Where to put proceeds from downsizing?

MrsFingersCrossed

Hello everyone


We'd welcome your advice. We are downsizing and will have about £150,000 to invest somewhere safe for the long term. We might need easy access to around £20,000 for improvements to new home but the rest is to contribute to early retirement and supplement our meagre pensions when the time comes. Also maybe 25 - 30k of it to fund an extension in the future and a bit for holidays / car etc over the coming years. My H is 60 and I'm 58, so neither of us get pension until we're 66, though H has a private pension of £10,000 pa that will kick in at 65.


We are thinking of putting the maximum each in Premium Bonds (£50k each) but don't know if that's a good idea or not. And where to put the rest with interest rates so low, we haven't a clue. We've never had any proper savings as such, but do both have an ISA so could put the annual limit each in those, which would take care of £30,000 I believe. Mortgage is paid off.


Your thoughts will be appreciated.

unimaginative_user_name

I'd be looking at putting the £20000 you need easy access to in a number of interest paying current accounts though it takes a bit of time to set them up and make sure that you are meeting the terms and conditions such as minimum monthly deposits, direct debits and paperless statements. Look at the current account section of the banking and saving part of this website for details as every account has different t&cs.

MrsFingersCrossed

Thanks, loveyourunimaginativeusername. We do already have a Club Lloyds a/c which was good last year but the savings a/c this year is not so good and we can't commit to high monthly savings any more. But I've heard the 123 a/c is good, and pays you for utility bills, so that might be a good option as long as we keep it just for savings and don't use it as current a/c for day to day or it could easily dwindle away. Will look into it.

steelbru

Are you looking to "invest" or "save" ? People sometimes talk about investing when they mean saving.

The main difference is that saving has no ( or very minimal ) risk ( just a case of finding the best return you can ) whereas investing has risk involved, but also potentially greater rewards.

Examples of saving are Cash ISA, current accounts, savings accounst, NS&I bonds, etc. Examples of investing are stocks and shares ISA, shares, unit trusts ( OEICs ), investment trusts, bonds, etc.

There are, as always, grey areas - eg Peer to Peer ( P2P ) lending, which can be a lot like saving ( with greater rewards ) but your money is not protected by government guarantees.

You mentioned "investing somewhere safe" which is the confusing bit.

You could of course mix and match if you felt comfortable with taking some risk - do "savings" for the stuff you need shorter term, and a bit of "investing" for the longer term stuff. Within "investing" there is a range of levels of risk that can be explored.

YorkshireBoy

You could get 3 Santander 1-2-3 accounts between you, so that would get you 3% AER on £60K of your cash. In fact, using current accounts you could average just over 3% AER on virtually the entire £150K.

Re Premium Bonds, £100K would generate over £2,400 a year after BR tax in current accounts, so you could buy £200 worth of lottery tickets each and every month without affecting your capital. Would you consider that as an option? If no, then why are you considering Premium Bonds? It's the same thing.

MrsFingersCrossed

Ha ha, Steelbru I can see the contradiction in terms - investing somewhere safe. It always worries me when they say the amount you invest can go down as well as up. Years ago quite a few friends had Peps (?) and many seemed to get back less money than they put in. I would hate to get back less than we put in, so we wouldn't be comfortable with much risk, so I think it is probably saving we need, rather than investing. Thanks for making me think that through.


On to Premium Bonds - I know the return isn't guaranteed but is it really like throwing money away on the lottery? We don't even do the lottery...

Eco_Miser

On investments, money can go down as well as up: yes it can, possibly a percent each day, possibly a 50% drop over a few months, followed by 120% rise over a year. Very scary, but in the long term, so far, for most investments, it goes up.

It's not a zero-sum game, most companies make profits, and that's what you're investing in, and you share in those profits, as well as the variation in what other people are willing to pay you to get their hands on those profits.

If you put all your money in a single company that then fails, you lose the lot, but if you spread your money among thousands of companies and one fails, you only lose a little, which is replaced by the gain on another company that did particularly well.
If the market falls heavily and you sell, either because you panic, or because you need some cash, you lose; if you hold on until the market bounces back, you don't.

Investment companies of various sorts will take your money, and that of thousands or millions of other investors, and buy shares in thousands of companies, so your money is well spread out.

Motevator.com had a good piece on premium bonds last year. (Don't be put of by the Bertie Wooster-esque waffling at the start), and the rest of that site has good guides to saving and investing.

If you leave your money in cash, its purchasing power will be eroded by inflation, investing some will usually grow enough to more than compensate for inflation.

Certainly I wouldn't suggest investing most of your money, but after the £60,000 in Santander, £15,000 (plus £7,200 average in regular saver) in Lloyds Club, £6,000 in TSB etc. that you can get as a couple, consider maybe £30,480 in a pair of Stocks and Shares ISAs.

You can still commit to high monthly savings - just take it from the lowest paying instant access account you have.

unimaginative_user_name

When I first replied to your thread I was going to talk about S&S ISAs but so close to retirement you have to be more careful. I'm in my mid 40s and using medium risk investments to help fund my retirement but if my holdings were to fall by 50% tomorrow I would hopefully have time left in the market before I needed to draw an income from them and they would be able to recover. Being only six years or so away from retirement you are wise to be cautious although if you decide to invest in S&S you can choose lower risk products with potentially lower returns but better than a couple of per cent in a cash ISA. Diversification is the key in your position I think. That way if one product is doing well this can compensate for other products doing badly.

Could you put some of the money into your pensions as well and benefit from the 25% tax relief?

jimjames

Retirement shouldn't necessarily affect your choice and you don't have to put all your money in the same place so you can put it in different options.

At retirement you could have 25-30 years ahead that nerds to be funded and cash will not keep up with inflation.

If it was me I'd invest the max in s&s ISAs for a couple of years and keep the remainder as cash in best current accounts.

kidmugsy

jimjames wrote: »

If it was me I'd invest the max in s&s ISAs for a couple of years and keep the remainder as cash in best current accounts.

While you get a feel for investing, OP, you could always start with investments designed to be low risk. The zero charge ISA from Personal Assets Trust might be a good place to begin.
http://www.patplc.co.uk/investment-plans

If one of you does that the other might like to consider investing in another low risk outfit, Ruffer Investment Company. You'd probably want to do that on a "platform" i.e. online stockbroker e.g. Hargreaves Lansdown, AJBellYouinvest, .... You can compare their charges to see which you fancy: we use HL partly because of its excellent service, but we might also use AJB in future. (Having more than one "provider" appeals to me. Eggs and baskets.)

atush

If you are still working, and earning for now, i'd boost those "meagre" pensions.

And you say this is for the long term, and cash generally isn't good for that long a period so Iw ould invest some of the remaining cash. Use a S&S isa, and a good income fund/investment trust or 2. The income will be constant and rising, while the pot can grow or fall with the markets. Which would not affect you, if you are just continuing the draw that income?