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Does this sound OK?

Out of £40k, I am paying off the mortgage without penalties, putting £6k into two ISAs and will be left with a £7k lump sum and£800/month.

I've heard of rising income products such as index linked gilts/bonds, escalator bonds, and stepped preference shares. Would any of these be a reasonable place to put the lump sum or can anyone suggest another option?

I am considering opening a regular savings a/c with the monthly amount with Derbyshire, Capitol One or A&L. Does this sound like a reliable plan? :o

Comments

  • cheerfulcat
    cheerfulcat Posts: 3,406 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Hi, marrioa,

    Gilts and corporate bonds look expensive right now; you aren't getting much of an income and if interest rates rise you could lose a fair bit of capital.

    Escalator " bonds " are just deposit accounts that start off with a poor rate of interest and end with what looks like a very good one; I don't know what they are paying right now but when I last looked at them ( two years ago ), you would have got a better deal in a fixed rate term account.

    I don't think that preference shares are a good investment for a novice investor with a risk aversion; they are far riskier than deposit accounts or gilts.

    If you are looking for an income and no fluctuation in capital, a bank or building society is the best bet right now. Yields on other " safe " investments are too low to be worth the risk.
  • cc has the right perspective IMHO.
  • marrioa
    marrioa Posts: 113 Forumite
    Thanks you two

    What could the answer be then for a lump sum?
  • What do you want from this money?

    You haven't given us much of a clue about your personal circumstances, existing investments or financial targets.
  • marrioa
    marrioa Posts: 113 Forumite
    Hi ReportInvestor

    I've written about myself in my first post to the forum entitiled "inheritance dilemma" to which cheerfulcat kindly replied. I'm not skilled enough to provide the quote here, so I'll try to remember what I said.

    I'm 45 years old and will not have much of a pension, as I chose to stay home with my three sons rather than pay for care and work. My husband and I both work for local government - police and education - but unfortunately not as police officers and teachers, but PCSO and Learning Mentor. Joint monthly income £2k net, which seems an enormous amount to us. In 10 years' time we want to be able to live in Wales with less responsible jobs. On the risk scale I come in at a very modest 3. We have existing cash ISAs with just about the maximum in them and that's as far as our existing "investments" go.
    Basically, I would like the money to grow if possible, but I do not want to risk losing the original capital or become a victim of inflation.
  • Gilts and corporate bonds look expensive right now; you aren't getting much of an income and if interest rates rise you could lose a fair bit of capital.

    don't understand why if interest rates rise you could lose a fair bit of capital. can you please explain in simple plain English?.
    If you are looking for an income and no fluctuation in capital, a bank or building society is the best bet right now. Yields on other " safe " investments are too low to be worth the risk

    that i do understand- how long is this expected to continue?
  • cheerfulcat
    cheerfulcat Posts: 3,406 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Hi, homersimpson,

    Gilts and bonds are issued by governments and companies as a means of borrowing money. Once on the open market they have a price, just like shares. That price is partly determined by the bank base rate; in normal times, gilts and bonds pay more than the bbr because of the extra risk ( that the interest won't be paid ) over cash. For various reasons, not least regulatory ones, bonds have been in great demand in recent years, which has pushed the prices up to the point where yields ( the amount of interest you'll get as a percentage of the price you paid ) are equal to or lower than what you'd get in a decent bank account. Should interest rates rise, the price of gilts and bonds will fall to the point where they are yielding similar rates. There is a full explanation here.
    that i do understand- how long is this expected to continue?
    If you mean the yields being low, that will continue as long as we have such low base rates (and pension funds being more or less forced by regulators to buy debt, which keeps prices artificially high ). It is arguable that current rates are too low; money is cheap and plentiful. The extra money supply has pushed up the prices of all assets.

    HTH

    Cheerfulcat
  • penrhyn
    penrhyn Posts: 15,215 Forumite
    Part of the Furniture Combo Breaker
    Hi,
    You only have to wait until April to invest your lump sum in an ISA wrapper.
    You could put the money into a couple of cash ISAs, £3000 for each of you, and the rest in a high interest account.
    That gum you like is coming back in style.
  • cheerfulcat
    cheerfulcat Posts: 3,406 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    marrioa wrote:
    Thanks you two

    What could the answer be then for a lump sum?

    I don't see much choice in the way of low risk investments right now - cash is about the only thing left. It's not really inflation proof but if you allow the interest to compound rather than taking it as an income you should get some growth over inflation ( assuming that you believe the official inflation figures...)
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
    It may seem to casual readers, unfamiliar with investments that you have to wait until April to get a Cash ISA. This may well reflect the original posters circumsances. If you get one now then you can use your unused allowances for this tax year before they evaporate on April 6th.
    Many thanks to cheerfulcat.
    J_B.
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