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Investing for the first time.

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seven-day-weekend
seven-day-weekend Posts: 36,755 Forumite
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edited 6 January 2016 at 4:31PM in Savings & investments
Hi, I have had quite a lot of money come my way last year (lucky me) and would like to ask some questions about investments.

Firstly, some history. I had an inheritance in May 2015; this has been largely spent in paying off the mortgage on our bungalow, renovating it and adding an orangery, and buying an investment property. Our savings that we had prior to this were spent on the deposit. So that money has largely gone.

However, we have now sold our previous home for £143k, so we have this money for potential investment.

I am going to speak to an IFA, although my husband thinks it is a waste of time; he says a) the amount is not large enough to invest in any meaningful way and b) we could lose it all.

Meanwhile, I have been told about someone who gets an income from an investment of £60k. So it must be feasible?

Left to ourselves, we would probably buy another investment property for £100k or less, because this is our comfort zone.

The money at the moment is in ISAs, P Bonds and savings accounts.

So, has anyone any tips about first time investing, what to ask the IFA, and just general tips and advice? Or indeed any warnings?

Sorry it's a bit of a woolly question, please feel free to ask me anything you need to know.
(AKA HRH_MUngo)
Member #10 of £2 savers club
Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
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  • roy62
    roy62 Posts: 327 Forumite
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    You have enough money why take a gamble with it ?
  • seven-day-weekend
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    roy62 wrote: »
    You have enough money why take a gamble with it ?

    I am just trying to find the best place for a home for it really, rather than just keeping it in the bank.

    Thanks for your advice.
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • Al.
    Al. Posts: 322 Forumite
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    You've taken the first step. As a very general observation, try to see a few advisers to get a cross section of thinking and costs. Good luck.
    Independent Financial Adviser.
  • Sam_J12
    Sam_J12 Posts: 253 Forumite
    edited 6 January 2016 at 4:51PM
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    I think if you already have experience investing in property and are comfortable with it, then there are good reasons to stick with that. Property prices can only go up in the long run, despite what people say about a bubble, as the UK population is increasing by around 500,000 a year and nowhere near enough homes are being built. I would say stocks are only worth bothering with if you won't need the money for at least ten years.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 6 January 2016 at 6:51PM
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    Sam_J12 wrote: »
    I think if you already have experience investing in property and are comfortable with it, then there are good reasons to stick with that.
    That does make sense though the government 'countermeasures' against individual buy-to-let landlords will be significant for some. Increased stamp duty and reduced mortgage interest deductability from profits.

    And if your property rental business does not use any mortgage at all, you are less efficient and perhaps uncompetitive with those against whom you compete for tenants (aside from having a less-diversified pool of assets than someone with multiple properties)
    Property prices can only go up in the long run, despite what people say about a bubble, as the UK population is increasing by around 500,000 a year and nowhere near enough homes are being built.
    Though the population is increasing at a decent rate, this is not going to be felt in all parts of the country because the 500,000 are not settling evenly in every town and village across the land. Some areas may have oversupply of private residential properties for sale, particularly as mortgage interest rates pick themselves up off the floor, making people less able to offer so much for a property because the monthly payments are harder to afford.
    I would say stocks are only worth bothering with if you won't need the money for at least ten years.
    This is true, though applies equally to most other types of investment other than straight cash deposit - such as BTL property. And straight cash deposits are not a very lucrative 'investment' over the long run once the oil price crash stops holding back inflation.
  • seven-day-weekend
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    Thanks all for your answers, really most enlightening :)
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • Eco_Miser
    Eco_Miser Posts: 4,708 Forumite
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    I am going to speak to an IFA, although my husband thinks it is a waste of time; he says a) the amount is not large enough to invest in any meaningful way
    What does he consider meaningful?
    I consider £143k very meaningful, and the dividends therefrom a useful part of my income.
    and b) we could lose it all.
    If you try really hard. Have you seen the film Brewster's Millions?
    Eco Miser
    Saving money for well over half a century
  • seven-day-weekend
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    Eco_Miser wrote: »
    What does he consider meaningful?
    I consider £143k very meaningful, and the dividends therefrom a useful part of my income.
    If you try really hard. Have you seen the film Brewster's Millions?

    He thinks it's not enough to make any money from. He says it won't get us £575 gross a month plus capital appreciation like the investment property. Also you always have your property even if house prices slump, whereas you could lose your investment.

    Could you give me a rough idea of the amount of income it might generate (obviously I don't wish to know your private affairs, so I will understand if you can't comment further).


    I've not seen the film but will google it now :)
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • Brighton_belle
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    SDW, I work for an IFA. In my experience all the questions an IFA has to ask you (as part of the safe guarding regulations) establishes the level of caution as investor you carry and this info is used to offer individual advice, so for example, if you proved to be a 'cautious investor' (as determined by the tools IFA's has access to) you would not be recommended high risk investments, which give bigger potential returns (but bigger risks of 'losing it all'). So what ever someone else has been advised won't be the same as you will be advised, does that make sense?


    It's also a good idea to go on your gut feeling re how you feel about an IFA (as well as any personal recommendations you can get). There is no one right answer as to the best thing to do with your money,but a good IFA with offer you options, after listening to you and how you view risk and your preferences, and then you choose what feels a best fit/ comfortable/ least stressful for you.


    (I am not an IFA)
    I try to take one day at a time, but sometimes several days attack me at once
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 6 January 2016 at 7:54PM
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    He thinks it's not enough to make any money from. He says it won't get us £575 gross a month plus capital appreciation like the investment property.
    Gross is not relevant because gross implies there is running costs, repairs, maintenance, void periods where no money comes in or a double whammy of no money coming in and a huge refurb cost after a tenant trashes it and all your money is tied up in one property....

    So what is your target net income if the gross is £575? That is what should be compared to other opportunities.

    Even if there is no running costs and the targeted £6900 a year (4.8% on the £143k) is the net you receive, you will need to pay tax on the property income.

    Whereas with an investment inside a tax wrapper such as an ISA or pension (you can put £30k of fresh money inside an ISA every year between you), you can ensure you get to keep as much of the income as possible without losing it to tax. If your ISA allowances are maxed out, investments can also be made outside a tax wrapper and by cashing in small amounts of capital gains each year, you have over £20k of annual capital gains allowances between you that you can use up. If you own a house, you can't sell individual rooms off each year to slowly make use of your capital gains allowances. You can only exit all at once.

    So, investing in funds can be quite tax efficient, providing an income while allowing for some capital growth. Maybe draw out 3-4% a year. You can of course draw out more by selling off bits of the investment at a cost to your long term opportunity for gain, and this is very flexible. For example, if one year you needed £10k for something instead of the £6900 from the rental income, with an investment fund you could just cash in part of the investment fund above the level of the natural income. If all your money was tied up in a house and you needed £10k instead of the £6900 that year, you couldn't sell a staircase or patio to make up the shortfall.

    So, just like houses, investment funds can deliver income and capital gains. They are flexible and there is no evidence that in the long long term a house will give more total return than an equities-based investment fund which grows as the companies in the world economy grow. Unless the house investment is made in a risky fashion to boost returns using a lot of cheap mortgage finance which you hope can be paid off in the long term but might not be if things go wrong..

    And a second house, unlike the house you're actually living in, is inherently tax-inefficient.
    Also you always have your property even if house prices slump, whereas you could lose your investment.
    You always have your investment fund even if fund prices slump. Plus, you will have more than one of them so the eggs are not in one basket like they are in a single £143k investment property.

    Whereas you could lose your house. For example you forget to renew the insurance and it burns down the next day.
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