Where to invest £20k when all high interest accounts maxed?

[Deleted User]

Hi,

I have £20k to invest. I already have all the high paying current accounts (123, club lloyds etc.) and am struggling to find somewhere for the money that isn't paying pittance.

I may be wanting to buy a house in around 3 years but London is looking so unaffordable at present so am unsure on this. Still with this in mind I have put £6k in Ratesetter on the yearly term. I am however unsure where to put the rest? I have an ISA with VLS 80 and considered putting the rest in there knowing the risks that it may go down as well as up.

A friend in a similar position was recently advised by an investment advisor to split the balance between a fund (Fundsmith Equity Income) and an Investment Trust (Mid Wynd) with a few smaller amounts in individual shares so I am also considering this.

Any thoughts would be really appreciated.

bowlhead99

Fundsmith Equity Income and Mid Wynd are obviously subject to investment risk like your VLS80 (though perhaps moreso because they are both 100% equity products) and could drop 30,40,50% quite easily in 3 years.

Of course, they could grow. But standard advice would be not to invest in funds when you have only a 3 year time horizon because the risks of it 'going down as well as up' are much much more of a coin toss than investing over 20 years when it is much more likely to go up rather than down.

I don't think there are many/any independent financial advisors who would recommend that £20k with a 3 year time horizon be split between an equity income fund, a generalist global investment trust and some individual shares. It would be a bonkers allocation for that objective unless the investor specifically said they were cavalier about their prospective returns and wanted the advisor to give them a very high risk approach.

However, if you are unsure about the property purchase, already have a very full cash stash from which you could fund your deposit, and would prefer this money to be invested with a 15 year horizon instead of 3, and know the risks - then holding the fund and the IT may not be too bad.

It would still be unusual for an IFA to advise that the money is split to have a few smaller amounts in individual shares. For one thing, IFAs are not stockbrokers so don't advise on shares, and for another they would recognise that small amounts invested in shares lead to high proportionate transaction fees. More likely your friend was not in quite the same position in terms of objectives and already had a few individual shares which he didn't want to sell, so the investment advisor didn't push it but simply acknowledged the unsuitability for a 3 year time horizon. Or maybe the 'investment advisor' was not an IFA but some other kind of advisor.

I would say for 3 years if here are truly no more 3%+ current accounts or regular savers remaining, and you are already having a dabble in P2P, the next 20k could go into some 'normal' accounts paying 1.5-2%, maybe with a short fixed term. But then, you say you considered using your VLS fund knowing the risks. It depends whether you want those significant risks that come with an 80% equities portfolio over a short timeframe. If not, get a portfolio with a lower percentage equity and higher something else (bonds, real estate, alternatives as a diversifier) or stick to cash.

kidmugsy

One thing you could consider is putting your investments into shares that you would expect to rise and fall in line with house prices. That would reduce your risk. Here's one, the name of which happened to stick in my mind: presumably it has competition.

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=11F2G

Or maybe there's some way you can use the money to bet on one of the house price indexes, to the same effect.

N1AK

I'd certainly consider filling your ISA during the year, purely to lock-in the tax free allowance which may be useful in future.

If you're likely to need the money in the next 3 years then I certainly wouldn't be sticking it into funds. The odds are good it's the best return, but so are the odds of surviving the first go in Russian roulette!

[Deleted User]

bowlhead99 wrote: »

Fundsmith Equity Income and Mid Wynd are obviously subject to investment risk like your VLS80 (though perhaps moreso because they are both 100% equity products) and could drop 30,40,50% quite easily in 3 years.

Of course, they could grow. But standard advice would be not to invest in funds when you have only a 3 year time horizon because the risks of it 'going down as well as up' are much much more of a coin toss than investing over 20 years when it is much more likely to go up rather than down.

I don't think there are many/any independent financial advisors who would recommend that £20k with a 3 year time horizon be split between an equity income fund, a generalist global investment trust and some individual shares. It would be a bonkers allocation for that objective unless the investor specifically said they were cavalier about their prospective returns and wanted the advisor to give them a very high risk approach.

However, if you are unsure about the property purchase, already have a very full cash stash from which you could fund your deposit, and would prefer this money to be invested with a 15 year horizon instead of 3, and know the risks - then holding the fund and the IT may not be too bad.

It would still be unusual for an IFA to advise that the money is split to have a few smaller amounts in individual shares. For one thing, IFAs are not stockbrokers so don't advise on shares, and for another they would recognise that small amounts invested in shares lead to high proportionate transaction fees. More likely your friend was not in quite the same position in terms of objectives and already had a few individual shares which he didn't want to sell, so the investment advisor didn't push it but simply acknowledged the unsuitability for a 3 year time horizon. Or maybe the 'investment advisor' was not an IFA but some other kind of advisor.

I would say for 3 years if here are truly no more 3%+ current accounts or regular savers remaining, and you are already having a dabble in P2P, the next 20k could go into some 'normal' accounts paying 1.5-2%, maybe with a short fixed term. But then, you say you considered using your VLS fund knowing the risks. It depends whether you want those significant risks that come with an 80% equities portfolio over a short timeframe. If not, get a portfolio with a lower percentage equity and higher something else (bonds, real estate, alternatives as a diversifier) or stick to cash.

Thank-you for such a helpful response. I would be willing to leave the money for 15 years if necessary. My only thought is if people on the whole suggest using all of ones money to buy a house vs. buying a house with a mortgage and keeping money in other investments? I have enough in cash for a deposit already but wanted to keep as much as possible so would be able to buy outright if possible when the time comes.

I have double checked and my friend gave the money to a stockbroker hence the investment decision and the confusion!

N1AK

Olivier811 wrote: »

My only thought is if people on the whole suggest using all of ones money to buy a house vs. buying a house with a mortgage and keeping money in other investments?

I'd investigate both options and make a decision on works best for you. Personally, we're keeping our house mortgaged and investing our capital instead. Given that you can get ridiculously low rate longterm fixed mortgages currently, that option isn't even that risky.