Advice on Investing & saving

djpleasure

a friend of mine has inherited approx 30k, what are her best options to make this money work for her, rather than it just sitting in her account. My friend does not want to take risks, so shares are clearly out. Any advice greatly appreciated

xylophone

http://www.thisismoney.co.uk/money/saving/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

http://www.moneysavingexpert.com/banking/compare-best-bank-accounts

pip895

No risk = very little reward

MEM62

There is no return without an element of risk.

If your friend will not consider shares then her only options are products like cash ISA's. These are very unlikely to keep pace with inflation.

Historically, shares have produced better returns than cash over longer periods of time so it could be argued that shares are actually less risky than cash if you want to protect your money against inflation.

I am sure that those with more expertise will expand on the subject.

kidmugsy

djpleasure wrote: »

My friend does not want to take risks, so shares are clearly out.

Does she have a target in mind, e.g. deposit for a house purchase in the next few years? If so, keep it in cash, earning as much interest as she can find. She might also want to look at the investments offered by Castle Trust, that link capital to the Halifax House Price Index. (I have no experience of this outfit, mind.)

Does she have a cash emergency fund covering, say, 6 months' outgoings? If not put enough aside for that, also in cash, earning as high an interest rate as she can find.

If there's anything left over, then to minimise risks she should probably diversify. Google the Harry Browne Permanent Portfolio: the late HB advocated 25% cash, 25% bonds, 25% gold and 25% equities. There are competitors which she might prefer, also relying on diversifying across four or more asset classes.

She might like to hold the bonds and equities in S&S ISAs, and the gold as sovereigns stored in the safety deposit at her bank.

Alternatively, she might like to punt it all on market-timing. For example, she might form the view that out biggest imminent risk is deflation accompanied by a stock market collapse, so she should keep everything in cash and gold. Then after a while, she might decide that flailing government attempts to stimulate growth will bring on inflation, so she might like to move from cash to index-linked bonds and equities then.

But just keeping the lot in Sterling cash forever is not risk-free, it only feels that way.

N1AK

djpleasure wrote: »

a friend of mine has inherited approx 30k, what are her best options to make this money work for her, rather than it just sitting in her account. My friend does not want to take risks, so shares are clearly out. Any advice greatly appreciated

If she doesn't want to take risks then she doesn't want to invest, she wants to save. The downside of savings is that you are sacrificing the chance of good returns for the security.

If they want 100% security that they can't lose any money then the best they can do is stick it in the highest return savings/current account with FSCS protection (basically all of them). If they're a higher rate tax payer, or a lower rate payer who wants to protect their interest from tax long term then they should go for the best ISA available.
You can find these on the MSE site in the Banking/Saving section.

There isn't any magical, no risk investment all other options come with the potential to lose money, or at least not to have any increase at all.

N1AK

MEM62 wrote: »

Historically, shares have produced better returns than cash over longer periods of time so it could be argued that shares are actually less risky than cash if you want to protect your money against inflation.

Although I agree with your basis, I don't think the conclusion is necessarily true. When most people are comparing shares against cash they don't consider the risk of a small inflation losses on cash a 'risk' what they are interested in, and do consider a risk, if the possibility of needing the money in 1,2,5,10 years and it having decreased in value in real terms by for example 30%. Sure the odds of it happening are low, and on average it's reasonable to expect an increase, but vs cash shares are riskier based on the criteria of most people.

Having said all that, I am 100% convinced that the vast majority of people avoiding 'risk' are paying far more to avoid that risk than they would if they were making a rational decision.

jimjames

N1AK wrote: »

Having said all that, I am 100% convinced that the vast majority of people avoiding 'risk' are paying far more to avoid that risk than they would if they were making a rational decision.

I agree. I think the vast majority of people have no idea of risk and how to assess it whether for investments or in other areas of life.

There was an interesting study after 911 that showed the increase in car fatalities as a result of people thinking it was less risky to drive than to fly.

http://thestatsblog.wordpress.com/2008/01/16/fear-of-flying-after-911-led-to-increase-in-auto-deaths/

I can see much the same thing where someone is prepared to take a risk on buying lottery tickets with very high odds of losing everything but isn't prepared to buy shares because they think it is too risky. The media has a lot to do with it raising perception of risk by reporting falls but not reporting the opposite side.

To quote from the link above:

we overestimate the odds of dreadful but infrequent events and underestimate how risky ordinary events are. The drama and excitement of improbable events make them appear to be more common.

N1AK

jimjames wrote: »

I can see much the same thing where someone is prepared to take a risk on buying lottery tickets with very high odds of losing everything but isn't prepared to buy shares because they think it is too risky.

In there defence I think the issues of human psychology and regret also play a part. When someone pays £1 for a lotto ticket they are writing off the £1 as an negligible loss based on a, sometimes pretty depressing, desire to live another, better, life. Thatcher might have been right to want to discourage people buying them and to save instead, but as sadly was often the case she missed the human element, someone who isn't happy with their life and can't see the long and difficult path to a slightly better one isn't going to be motivated by saving £50 a year.

If you only have £30k in savings, and are spending all income so won't get more, then risking losing ~£10k on stock market fluctuations could seem pretty massive.