Making the most of £60k

jamesd

The house yield looks OK but you don't seem to be planning to use a mortgage so it doesn't appear to be a good plan overall. A mortgage will let you buy more properties to increase diversification and the mortgage interest is deductible from income before tax, whether the mortgage is an increase in one on your own home or a BTL-specific one secured on this property.

6022tivo

jamesd wrote: »

The house yield looks OK but you don't seem to be planning to use a mortgage so it doesn't appear to be a good plan overall. A mortgage will let you buy more properties to increase diversification and the mortgage interest is deductible from income before tax, whether the mortgage is an increase in one on your own home or a BTL-specific one secured on this property.

But if the BTL mortgage interest is higher than any interest I can get off investments, would it not be wise to use savings? Also, when mortgage rates start to hike, I have nothing to worry about?

xylophone

Are you looking for income or growth or a mixture of the two?

I get the impression that you are taking a cautious view.

You might consider setting £20,000 in cash deposits and investing the rest in stocks and shares, probably using OEICS or Investment trusts.

For the moment, (and assuming that you have not already used it) you might consider investing £15000 in a stocks and shares ISA through a low cost platform. Charles Stanley might suit but see http://www.thisismoney.co.uk/money/diyinvesting/article-1718291/Pick-best-cheapest-investment-Isa-platform.html

I started off with Invesco Perpetual Distribution Fund - it has been a steady if not spectacular performer and I am still in it.

You might also consider Newton Global Higher Income - a relative has found this to be a fair option.

If you do not require income, choose the Acc version of each fund and in the case of IP the gross class.

You could hold the £40,000 in the best paying current accounts.

For example you might open a Santander 123 account (don't forget direct debits and monthly funding) - 3% on up to £20,000, a Club Lloyds account (4% on up to £5000 - 2DDs and monthly funding -SOs back and forth from Santander) and three BOS accounts - 3% on up to £5000 in each).

The three BOS will "manage themselves" - SOs for £1000 between them on the same day each month.

Come the next tax year you could drip feed your stocks and shares ISA up to £15000 from Santander, perhaps choosing another two or three funds, Acc versions.

For a very long term view you might consider pension contributions?

And re state pension https://www.gov.uk/new-state-pension/overview

jamesd

6022tivo wrote: »

But if the BTL mortgage interest is higher than any interest I can get off investments, would it not be wise to use savings? Also, when mortgage rates start to hike, I have nothing to worry about?

You can pay £55k and get £6k income, yield/return on capital invested 10.91%. Or you can with a mortgage pay say £22k (60% LTV) and get £6k income minus £1.32k interest at 4% on £33k borrowed, net income £4.68k, net return on capital invested 21.27%.

So would you think that a return of 21.27% on the amount of your money invested is better than a return of 10.91%?

Double the mortgage interest rate to 8% and you're still well ahead and getting a better return on your money.

I'm assuming that you can find other property or other investments to use the remaining savings with. If you don't know of opportunities Ablrate P2P has rates above 10% available.

jimjames

6022tivo wrote: »

I have a similar amount to play with and I have been offered a house for £55k with reliable tenants paying £500 PCM.

Any reasons why this is a bad investment?

It really depends what other cash and investments you have.

If you don't have other investments how do you release £20k if you need some money? You can't sell part of a house very easily but it is very straightforward and quick to release money from an investment fund.

kidmugsy

Greenstow wrote: »

... have little experience of saving so am after advice if possible. ... I have £60k
What's the best way to get the biggest return?

The best way to get the biggest return is far too risky for you (or me) to contemplate. The wise way is probably to start off with cash in interest-bearing current accounts (xylophone mentions some), while you devote some time to reading about investment. THERE IS NO HURRY! A reasonable long term target is to keep an Emergency Stash of about six months worth of outgoings in cash, with the rest to be invested. The best bet there is diversification, i.e spreading your investments across several different stock markets, and also non-equity investments. One way to do that would be to use vanguard funds as suggested by jamesd. For instance, you can put £15k into a Stocks and Shares ISA before 5/4/15, and the same again (in fact a tickle more) after that: those ISAs would hold your vanguard units. At that point you'd have half your money in investments and half in savings. It would be up to you to consider whether to put more into investments: it would be perfectly understandable if you took the view that you'd like to be cautious for a while and add no more until you felt more experienced. Or perhaps if you become entitled to a pension through your work, you'd like to invest a bit there, with the advantage that you get the employer's contribution too.

inflationbuster

AlanP wrote: »

Out of interest inflationbuster have you compared the returns you achieve (after costs) with what you would have achieved using one of the Vanguard Life Style funds over the same period?

I have compared with other funds such as Fidelity Global Special Situations (Fund Code: GS) and beat that the last 3 years even when l exclude dividends. I do occasionally look at funds and check their stock picks

Question to ask one self is will these global equity funds outperform the next few years given how high the equity index is or is it better to stock pick companies at cyclical lows? l personally like to hunt value stocks.

Greenstow

An enormous thank you to you all for your detailed and considered responses. I clearly have a huge amount to learn and to research. Following that it sounds possibly sensible to speak to a financial advisor for additional help.

What I'd like to do is take a risk with some of the money in the hope of a bigger return & then be sensible with the rest.

jamesd

So, a little learning. You wrote about taking a risk and being sensible.

Lets say I can offer you an investment which is going to lose you only a little money each year but after 20 years will have cut the value of your £60,000 in today's money to only £33,200. Do you think that this is a sensible investment? That investment is a savings account paying no interest with 3% inflation. You can probably get about 1% below inflation after tax so the more likely loss from using savings accounts would be to about £49,172. Sensible?

That's the trouble with the long term: you have to fight the inevitable loss to inflation.

Say you want lower ups and downs on average. There are traditional things to do, like using bond or commercial property funds. There's also the relatively new peer to peer area. Say you wanted lower ups and downs, you might change from what I originally suggested, £50,000 global tracker and £10,000 savings accounts, to:

£30,000 global tracker
£10,000 savings accounts
£10,000 strategic bond fund (like Invesco Perpetual Monthly Income Plus)
£10,000 P2P, say via Ablrate that currently offers 10% or so.

With this mixture you've substantially cut the bad year drop potential from 40-50% to more like 20-25% because now only half of the money is in the global tracker with the full variation.

You could do more P2P but it's still a relatively new area and best not to go too high even with 10% available at the moment.

kidmugsy

Greenstow wrote: »

What I'd like to do is take a risk with some of the money in the hope of a bigger return & then be sensible with the rest.

The secret of doing well with investments is to buy them when they are cheap. Shares don't look particularly expensive in the UK at the moment, but they do in the US. Could a US crash spread around the world? Could be. Meantime property looks expensive in many places around the world, and so do government bonds. So it's maybe not the ideal time to start investing. But nobody knows. After all, if everyone agreed that it's a poor time to begin, asset prices would crash and then it might be a good time to begin.

For what it's worth I feel cautious at the moment. But I have a record of being good at spotting when to sell and bad at grasping the nettle and buying at a timely moment. Hey ho.