Best thing to do with £75k

EdInvestor

You are starting off the right way. it's really sensible these days to equalise investments.

So the next question is, what's the position about your existing long term savings and pension provision?

jamesd

Good general long-term advice is 7000 a year in stocks and shares ISA for each of you. Then the vital bit is learning enough about them to pick good funds or other investments to hold in them. That's the bit that makes the money or loses it, not the fact that it's an ISA. So, pencil in 28000 for that between now and mid April to start... and get learning about "asset allocation".

If you want a fairly low risk (but also low return) starting point you might consider these:

New Star Property from Property all regions BI - real property uk, small REIT component

Baillie Gifford High Yield Bond from fixed interest - UK junk bonds

Those aren't personal recommendations, just reasonably low risk to get started with while you learn.

High risk options include:

Old Mutual UK Select Smaller Companies Fund from UK smaller companies

Jupiter Fund of Inv Trusts from global growth

I just gave you a quick lesson in asset allocation. Part of it is about selecting a mixture of investments in different parts of the market and mixing the money among them so that the overall risk matches your desired risk level. I just gave examples from four different sectors (property, fixed interest at fairly high risk for that sector, UK smaller companies, international/global growth) with different risk levels.

It's not about an even split of money. The relative amounts in each depend on your target risk level. If you used those four a high risk person would have most in the last two, a low risk person most in the first two.

Don't just use those funds. They are examples and also an inadequately varied set. In reality you'd pick the ones that fit you best.

jamesd

If the pair of you want to save money on the mortgage, here's what you can do, assuming she's the one with the extra money:

• Take the after tax interest she gets in the best savings account available to her.
• Put a lump sum in the mortgage (after investment money, don't stop that)
• Half of that money is off her half, half off your half.
• For her half, she's getting fully rewarded by the reduced mortgage payments. For your half, you pay her interest at the mortgage rate plus half of the difference between the mortgage interest rate and her after tax savings rate. This saves you half of the difference between rates on your half, gaining her half of the difference. On her half, she keeps the full difference
• She is entitled to withdraw the extra payment at any time (it's her money that has reduced the capital owed, so she can take it back whenever she likes)

This way she gains by the difference between the mortgage and savings rate on her half and each of you gains by half of the difference in interest rates on the half you're effectively borrowing from her.

Say mortgage rate is 5% and after tax she is getting 4% on savings. She pays 10000 off it. You pay her 4.5% interest on 5000 (225 a year), you both then save 5% on the 10000 of mortgage capital you're not paying interest on any more (500, split two ways, 250 each). You end up 25 better off (250 less the 225 you pay her), she ends up 75 better off (250 plus the 225 you pay her = 475 less the 4% she would have got on 10000 = 400). The reduced mortgage payments after the lump sum payment is how the two of you collect that 250 a year. Easiest way to pay her is monthly when the mortgage payment is due, 1/12 of the amount each month.

Now you two have a big fight and sell the place. Leaves 30000 in equity. She gets the first 10000 of that because it's the extra money she put in. Then you split the 20000 that remains. She gets 20000 total, you get 10000 total. And if you lived together for 5 months of the year since the last interest payment from you to her, you pay her 5/12 x 225 (the interest calculated earlier) = 93.75 in interest on the loan while you were gaining from it.

At a minimum, you two both sign this post writing that this is the agreement and put one copy for each of you in a safe place so the lawyers can fight over it later.

If you did this for 50000 and kept the mortgage term the same with lower repayments, you'd each be saving something like 104 a month in mortgage payments and you'd pay her about 1125 once a year, or more realistically 1125/12 = 93.75 a month. That difference between 104 and 93.75 is the bit you're gaining.

A major correction to this was made on Saturday 20 Jan at 2:35PM. You should not use an earlier version because it was not fair to the person adding the extra money.

Cannon_Fodder

jamesd - 1 small point, the Old Mutual fund you mentioned has closed to new money.

jamesd

Cannon Fodder, thanks, didn't know that, I'll note it in future. Makes it a better example for my purpose though, since it's harder to take it as a recommendation.

arealhighlander

If she has money to pay off her half of the mortgage then it would be hetter for her to do that - just beucaue that wouldnt leave it 50:50 doesnt mean its the wrong thing for her to do!

Always pay off any debts you have first as that interest rate is always higher than any you can make elsewhere.

Cannon_Fodder

arealhighlander - not necessarily...my mortgage is 5%, my Cash ISAs are 5.4%...so that's £20K at 0.4% profit per annum - £80 is £80...when rates rise, as they seem to be heading, if the ISAs don't keep up then clearing some mortgage may become appropriate.

dunstonh

investment ISAs have potential to go through 10% p.a. mark average. Twice the mortgage amount. It all comes down to how you perceive risk and reward.

ptben

Thanks all for the fantastic advice. The decision made is that we are going to pay a large chunk of the mortgage off and adjust the % owned accordingly. My girlfriend will own a large % of our house (not a problem) and I will invest the extra money saved off the mortgage in another venture. So I'll be back asking for more advice