How to invest £5000

gtjh05

First time poster, looking for some advice please!

I am fed up with the low returns on any ISAs/savings accounts, and am interested in investing £5000 in something higher risk, but with greater chance of returns. Any suggestions??

Trentenders

Assume you mean 'chance of greater returns.' Nobody can give you any sensible pointers from the information you've posted, but if you can let us know a little more about your current position (what other savings you have, how much would it hurt if you lost the £5k, when will you need the money, etc.), then I'm sure you'll get some good advice.

innovate

If you read through the last few weeks of this board, you will get plenty of inspiration.

(if you don't have the time to read, you aren't really ready to invest)

kidmugsy

The fact that to get higher returns you must take greater risk does not imply that taking greater risk will bring higher returns.

I suppose that lots of bankrupts might have come to realise this.

CLAPTON

gtjh05 wrote: »

First time poster, looking for some advice please!

I am fed up with the low returns on any ISAs/savings accounts, and am interested in investing £5000 in something higher risk, but with greater chance of returns. Any suggestions??

the greater the change of returns then the lower the likely returns

the smaller the chance of returns then the higher the likely returns

planteria

kidmugsy wrote: »

The fact that to get higher returns you must take greater risk does not imply that taking greater risk will bring higher returns.

very very true.

Mr_K

If you don't want to risk the capital, premium bonds are looking increasingly tempting. You're not likely to make much, but there's a chance you might, or a risk you'll get nothing - but your £5k will be safe. Its not much of a risk as you're not going to get much more in a instant access savings account at the moment.

bowlhead99

gtjh05 wrote: »

...the low returns on any ISAs/savings accounts, and am interested in investing £5000 in something higher risk, but with greater chance of returns.

Mr_K wrote: »

If you don't want to risk the capital, premium bonds are looking increasingly tempting. You're not likely to make much, but there's a chance you might, or a risk you'll get nothing - but your £5k will be safe. Its not much of a risk as you're not going to get much more in a instant access savings account at the moment.

The OP wants a 'greater chance' of outperforming cash ISAs.

Your proposal of premium bonds puts him in a scheme where he spins the wheel 5000 times a month. It's a 1 in 24000 chance of winning so on average he will win 2.5 prizes a year. Each of those prizes is very likely to be £25: in fact, >96% of all prizes are £25.

So the most likely outcome is that he wins less than three prizes a year, and each of those prizes is £25. So he gets £50 a year on his £5000 being 1%, and maybe every other year he gets £75 instead.

This compares to a tax free return of 2% (£100) in an instant access Tesco ISA or a 3%+ pre-tax (£150+) return with Santander or Lloyds or Nationwide or a variety of other high interest current accounts or regular saver accounts providing the T&Cs are met.

If the poster genuinely just wants "...something higher risk" then sure, an account that pays a lower headline interest rate and then gambles it on prizes is certainly higher risk.

But if he wants, as he suggests, something "with greater chance of returns" I can't see how premium bonds will achieve that. The chance of a great return is awful.

I mean, most stock market equity-based investments will give a greater return over time than cash, and while it might be a coin toss from one year to the next, the long term prospects are good. So the chance of beating cash is a bit better than 50:50, and the returns likely to outperform cash, on balance, in the longer term.

While with premium bonds, the overall returns are likely not to outperform cash, and to get the headline 1.5% return (which is worse than the top paying cash accounts and ISAs) you need to play long enough to win all the prizes - because the jackpot is a big prize and if you don't get it you will achieve a lower return, like the 1% in my example. Winning only 2.5 prizes a year, and with only one jackpot every 1,858,248 prizes, you need to play for three quarters of a million years in order to expect to win the jackpot. This is of course only an expectation, and it could easily take two or three times longer than that.

So, given the OP didn't say he didn't want to risk the capital, and was in fact looking for something higher risk with a better prospect of returns, premium bonds seems a rubbish selection.

A standard suggestion for an equivalent would be just to get a basic cash ISA giving you £100 a year expected cash instead of £50, and then buy fifty lottery tickets each year, skewed towards rollover weeks. It gives you a broadly similar (i.e., still once in a few thousand lifetimes) chance of winning a life-changing amount of money. In fact if you have a 1 in 14 million chance at winning the UK Lotto jackpot, and you play one game every week, it only takes 280,000 years to win the jackpot and the jackpot is generally larger than the £1 million max prize available monthly with premium bonds.

PBs might be useful for someone who has maxed their cash ISAs and is a high rate taxpayer who really needs the tax break and really wants exposure to a cash-like (i.e. on average, the same-or-less-than-inflation) return with no risk to capital except for inflation eating away at it.

The OP specifically does not want a cash-like return and so the suggestion to buy premium bonds with an expected return of below cash, seems bonkers. If you gamble on equities you may lose a few times but your expectation, all probabilities considered, is that you will beat the top savings accounts in the long long term. If you gamble on premium bonds you may win a few times (but very very rarely) and your downside is restricted, but your expectation all probabilities considered is that you will lose to the top savings accounts in the long long term.

In summary, PBs are not looking 'increasingly tempting' at all, IMHO.

NoiSeTraDer

I would suggest a UK gilt fund, where you're basically buying the debt of the UK government. So unlike investing in shares there's no risk of the borrower going bankrupt (one would hope). However, since you'll be be buying some long duration giltsyou should receive a higher rate of return than on simple cash accounts (although there is risk if interest rates increase).