Best home for £55k lump sum

Glen_Clark

bowlhead99 wrote: »

The question of PBs comes up all the time here. It's govt backed so it is safe in that sense, and the headline return is 1.5% tax free: for a basic rate taxpayer with no remaining ISA allowance, that's like getting 1.88% pre tax from a bank. It's a bit better than this if you'll be a higher rate taxpayer in retirement.

But you don't receive any interest direct, it is gambled for you in a raffle. Each £1 bond has a 1 in 24000 chance of winning a prize in the monthly draw. So with 24 k invested you should win one prize a month on average.

96% of the prizes are £25 so generally you'll get £300 a year for a 1.25% return on your 24k. A couple percent of the prizes are £50 or £100 so in a good year (every few years) you might get £360 in the year and achieve the headline 1.5% return. Every 20,000 months, you should win a £5,000 prize, and if you can wait 40,000 months it will be your turn to win a £10,000 prize.

If you can wait 148,000 YEARS, you'd be due one of the million pound prizes. This is not guaranteed and if you're unlucky, it might take you 300,000 or perhaps even half a million years for it to be your turn.

Of course, this is assuming you only invested £24k to get an average one prize a month. You were proposing to invest £30k, so you'll win prizes faster and instead of waiting 148,000 years for the top prize, you could get it in 118,000 years. Unless you're unlucky. Or the interest rate changes for the worse.

Given that only the top prizes are meaningful life changing amounts, you would be better investing elsewhere, getting 50 quid more interest a year and spending it on a weekly lottery ticket. You'll hit the jackpot every 270,000 years and meanwhile won't have 30k of your retirement funds tied up in a gambling addiction.

odds: http://www.nsandi.com/savings-current-interest-rates-premium-bonds-prize-draw-details

Good advice, spoiled by the last paragraph recommending the lottery. With only 50% of the turnover paid out in prizes, the lottery is a worse deal than premium bonds. The lottery also takes up more of your time, and is more likely to lead to a gambling addiction. Every time you hear of someone winning one million pounds on the lottery, think of those who have lost two million pounds to pay for it. Generally the losers needed the money more than the winners

gozomark

Glen_Clark wrote: »

Good advice, spoiled by the last paragraph recommending the lottery. With only 50% of the turnover paid out in prizes, the lottery is a worse deal than premium bonds.

not necessarily. It depends on the interest rate you get on your savings to buy the lottery tickets with - if its more than twice the premium bond rate, its better

nilrem_2

Glen_Clark wrote: »

Good advice, spoiled by the last paragraph recommending the lottery. With only 50% of the turnover paid out in prizes, the lottery is a worse deal than premium bonds. The lottery also takes up more of your time, and is more likely to lead to a gambling addiction. Every time you hear of someone winning one million pounds on the lottery, think of those who have lost two million pounds to pay for it. Generally the losers needed the money more than the winners

I agree absolutely.

I have never heard of anyone being addicted to premium bonds but I have seen lot's of people queueing up and buying reams of lottery tickets and scratch cards, often they are poorer people who can ill afford to buy tickets but get sucked in by the "it could be you" after seeing some person win big time.

Having a few premium bonds can't lose you much given the interest gained from alternative means and if you do get the odd £25 prize it does give a feel good factor.

atush

The difference is, between a 'few' PBs (ie the min holding of 100 which I have) and 30K's worth.

holding a few PBs is a fun little gamble where you dont lose your stake (but it will grow less in real value each year) and investing 30K is pretty usless as a saving strategy. The averge rate of winnings doesn't even meet much less beat inflation.

Glen_Clark

gozomark wrote: »

not necessarily. It depends on the interest rate you get on your savings to buy the lottery tickets with - if its more than twice the premium bond rate, its better

Premium Bond rate is 1.5%. Please tell us where you can get 3% net on £55k - (short term money with Government backed security)

Glen_Clark

nilrem wrote: »

I agree absolutely.

I have never heard of anyone being addicted to premium bonds but I have seen lot's of people queueing up and buying reams of lottery tickets and scratch cards, often they are poorer people who can ill afford to buy tickets but get sucked in by the "it could be you" after seeing some person win big time.

Having a few premium bonds can't lose you much given the interest gained from alternative means and if you do get the odd £25 prize it does give a feel good factor.

