how am i best to invest £80k

col608

My Mum recently inherited £80k and is considering investing it in order to pay her rent on a monthly basis with the interest.
What would be the best interest rate she could expect and where would be the best and safest place to invest the money so as she could draw the interest monthly?

jamesd

The sort of funds that might be used and their yields include:

9.6% Marlborough High Yield Fixed Interest
7.9% Newton Global High Yield Bond
7.2% Newton Higher Income
6.6% Invesco Perpetual Monthly Income Plus (pays monthly)
6.2% Invesco Perpetual Distribution (pays monthly)
3.9% Invesco Perpetual Income

Those yields are historic and not guaranteed. The capital value varies, by as much as 40% in some of them. You'd use many different funds, not just one. Sticking £300,000 in Marlbororough High Yield Fixed Interest alone would be a bad mistake due to lack of diversification even though it's been paying what would be £7,700 a year on £80,000 invested, an average of £640 a month. Assuming 6% growing with inflation is a more reasonable assumption, though 4% would be prudently cautious long term to allow lots of room for the capital value to grow.

Income from the bond funds there is tax free inside a stocks and shares ISA and that means that putting the income producing investments in that first comes ahead of any other use of ISA allowances because the interest rates paid are so much higher on the investments, saving more tax than just on savings accounts.

However, it seems that she might prefer using savings accounts instead of investments. If so, a combination of regular savers, term deposit accounts and instant access accounts would be the way to go to get a blend of interest rates with access to a lot of the capital if necessary.

A good practical solution would be a combination of investments and savings accounts. One savings account with instant access would be used to receive the investment income and she'd pay her rent and take any other income using a fixed standing order from that savings account, adjusting it once a year if necessary based on how the investments have done.

If she's not familiar with using investments it's the sort of thing an IFA found via unbiased.co.uk would be happy to discuss with her, explaining how such mixtures are put together to give higher income than savings accounts alone, but without more variation in capital value than she'd accept.

An IFA could also easily put together combinations that provide a near-guarantee that over say five years the total value of the capital plus the income she takes out won't fall lower than £80,000. So could I, it's easy to do with a combination of savings accounts and different investments. There's some reduction in income to do this, though, so it's better to accept say 20% capital value variation instead and take the higher income.

Safest has too many meanings. If it's taking an income then normal savings accounts fail badly because they are paying negative interest rates after inflation, so she couldn't take any income at all and still preserve her capital value long term. Investments go up and down more in the short term but offer an excellent chance of avoiding that certain drop due to inflation and still having some income available to take to pay the rent. Hence the need to use investments as well as savings accounts if there's a desire to take an income and not lose money value due to inflation long term.