house off (fitted bedrooms, four of them) and £10,000 away for a family holiday to Florida when my two young boys are older, currently 8 and 5.

    As you can see it still leave a good chunk of money, we think we would need to open several bank accounts so that we are covered up to the £85,000 but we are not sure what to do with it once we have distributed it into the bank accounts. I say I'm doing this because I bank with HSBC and I asked them if I could open several accounts to put the money into and they said yes but as an individual I'm only covered up to £85,000 or £170,000 joint account.

    We have briefly spoken to an adviser who was talking about isa and children's pensions but in all fairness it went over my head. I know I can put £20,000 in an USA per tax year but it still leaves a lot of money lying around.

    I suppose my question is this, I need the money to work for me, I'm not expecting or wanting a great return of it but enough so that my pot doesn't dwindle to nothing so I'm after any ideas that some of you may have. We have briefly spoken about buying a property and renting it out and managing it ourselves, we've head about the Santander 123 account I think it was called and that's pretty much it. We don't really want very high risk and I suppose we are looking at long term investment as we will put aside from the £600,000 a certain amount as a rainy day fund. We could at worst case scenario live off my wife's wages as we would only have utility bills to pay and my car. We go away for 3 weeks once a year, we like to eat out but I'm only talking Nando's and TGI's nothing to extravagant. We are a young family and we obviously want to do the best for our boys and ourselves.

    Any advice or ideas would be greatly appreciated
Page 3
  • jamesd
    I'm not sure it makes much sense to pay off the mortgage when it's fairly easy at the moment to make more from investments than your likely mortgage interest rate. Does mean being willing to do some investing, though, which will have to mean some equity (share fund) investing long term in the mixture. In general paying off a mortgage makes you poorer long term, it's just a case of how desperate you are to get rid of it and pay that being poorer cost. I've one at about 10% of my wealth and I could easily pay it off but I don't because it'd just make me worse off.

    For the BTL, you should be thinking of doing it with mortgages inside a company set up just to do that, to increase the number of properties you can have for diversification. Preferably in a mixture of towns so not too much is in one town or area. Terraced houses are likely to get more stable tenants than flats ans you might consider 75% LTV to get four times the number of properties. Residential mortgages are usually cheaper than BTL so you might fund at least one via increased borrowing on your own home, then lend to the BTL business as a director's loan.

    It's also worth wondering whether you want to retire and what sort of income you'd want to have to do that. With £700,000 of capital you might reasonably expect something over £21,000 a year of income for life could be generated, assuming 3% of capital as a sustainable rate.
    Last edited by jamesd; 18-09-2017 at 5:51 PM.
    • Davethepioneer
    • By Davethepioneer 18th Sep 17, 5:57 PM
    • 21 Posts
    • 0 Thanks
    Davethepioneer
    Ok that has just confused the hell out of me, sorry for that but I just don't understand how paying my mortgage of and owing nobody anything can make me poorer. I was always led to believe that owe nobody anything and whatever you have is yours. Money is so confusing, best to spend it and just enjoy it hahaha
  • jamesd
    it would be fair to say that paying the mortgage, loan and CC off would be a good idea.
    Originally posted by Davethepioneer
    Loan and CC yes but mortgages are so cheap that it's probably a bad idea unless you're desperate to get rid of it instead of investing in things that pay its ongoing cost and more.

    I know I can split between cash isa or SS isa but I can't do no more than £20,000 between them. This still leaves a huge chunk of money so stocks and shares look the way to go but how much? Is it something you can DIY or do I have to pay the guy who came to see me.
    Originally posted by Davethepioneer
    If you're willing to do P2P lending, use the innovative finance ISA (IFISA) for P2P lending first because that saves you tax on the interest. Dividends and capital gains do better outside an ISA than interest does after the first £1000 worth of interest (and possibly the starter rate for savings on top of that but not likely to apply to you unless you retire).

    You can DIY. You'll find lots of discussion of the Vanguard LifeStrategy range of funds here and you might just stick the money into one of them until you've learned more. There are reasons to prefer others in various ways but they are an excellent easy way to get started. The Vanguard LifeStrategy 20% Equity Fund would be a good choice with current equity market valuations, which are quite high, switching into the 40% or 60% after the next big market drop. They use a mixture of shares and bonds, with the lower share mixtures having less up and down movement. Given your apparent relative inexperience and likely excessive reaction to ups and downs due to inexperience it'll be better for you not to go above 60% at least until you've gone through one big equity drop.

    P2P lending has the big advantage that you just don't see those drops, but you do have to deal with defaults from time to time and that takes a bit of getting used to.

