Got an inheritance - what to do?

JackAubrey

Hello

I'm new here, but have lurked for years - please be gentle!

I've recently been left a large sum of money, and in in several minds how to wisely invest for my retirement, so a few pointers and ideas would help. So:

Single, no family.
The cash I have inherited is around 200k.
I have a mortgage on a house worth 230K, mortgage amount stands at 93k . 1.3% interest and it is flexi so I can take out up to value of house at that rate. This house is rented out and this covers the mortgage cost
I earn 20k a year, and have a home free of most charges with job and pension through work.
If I can, I'd like to retire early

Should I pay off the mortgage? Buy another house to rent out? Can I put it into a pension?

Over to you guys for your thoughts......

JA

powerwin

How old are you?

How much retirement income do you want?

You could either buy a house, or buy investment products, e.g. share portfolio.

The point of a pension is it gives you a tax break, but it locks up your money, and restricts you with what you do with the money. Often you would buy an "income for life" or annuity, but annuity rates have been severely affected by the banking crisis.

Whatever you decide to do, it always pays to do your own research, so initially that is what I would suggest.

JackAubrey

Hello

thanks for your reply. I'm 48 yo and would like to ease out of work gradually but never completely. So I am hoping at 55 go part time, at 60 when work pension comes in a little less work, then at 67 with state pension as well just a little bit of part time work.

powerwin

One thing is you don't have much time until you want to retire, so pension products may not be so suitable.

Also, don't hold all cash at one bank in case of another banking crisis (which could happen), spread it around a bit.

Personally, I like big blue chip companies that pay a good dividend for income, e.g. National Grid. So if it was me, I would look at building a portfolio containing such shares. However, I have a lot of expertise in this, and you must do careful research because with shares it's easy to lose money too. Also, I don't like maintaining properties for other people.

Sites like the Motley Fool, Investors Chronicle, Interactive Investor will get you started.

Bear in mind there could be another banking crisis soon, which is why some people are buying gold as a safe store of value.

kidmugsy

To learn about investing, have a look at the monevator blog: if you scroll back over, say, a year or so you should learn quite a lot.

I also very much enjoy the quarterly (and other) reports written by Personal Assets Trust
http://www.patplc.co.uk/literature

and the reviews written by Ruffer.
http://www.ruffer.co.uk/#ruffer/who-we-are/review-archive

kidmugsy

And now, what to do? In your shoes I'd rush out and bung £15240 into an instant access cash ISA. Repeat after 5/4/16. Next tax year you can take your time deciding what to do with the cash e.g. transfer it into an S&S ISA.

I'd also be tempted to hurry up to fill up my 15/16 annual allowance for pension contributions by contributing to a personal pension of some kind e.g. a SIPP at Hargreaves Lansdown: other well spoken of pension providers include Cavendish Online, AJBell Youinvest .....

You calculate the max amount by subtracting from your pay (pay only: ignore the rent you receive) any pension contributions you will have made. Multiply the answer by 0.8: that's the maximum "net contribution" you can make this year.

Again, there's no hurry to decide what it should be invested in; the rush is just to use this year's allowance before it vanishes. If you don't like the feeling of being stampeded, then just decline to do it. You can reverse the ISA investment whenever you want but the pension decision isn't reversible until you are 55, so pause if you'd prefer.

What else? I'd keep some cash in high-interest current accounts e.g. you could keep £20k at Santander 123, getting 3% p.a. on most of the money and I'd transfer the direct debits for my bills there to earn the discounts they offer. Other accounts pay higher interest rates but on much smaller amounts. They might appeal too though.

Longer term I'd consider my own housing position. An owner-occupied house is a wonderful tax-shelter and can be a source of great pleasure as well as a source of great hassle. Do you have any ambition to move house?

As has been suggested above I might consider putting, say, 10% of the cash into precious metals e.g. £10k in gold sovereigns stored at the Royal Mint, £10k in silver certificates from the Perth Mint in Western Australia. (For heaven's sake, don't consider this as advice: it's just musing about what somebody might do to diversify their investments.)

Above all, while you are still mainly "in cash" spread it among different banks/building societies (you are protected for up to £75k per banking licence - beware of different bank brands that share the same licence). Or bung a lot into an account at ns&i: they've got Treasury backing for up to (memory says) £5 million per depositor.

I'd suggest that except for the cash savings (ISA x 2, Santander, dispersal of capital over different institutions) you might like to delay taking action until you have thoroughly thought through your desires on the housing front.

With £200k involved, you should consider finding an IFA: the "I" stands for independent - be very leery about taking investment advice from (say) a bank branch.

xylophone

https://www.gov.uk/check-state-pension do this after 6 April.


Consider contributing as much as possible to a personal pension so that you can access earlier than your occupational pension if you so wish.

Consider using your stocks and shares ISA allowance.

Use high interest current accounts for your emergency and spending money - some have regular savers as well.

Although interest rates are not brilliant, you might consider depositing some in a couple of fixed rate bonds.

http://www.thisismoney.co.uk/money/article-1621507/Best-savings-rates-Fixed-rate-accounts.html

JackAubrey

Thanks to all for the ideas so far - much food for thought and I'll start thinking!

AnotherJoe

You'll need to be acting quickly as well as thinking to get pension contributions and ISAs in this year. id say pay particular notice to KidMuggsys advice in post 6.

seven-day-weekend

I inherited a similar amount last year. (I am 66 and already retired, so in a different position to you).

Investment-wise, I bought a BTL flat for £85k which is getting me £500 pcm.

I put the maximum into mine and my husband's ISAs and will do that again in a few days time.

I topped up our Premium Bonds (I know some people don't consider these a good investment, but we like them, and we might win £1m ).

I also spent some of the money on a better conservatory than we were otherwise planning as an extension to our bungalow, and bought a static caravan holiday home in Snowdonia. Got to enjoy it as well as invest it!

Hope this helps.

Azure11

I am the same age so thought what I would do in that situation...

I agree I would fully invest in premium bonds (when you pretty much get no return on cash investments you might as well take the chance of £1m like 7DW said). I would also maximise pension contributions - getting tax relief on your money immediately gives you a boost to those savings. I'd max out on a S&S ISA as cash ISAs also seem a bit mean right now.

But definitely keep some for spending on nice stuff like holidays etc