Inherited money any advice on how to use it wisely welcome...

countrygirl27

I would like some advice, but let me firstly say that this post could sound smug and I hope it doesn't, I genuinely would like people's opinions on what to do..... To start with here's a bit about us...

Us- myself, OH, ( both early 30s) 1 dog, 2cats, 2 hens and 1 pony.
Our net monthly income £3500

Current house/mortgage situation
House purchased SEPT 2012 FTb
Purchase price £170k
Current mortgage amount £142k
Monthly payment £745

House soon to be extended - extension funded by 30k gift from FIL. We have also saved 1k towards this and by the time the work is actually done we will probably have saved another 2-3k so will have 34k ish to throw at it.
This weekend we are remortgaging to a 5 year fixed rate, the repayment should be about 650 per month so saved £100pm there and insulated against the rate rises which will surely happen sometime soon.

No current debts other than mortgage.

Pensions: Currently I have a final salary pension (teachers pension) and OH just joining extra state pension arrangement.

However, last summer my father died and today I have recieved the first part of my inheritance which was more than I expected. And there is still some money to come. I actually got a bit scared when I realised it was there, hence me asking for advice.
So I currently have
£4500 in my sole current account
£5k saved up for the pony to pay his livery and any unforeseen vet bills
£17k in my savings account

I am expecting to receive another 35k when a property is sold.

I realise the incredibly fortunate position we are in. But I am anxious to make the money work for me best.
Possibilities for what we may do in the future.....
Get married (it will not be a ridiculous big white wedding!)
Have children (I would get teachers maternity pay)
Buy a field for the pony to live in, saving me the livery costs and giving me an asset I could sell later on in life.

As many people find I'm sure, I have some emotional hang ups about this inheritance, which is why I am anxious to make it work best for me.

All advice on the Internet would suggest two approaches ie, boost your pension and/or pay off your mortgage. However my arguments for not doing this is a) I'm already in a good pension scheme and will be contributing to it for a few years to come, plus its probably 35 years until ill claim it during which time anything could happen. we are just remortgaging saving a load of money and enabling us to overpay by £500 to maybe £1000 pm. I'd rather have money in the bank to fall back on so don't want to plough it all into the house.

Thanks

Smithy101

So the inheritance is £17 & £35?

It sounds like you have adequate income, but expenses ahead such as wedding and children.

You could pay off some of your mortgage which would be perfectly sensible whilst interest rates are so low or you could invest it for the long term in the knowledge you may draw some of it for your wedding.

If you want to invest it for the long term i would recommend using investment trusts. They tend to perform better.

Investment trusts are just a type of fund, in fact they're the original type.

I don't know your attitude to risk? A trust like Scottish Oriental Smaller companies has returned just under 900% in a decade (yes 900%), whilst City of London trust has increased it's dividend every single year for 44 years. Scottish Investment trust has only managed to increase its dividend every year for 29 years (when averaged out) but by 7% per year, every year.

You can check the stats and reviews out on Morningstar.co.uk or whichinvestmenttrust.com

How do you feel about stock market investments?

countrygirl27

This is something I know very little about. I like the idea of my cash being available to me, maybe not instantly bit certainly within three months.

When I saved for my house deposit I used a Halifax share Isa, in what I think was a cautiously managed fund. This seemed to do quite well, it certainly beat cash isa rates, but if I'm honest I didn't completely understand it.

guymo

If you think you will need the money within five years, investing in stocks, shares, bonds etc is not appropriate: short term, there can be great volatility in the value of your investments and you wouldn't want to need the money when your investments are 50% down. Over the longer term (10 years+) history demonstrates a high likelihood of good positive returns from such investments, though, so if you are planning for retirement or other costs that are more than ten years away (not-yet-conceived children's university costs?) then you could investigate that route.

For money that you want to access, check whether your mortgage will allow you to redraw against overpayments. If so, overpaying the mortgage is very efficient because you effectively earn the mortgage interest rate, tax free, on that cash, and can redraw the money when you need it. Redrawing is not always allowed and not always as straightforward as it could be, though, so make sure you understand the rules.

countrygirl27

[/QUOTEor money that you want to access, check whether your mortgage will allow you to redraw against overpayments. If so, overpaying the mortgage is very efficient because you effectively earn the mortgage interest rate, tax free, on that cash, and can redraw the money when you need it. Redrawing is not always allowed and not always as straightforward as it could be, though, so make sure you understand the rules.[/QUOTE]

Can you explain how this works as I have looked into this before and my understanding was that the money was only 'available' during the year you paid it?

jimjames

countrygirl27 wrote: »

This is something I know very little about. I like the idea of my cash being available to me, maybe not instantly bit certainly within three months.
.

