What to do with lump sum?

enthusiasticsaver

My husband already puts the maximum into his pension and cash isa every year. We are both risk averse as far as S and S go so probably do sacrifice return but my husbands pension is obviously invested in the stock market and has done well in recent years. Previously when I have invested relatively small amounts £5k typically we always seem to lose out because of needing it for car/house purchase etc. I am considering drip feeding monthly a unit tracker fund from the new year and will be looking into that shortly. For now though I think I will open the second Santander 123 account and move over some of the cashback eligible direct debits from our joint account and also my monthly salary as apparently the monthly income cannot come from internal transfers.

Ifts

enthusiasticsaver wrote: »

my monthly salary as apparently the monthly income cannot come from internal transfers.

It does not have to be a salary payment.

You can transfer £500 from an external account (non Santander account) into your second S123 account and transfer it straight back out (you don't earn anything on a balance greater than £20K) via faster payments every month.

4. Monthly Funding Requirements
You must pay at least £500 into your account every month. This is not a calendar month, it is the monthly anniversary from the date you opened/transferred your account. The £500 minimum monthly payment does not include refunded amounts from your Visa Debit card or amounts transferred into the account from another Santander account in your name (including any joint accounts). Transfers in from a Santander Business Account do count towards the minimum £500 payment.

http://www.santander.co.uk/uk/current-accounts/current-account-important-information/

bowlhead99

enthusiasticsaver wrote: »

jimjames wrote: »

That's fair enough, but S&S shouldn't be money that needs to be accessed in the short term.

If you'd put your house money in the UK stock market instead of buying the house then you'd have £120,000 rather than £66,000 over the last 5 years but past performance isn't a prediction of future.

We invested in the property in 2009 to give our daughter a roof over her head at a nominal rent whereas if she had rented privately it would have cost her £450 per month for a 1 bed flat which would be £27000 over 5 years. As we were not getting any decent return on it we were quite happy to do that. I really do not think £60k in the last 5 years would have doubled especially over 2008 to 2011. What evidence do you have of that? It is only in the last two years returns have come back.

In terms of evidence, here is a graph of the total return of an HSBC tracker fund (in red) that simply aims to replicate the performance of the FTSE UK All Share index (82% FTSE100, 15% FTSE 250, 3% FTSE Smallcap). So, you can see it pretty much did double from the beginning of 2009 and if you were lucky enough to have caught the bottom of the dip in March 2009 with some of your purchases it would have been an even more substantial gain.

The FTSE World Ex-UK is also shown (which contains US, Europe, Japan stocks) and you can see it is similar.

The monster performance in blue came from the FTSE 250 (shares in 250 mid-sized UK companies worth £600m - £3bn) which would have more like trebled your money instead of doubled it - getting on for 200% return instead of 100% return. Small to mid-sized companies around the world have done similarly well. Typically an investor would not pile into just one UK or global index but they would have a basket of funds; still, all asset classes have done well from bonds to equities across lots of countries.

Of course, it's easy to say with hindsight that buying in mid 2009 at the depths of the credit crunch was the best buying opportunity in decades but it might not have felt like it at the time if you hadn't been following the markets.

One final thought or two, you said your husband already pays in the maximum to his pension. Does that mean it's just the most he's allowed to put into his own workplace pension based on some scheme rule? Or is he and his employer literally adding the government limit of £40k of value to his pension each year? If not, he could set up a separate private pension for the difference and if he didn't max his contributions for the last 3 years he can bring forward unused contribution allowance into this year.

If your husband has no remaining pension limit how about your own? Obviously you taking 20% tax relief is not as lucrative as him taking 40% if you still expect to be paying 20% in retirement yourself. If your pension plus state pension puts you into the basic rate band as an OAP it is more of a deferral of tax than an outright saving. But there is still the 'tax free lump sum' which neatly sidesteps a chunk of income tax for you on a quarter of what you pop into a pension scheme out of this year's earnings.

If you were willing to sacrifice flexibility of being able to spend it by locking it up in a fixed ISA that's barely keeping pace with inflation (and could be well behind inflation and average market savings rates by the 4th year), it is not too much of a stretch to cancel that, and instead consider locking that £15k away in a pension instead of cash ISA - particularly if you are sill keeping ready flexible access to the rest of it in a range of high paying current accounts which could be ISAd as necessary in a future year.

Ryan_Futuristics

And while we'd be lucky to see a repeat of 2009's bull market (and 100-200% returns) valuations in the UK today are still favourable, and a 7% annual return over 5 years shouldn't be unrealistic

With Neil Woodford's fund trading at around launch price at the moment, I'd be expecting returns from good managed funds a few points higher

The alternatives don't look great - shuffling money between current accounts seems like more effort than it's worth; property looks to be in a bit of a bubble; bonds are over-priced and under-paying (I certainly wouldn't put it all on one bond - the risk of a default hardly covers the poor returns at the moment) ... P2P lending via something like Funding Circle (where you can automatically spread your investment between 100 companies, and maybe get 4-8% returns) is something I'm looking into as a bond alternative ... 50:50 shares and P2P lending could be the way to go