what best to do with £30k?

Jazzycat

Hi,

we are looking at the best way to invest a lump sum of money. We both work and don't want a risky associated investment. We have a mortgage account that it could offset but feel it would be worth more investing. We have no isas or any financial products and really just wonder where start.

Any advise to get us going would be great

thank you

dunstonh

You need to decide what sectors you wish how much risk you want to take and then what sectors you want to invest in. Risk is not an on or off situation. Even a savings account carries risk (in the form of inflation eating into low returns). Risk is a sliding scale from very very low risk through to very high risk. Risk is also affected by timescale.

After deciding where you want to invest, you need to pick the tax wrapper (such as ISA, OEIC, UT, SIVAC, REIT (the last 4 generally referred to nowadays as collectives) and investment bonds or investment trusts), and then the fund managers and funds.

Before picking the providers and funds you research them to find which is best for your personal circumstances and select a range to suit.

Jazzycat

thanks dunstonh,

I appreciate the risk factors, I basically don't want to risk the capital invested, therefore anything stock market related would be too risky?

I don't need instant access and am happy to tie up the capital for 2 years.

The financial abbreviations dont really mean anything to me, could you give me a brief overview of each? I need to know what the products are before I can think of what area to invest in.

thanks for your time.

Chrismaths

ISA - Individual Savings Account - a tax-free account. You can invest up to £7,000 in a stocks and shares one in any one year, or £3000 into a cash 'mini' ISA and £4,000 into a stocks and shares mini ISA.
OEIC, UT, ICVC - Open Ended Investment Company, Unit Trust, Investment Company with Variable Capital - effectively identical, these are ways to pool your money with other investors to get a larger spread of investments than you could achieve on your own. They can be passively managed (ie track an index like the FTSE) or they can be actively managed (where you pay a fund manager to try and add some performance or reduce risk) - And there are thousands of them.
SICAV - Société d'Investissement à Capital Variable - basically a continental version of a unit trust or OEIC.
REIT - Real Estate Investment Trust - these have been common around the world for ages (esp Australia, Germany, US et alii) and again you pool your money with other investors to invest in Real Estate (property). No UK ones available yet, will start to be available after the Finance Bill passes parliament.

Jazzycat

thanks Chrismaths.

Should my first port of call be isas? Are these per person - so basically we could utilise £14k?

thanks for your help

dunstonh

14k is the ISA allowance but it would involve using risk based funds. Risk doesnt need to mean stockmarket. Gilts, corporate bonds, global bonds, commercial property are all lower risk than stockmarket but still have no guarantee on capital.

Given your 2 year timescale and your risk profile, you ought to be sticking to savings accounts. That means 3k cash ISA each and then a normal savings account.

Chrismaths

Yes and Yes.

Remeber the ISA is a 'wrapper' only, it's what you put in it that counts. This is simple enough when it's a cash ISA (you put in - cash!), but stocks and shares ISAs are slightly more complex. You can put all of the previous mentioned products into a stocks and shares ISA (UTs, OEICs, etc - henceforth 'collectives') or indeed shares, or a combination of any of them - hence the term 'wrapper'.

Given you only want to invest for 2 years, and you don't want to risk your capital, your choices are pretty limited however. Given that I'm FSA registered, and don't know your circumstances I can't suggest a place for you to invest it, but there are several funds that meet the criteria you laid out. First thing to do though is to open cash mini ISAs for you and your other half. I'm sure someone will let you know the best options currently - not my area of expertise. Oh and EdInvestor will probably be along to recommend some high yielding shares as a panacea as well - only kidding Ed.

After that, do your own research, and find something you can put the 8k in that won't lose you money, and will beat cash. Or pay someone else to do it for you, up to you really.

greencatrus

consider lending on zopa. They credit check everyone who wants to borrow and put them into bands so its up to you who you lend to and at what rate but as you can spread it out across many borrowers the risks are very low. Intrested https://www.zopa.co.uk. And yes I am a lender and we could both get £30 if I refer you.

Jazzycat

thanks Christmaths and dunstonh.

The share isa is a bit scarey as you risk your money and could actually end with less - are shares generally a good area at the moment or best totally avoided. Its just that a low risk share isa may be a consideration for a year if the markets are looking generally good.

Is investing £3k in a cash isa actually then worth doing compared to say a savings rate on 4.85%.

thanks for all the great help so far.

Chrismaths

4.85% on a savings account is subject to tax at 20% for a basic rate tax payer, so that's only 3.88% net to you. So yes a cash ISA on the same terms will make you around 1% per year better off. And remember that it's 6k per year, so in a year's time you will have 12k in there, and 1% of that is £120 per year.

Conrad

You ask 'are shares generally a good area', this is a difficult question.

All I can say is generally shares have massively outperformed cash in the last 2 years.
Mine have increased 60% in 2 years for example, but as for tomorrow, nobody knows.

If you specifically need the cash in 2 years, you can only really consider cash based accounts as others have said.

Incidently I note the conversation concerning 'risk' above. Ive always been critical of the finincial advice industry over 'risk' as its far too simplistic approach. I vigourously argued against With Profits 10 years ago saying the risk was the fact returns were likely to be poor given high charges. The industry however generally deemed with profits to be lower risk.
It turned out that my 'contrarian view' had foundation as with profits ended up being mauled by other much better performing investments later.

I like to keep a lot of control over my investing and although I use proffesional funds for some investing, I always keep in mind the hundreds of staff and indirect people (eg Lawyers advising funds) that need paying out of the funds capital and that this eats into my investments. I therefore beleive most of us should also invest directly via for example foreign property. People who take a hands - on approach tend to get a lot more over the longer term.