Investing in the stock market should be for money you won't need for at least 5 years BUT if you do need it you can normally get access to it within a few days. It is certainly much quicker to access than a fixed term account or a 90 day notice savings account.

guymo

countrygirl27 wrote: »

Can you explain how this works as I have looked into this before and my understanding was that the money was only 'available' during the year you paid it?

This is something that will vary between mortgage providers and products. Offset mortgages, for instance, let you pretend that your overpayment is really a separate account, and you can redraw at will. Some products do not allow redrawing at all, and others have some intermediate arrangement, e.g. Nationwide nowadays does not allow redrawing but will let you underpay or take a "repayment holiday" if you have an overpayment reserve.

Most lenders will be open to lending you more money, of course, which amounts to the same thing but may force a change in your terms e.g. different interest rate.

Smithy101

countrygirl27 wrote: »

This is something I know very little about. I like the idea of my cash being available to me, maybe not instantly bit certainly within three months.

When I saved for my house deposit I used a Halifax share Isa, in what I think was a cautiously managed fund. This seemed to do quite well, it certainly beat cash isa rates, but if I'm honest I didn't completely understand it.

Your money is available to you within days when its invested in the stock market so time is not an issue.

Over time stock markets only tend go one way and that's up. They just don't go up in a straight line they zig zag. That's why investors are advised only to invest for long term because if they want their money in a year or 2 years the market may be wobbling, though 12 months later it's up again.

You can't escape this risk all together but some managers invest more cautiously and will put some of the money in cash if they expect a wobble.

If I was you I would make sure I had a few thousand in cash and invest the rest in more cautious investment trusts.

Split it between:
Scottish Investment Trust - There's an article on WhichInvestmentTrust.com that show's you how cautious they are.
Henderson Diversified Income - Bond fund - 10%
Fundsmith Emerging markets - Launches on June 20th - 10%
City of London - 10%
Murray international - 12.5%
Law Debenture - 12.5%
Standard Life Equity Income 10%
Finsbury Growth & Income - 10%
Diverse Income Trust - 10%
Henderson EuroTrust - 9%

Then a little riskier but great performer:
Herald Investment Trust - invests in Technology - 8%
Scottish Oriental smaller companies - 8%

kidmugsy

countrygirl27 wrote: »

Current house/mortgage situation
House purchased SEPT 2012 FTb
Purchase price £170k
Current mortgage amount £142k

House soon to be extended - ... will have 34k ish to throw at it.
This weekend we are remortgaging to a 5 year fixed rate, the repayment should be about 650 per month so saved £100pm there and insulated against the rate rises which will surely happen sometime soon.


£4500 in my sole current account
£5k saved up for the pony to pay his livery and any unforeseen vet bills
£17k in my savings account

I am expecting to receive another 35k when a property is sold.



we are just remortgaging saving a load of money and enabling us to overpay by £500 to maybe £1000 pm. I'd rather have money in the bank to fall back on so don't want to plough it all into the house.

In your shoes I might split the money between a cash reserve (both for emergencies and for your foreseeable expenditure) and a sum for reducing the mortgage. For instance: suppose your house with its extension is valued at, say, £200k. Suppose you find a mortgage provider who charges a distinctly lower rate of interest if your LTV is less than, say, 65%. Then you'd like to reduce your mortgage loan to £130k. So you could use £12k of your windfall to reduce your loan to that, and hold back the other £23k for the time being.

countrygirl27

I'm going to see a mortgage advisor on Saturday, who is applying for a 70% ltv mortgage for us which seems to be the threshold at which there is a major benefit in interest rates. This is the pre extension value. I asked him about waiting a few months and then going through the process using the post extension value and he didn't think it would make enough difference to the ltv to be a huge benefit and advised us to act earlier rather than later in case of rate rises.

I intend to be making monthly overpayments anyway and perhaps a small annual lump sum as well.

I wanted to get the repayment as low as possible, so that more of my wages were not tied up in paying the mortgage giving flexibility and slightly less worry/struggle if either of us lost our jobs

AlwaysLearnin

Sorry for your loss.

Dare I say you don't appear to be prolific savers. If this is the case, I would not recommend rushing in to investments at this stage, as you could be ripe for "buy high, sell low" if you panicked when values drop, especially if you have a particular emotional attachment to that money.

I would look over in the Budgeting and Bank Accounts board, where you will find things like the TSB current accounts (5% for up to £12k over numerous sole and joint accounts for you and OH), Club Lloyds (4%, but a couple of hoops to jump through. Again you can both use), possibly Santander (up to 3%, but monthly fee, but as a homeowner you could benefit from the cashback anyway). You could get a tidy amount away with reasonable rates whilst you get used to having the funds and decide what you want to do longer term - research!

Edit: you should consider the timing of applications though, so as not to impact your remortgage application

Good luck