Premium Bonds account for 0.03% of my investments. The chance of a significant win is astronomically small. But there is a chance. So I can still dream

innovate

gozomark wrote: »

not necessarily. It depends on the interest rate you get on your savings to buy the lottery tickets with - if its more than twice the premium bond rate, its better

sure, if you get more than twice the premium bond rate in interest (net???), its better......but where exactly do you get that? Anywhere?

bowlhead99

The bond rate is 1.5% net (variable because it's a gamble, most years less, few years more, but the 1.5% p.a. is the expected net return over a long enough period). To use my figures from earlier, a 24k investment would pay 360 p.a. if you can wait to infinity (though in most years it pays 300 as mentioned).

If you can get 1.7% net p.a. from another 'risk free' investment you would instead have 410 p.a. This allows you to keep the 360 cash and spend 50 on national lottery tickets giving you the chance to win a life changing amount of money every few hundred thousand years.

The fact that national lottery tickets are very inefficient (25 of your 50 spend is eaten up with charities and charges) is not really an issue if you are simply looking for some way to have a very small chance of winning a very large amount of money. The 50 you are having a flutter with in this way would not even be in your hand if you had bought the bonds; your investment return from the PB is 360 whereas with the bank account it is 360+50.

The lottery may be socially unhealthy if you don't believe that gambling problems caused are balanced out by the benefits of charity funding produced. And it only exists because people (and unfortunately, those likelier to be from lower socio-economic classes) are foolishly willing to pay in 2 million for them to win back 1 million. But as the 'Investor', you don't need to worry about these high 50% costs per se - if your goal is simply to find a combination of products paying 360 expected cash and a low chance of winning a life changing amount of cash, you can take the 1.7% netting bank account and do the lottery every week, instead of taking the premium bonds. Actually the net bank return can afford to be slightly less than 1.7% because the lottery adventures should return a tenner or more every 54 weeks.

If you're really anti-lottery due to the high charges and all that money 'lost' to good causes and camelot profits, but you still want the low chance to win a million, you could instead go to a casino and put the weekly pound on a roulette table and let it ride until Red has come up 21 times in a row and you can walk out with a million. The payout profile is different (no £10 or £5000 or £100000 prizes being won along the way) but you could still get your hands on a million after waiting tens of thousands of years, or in less time if you're lucky.

Glen_Clark

bowlhead99 wrote: »

The bond rate is 1.5% net (variable because it's a gamble, most years less, few years more, but the 1.5% p.a. is the expected net return over a long enough period). To use my figures from earlier, a 24k investment would pay 360 p.a. if you can wait to infinity (though in most years it pays 300 as mentioned).

If you can get 1.7% net p.a. from another 'risk free' investment you would instead have 410 p.a. This allows you to keep the 360 cash and spend 50 on national lottery tickets giving you the chance to win a life changing amount of money every few hundred thousand years.

The fact that national lottery tickets are very inefficient (25 of your 50 spend is eaten up with charities and charges) is not really an issue if you are simply looking for some way to have a very small chance of winning a very large amount of money. The 50 you are having a flutter with in this way would not even be in your hand if you had bought the bonds; your investment return from the PB is 360 whereas with the bank account it is 360+50.

The lottery may be socially unhealthy if you don't believe that gambling problems caused are balanced out by the benefits of charity funding produced. And it only exists because people (and unfortunately, those likelier to be from lower socio-economic classes) are foolishly willing to pay in 2 million for them to win back 1 million. But as the 'Investor', you don't need to worry about these high 50% costs per se - if your goal is simply to find a combination of products paying 360 expected cash and a low chance of winning a life changing amount of cash, you can take the 1.7% netting bank account and do the lottery every week, instead of taking the premium bonds. Actually the net bank return can afford to be slightly less than 1.7% because the lottery adventures should return a tenner or more every 54 weeks.

If you're really anti-lottery due to the high charges and all that money 'lost' to good causes and camelot profits, but you still want the low chance to win a million, you could instead go to a casino and put the weekly pound on a roulette table and let it ride until Red has come up 21 times in a row and you can walk out with a million. The payout profile is different (no £10 or £5000 or £100000 prizes being won along the way) but you could still get your hands on a million after waiting tens of thousands of years, or in less time if you're lucky.

If you wanted more cash in hand and less chance of winning you would still do better to put less in premium bonds, and more in interest paying accounts.(as I have done) So you keep a (extremely) remote possibility of winning a significant amount, without losing a significant amount.
I am a capitalist with a conscience and originally took the point of the lottery supporting worthy causes, but gave up on that when they paid the Churchill family £12.5 million for Churchill's letters.

melbury

That is an interesting point about investment trusts. I already have some money invested in the Perpetual Income & Growth investment trust, which does pay pretty good dividends.

Rather than just randomly buy some shares, perhaps it would be more sensible to put some money into another investment trust.

Presumably these can be purchased in exactly the same way as ordinary shares?