Best thing to do with ISA lump sum - Longterm goals

gzoom

So we have a decent lump sum of ISA products maturing this month. Current ISA interest rates are horrible, even when locked in for 3 years+. Already have x3 Santander 1-2-3 accounts, and a decent amount of Premium bonds. Have thought about paying off the mortgage but actually the interest on that is small (3%), and currently already overpaying the max allowed 10%.

Really not sure what else is there to do with the ISAs apart from locking them into the highest interest rate account available?? The money is longterm savings so no need for easy access....Any other suggestions??

unimaginative_user_name

When you say you don't need access to the money I presume that means you have other savings to cover emergencies but it is worth looking at other high interest current accounts which also open up the possibility of regular savers (eg M&S 6%, TSB 5%, Nationwide 5% or Lloyds 4%). You don't say in your original post how much you have to save or invest. Also bear in mind that from April basic rate tax payers can earn £1000 interest tax free on their savings and higher rate tax payers £500. This makes cash ISAs even less attractive.

If you want to keep your money inside an ISA wrapper and don't need to access if for 5-10 years or more then you might want to look at S&S ISAs for real returns. The markets are low at the moment so it's a good time to invest. Another option is boosting your pensions.

jimjames

As above for long term savings if you already have sufficient cash buffer in current accounts then I'd go with investments. Even better it retains the ISA wrapper if you transfer.

Long term it's not great idea to remain all in cash

gzoom

The lump sum is £50K+, we've got access to other funds for emergency access, and already contribute a decent amount to pensions and still a good 25 years+ to retirement .

Have always been nervous about stocks & shares, ever since I saw some friends buy £1k worth of stocks to 'play' and than watch the value drop to about £100 over a year.

Looking at the FTSE100 over the last 5 years, 2011 was 6000 points currently at 5800 points - Surely that's means I would have lost money over the last 5 years with a stock&shares ISA, compared to normal ISA which over the time period has been at 3%+??

Or does the dividends also play a part??

eskbanker

gzoom wrote: »

The lump sum is £50K+, we've got access to other funds for emergency access, and already contribute a decent amount to pensions and still a good 25 years+ to retirement .

Have always been nervous about stocks & shares, ever since I saw some friends buy £1k worth of stocks to 'play' and than watch the value drop to about £100 over a year.

Looking at the FTSE100 over the last 5 years, 2011 was 6000 points currently at 5800 points - Surely that's means I would have lost money over the last 5 years with a stock&shares ISA, compared to normal ISA which over the time period has been at 3%+??

Or does the dividends also play a part??

Dividends do very much play a part, yes, but the key thing with investment is diversification. Putting your money into a tracker of any individual index is bad news, and the FTSE100 is a particularly poor one (too heavily weighted to a small number of sectors and inherently larger companies), so recommended practice is to get a broader spread of geographies, sectors, etc, which minimises risk and avoids the scenario you refer to. Many novice investors, yours truly included, have gone with multi-asset funds such as Vanguard Lifestrategy, although similar products are also available from the likes of L&G, Blackrock, etc.

As part of your research, read up on sites like Monevator and Motley Fool to build up some knowledge of the world of investing, there are also a number of books mentioned in various threads on here.

Thrugelmir

gzoom wrote: »

Or does the dividends also play a part??

Dividends historically have provided around 60% of the return.

Reinvesting the income generated is the key. As compounding over the years generates return. As the size of your funds increases then so does the income. Majority of the return is created in the latter part of holding an investment. No need to panic in the early years.

In the fable of the hare and the tortoise. The tortoise wins the race.

Superscrooge

gzoom wrote: »

Looking at the FTSE100 over the last 5 years, 2011 was 6000 points currently at 5800 points - Surely that's means I would have lost money over the last 5 years

This is a mistake lots of people make because they forget about dividends. Reinvesting dividends over the long term makes a huge difference.