5k to invest, where do I invest

Jessc09

Hi,

I have £5k to invest, I've been researching different options etc but just wondered if you guys had any sound advice for me.

I have a decent job paying the bills a pension and no debts.
I would like this money to work for me in the short term while I save towards a deposit for a second house.

What are my best options?

I already have a current account used as a savings account at 3%, which I will be putting the further savings into. I don't want to use an isa as I already am getting a better rate with the current account.

Do I invest the £5k all in one lump or do I make a few smaller investments. I'm looking for all options really, medium to high risk mostly but would consider low risk too depending on the offer, but I don't want to lock the money away for anymore that a year.

Hopefully you guys will have some options for me to explore

Cheers

Jess

jimjames

If you are looking to save for a house then investing the money doesn't sound like a very good idea. Investing for a year is crazy in my opinion and is extremely risky with a high chance your money may be worth less in 12 months time.

You'll be taking far less risk just maximising the best paying accounts which are current accounts at the moment. You can get 5% on £4500 with TSB and Nationwide which can sit alongside your 3% one.

bowlhead99

Jessc09 wrote: »

I would like this money to work for me in the short term while I save towards a deposit for a second house.

Jessc09 wrote: »

Hi,
Do I invest the £5k all in one lump or do I make a few smaller investments. I'm looking for all options really, medium to high risk mostly but would consider low risk too depending on the offer, but I don't want to lock the money away for anymore that a year.

Personally I had some money invested in the equity markets when buying a house, and it worked out OK. If it had gone wrong I would have waited longer for the house or borrowed more. But nobody in their right mind would really recommend investing a significant sum in 'the markets' while trying to save for a fixed target amount and date for something essential like a home. Which is what leads to jimjames's advice above.

However, it's different with you as you're presumably not trying to buy an essential like your home. It sounds like you're just building up your assets until you can afford to buy a second house, which will be an investment (assuming you don't plan to live in more than one house at once, or sell the first house to help pay for the second).

So, investing in medium to high risk stock market investment funds (or bond market funds or commercial property funds or whatever) for some period before swapping them out for an investment in a high risk BTL property, is not a crazy thing to do.

You just need to be aware that the rises or falls in your short term investment may not be in line with the rises or falls in the cost of the property you wish to purchase or the availability of mortgages, so if your investment falls in value you may come up short, or if the interest rates go up your investment may decline at the same time as your prospective property becomes less attainable. And if you are waiting around for market recovery in the value of your short term investment, the property might get more and more out of reach, leaving you wishing you had kept the £5k in cash instead.

Most investments are not 'locked away' for more than a year; you can invest the £5k with any number of investment platforms and the time to get your cash back is usually 2-3 days to sell your holdings and get cash back in your account on the platform, and one to two days to get the money back to your own bank account.

However, with most investments the reason people say you shouldn't invest for just a year is that markets move up and down in random ways all the time, so while the long term average for a 'medium to high risk' investment over 20 years might be 6 or 7 percent compound return, in any individual year you could be up 25% or down 30%+.

So, the 'locking it away' is self-imposed really. Most investments once you move beyond cash deposits with banks and building societies and NS&I are liquid, with short term access always available (unlike a term deposit which can't be accessed for 3 years or a house which might not be sellable for 3 years). The problem is, although you can get out whenever you like, it might not be at a value you like, and you might need to mentally prepare yourself for a potential loss, or alternatively hold the investment for another five to ten years for it to recover its value properly.

If you need the £5k for a house deposit then you might be disappointed to check up on it in a year and find it is only £3k. That is what you get with a medium to high risk investment. If that's fine, because you really do want medium to high risk because you want the chance of it being worth £6k in a year, and you don't mind working/saving a bit more if it's only worth £3k at the time you were hoping to have £5k - then investments can be suitable.

If you want to minimise the chance of it being worth £3k, break it into smaller lumps of £500-£1000 each. Then you reduce the chance of one poor choice giving you an overall bad result. Of course, all the holdings could still all reduce in value at once, because markets don't really know or care what combinations you hold them in.

Spreading the money wider across lots of opportunities is a sensible thing to do, and is more likely to give you the average result of 'the market' that you invested into; in doing so it will of course reduce the chance of an exceptional gain because your money has been split into lots of pots and they can't all produce exceptional gains at once.

tone461

Can you point me in the direction please to get a return of 5% interest on 4.5k

steelbru

TSB Classic Plus £2000
Nationwide FlexDirect £2500

jimjames

steelbru wrote: »

TSB Classic Plus £2000
Nationwide FlexDirect £2500

And if you have joint accounts then you can add another account too.