    Choose the income (inc) versions of the funds if it's outside a SIPP or ISA. it makes it easier to calculate the possible capital gains tax liability when you sell because you control the dates when you buy and always know the price you buy at. Accumulation (acc) versions tdo the reinvesting as convenient for the fund and that's a pain to track. Inside a SIPP or ISA the inc version can be handy to accumulate money to pay fees but no CGT calculations to worry about, so acc is OK. For CGT you need to track every sale and purchase and the average purchase price. Then when you sell you compare the sale price to the average purchase price to calculate the gain on the portion you're selling.
    Last edited by jamesd; 18-09-2017 at 6:40 PM.
  • jamesd
    Ok that has just confused the hell out of me, sorry for that but I just don't understand how paying my mortgage of and owing nobody anything can make me poorer. I was always led to believe that owe nobody anything and whatever you have is yours.
    Originally posted by Davethepioneer
    Say you're making 7% from investments and paying 3% mortgage interest. You're 4% better off each year by keeping the mortgage, ignoring income tax for convenience. If you're expecting to make say 5-6% from BTL, same logic, why pay off a mortgage costing 3% when you can use it to make 5-6% instead?

    The reason this makes sense is that it's not borrowing to spend but borrowing to invest, so you're making money on your borrowing, not losing money.
    Last edited by jamesd; 18-09-2017 at 6:03 PM.
  • jamesd
    For your boys, if you're investing your other money, you might want to do both the maximum £4,000 Junior ISA and £2,880 maximum personal pension (SIPP) contribution. Assuming you can afford the £13,760 a year cost of doing both for each of them.

    Stick both into Vanguard LifeStrategy 80% because of the long and very long investing horizon, which makes the routine ups and downs irrelevant. General idea is that the JISA can pay a mortgage deposit and the pension greatly cuts how much they would need to pay into one.

    Assuming normal historic investment returns of about 4% plus inflation for the LifeStrategy 80% equity sort of mixture, you paying £2,880 net, grossed up to £3,600 by tax relief, into the pensions for say 16 years would get them to a pension pot worth £80,502 by the end of the 16 years. Assuming that's at age 18 and they are allowed to take pension money at age 60 it'd grow to £430,731 at age 60. Using the "4% rule" to give an idea of approximate income, 4% of that is worth £17,229 a year of income in today's money. A pretty good start!

    Same 16 year paying in assumption for the JISA's £4,000 a year gets to £89,445 after 16 years which I'll assume is age 18. Another 7 years until buying a property at say age 25 takes it to £118,292 in today's money. Enough to buy the whole home in many places, not just pay the deposit.
    Last edited by jamesd; 18-09-2017 at 6:20 PM.
    • Davethepioneer
    • By Davethepioneer 18th Sep 17, 8:56 PM
    • 21 Posts
    • 0 Thanks
    Davethepioneer
    Plenty of me to look into here, you have all been a great help
    • grandst
    • By grandst 19th Sep 17, 12:28 AM
    • 36 Posts
    • 22 Thanks
    grandst
    The danger is a 2008 style crash comes along and wipes 40-50% off your investments, paying off debt then starts to look good.
  • jamesd
    A 2008 style crash would be fine, though worrying, has been a good time for markets since. That's also why you diversify into lots of things, not just shares. LifeStrategy 20% Equity might see a drop of 10-15% or so in a repeat of 2008 because 80% of it isn't equities. LifeStrategy 80% Equity would be more like 35% down in the same situation.
    • Eco Miser
    • By Eco Miser 19th Sep 17, 12:46 PM
    • 3,320 Posts
    • 3,083 Thanks
    Eco Miser
    The danger is a 2008 style crash comes along and wipes 40-50% off your investments, paying off debt then starts to look good.
    Originally posted by grandst
    That's only a paper loss, and recovers quite fast (in the 2008 scenario), while selling investments to pay off debt crystallises your loss, and you never recover. Also the cost of the debt probably falls as well.
    Eco Miser
    Saving money for well over half a century
    • MallyGirl
    • By MallyGirl 19th Sep 17, 2:11 PM
    • 2,300 Posts
    • 7,314 Thanks
    MallyGirl
    Pension wise you advise to put some into my wife's pension, now would that be her company pension to which her employer matches what she puts in but I doubt they would match a huge amount or do you mean setting up a private pension for her and one for me?
    Originally posted by Davethepioneer
    If your wife is not getting the maximum employer match amount I would get her to increase her contributions until she is - it is free money!
    • Davethepioneer
    • By Davethepioneer 11th Jan 18, 1:54 PM
    • 21 Posts
    • 0 Thanks
    Davethepioneer
    Firstly let me thank you all for the replies I’ve had on this thread so far.

    Well I received my money. It’s still in dollars but is currently sitting at $995,000

    I use XE currency rate checker as this is the closest to the rate my bank gives me (HSBC) obviously it only shows the market rate and not the real trading rate but it’s close enough. Anyway just before Christmas the dollars were worth around £763,000 but for the past couple of weeks we are hovering around £736,000-£740,000 which is a dramatic loss but it goes up and down so is to be expected. Anyway I obviously want to get this into sterling ASAP but clearly want the rate to be better which brings me to my question. Has anyone heard or had any experience with this company?

    http://www.currencies.co.uk

    They are a broker and can get better rates than the banks
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