Where to get 5% return on £80k long term?

Tiners

Sorry for the rather basic question but I really do struggle to understand all the various financial products out there and just need some very basic advice to point me in the right direction, so I can do further research.

My current situation is... 42, mortgage free, basic rate taxpayer, working full time, with £80k in NS&I earning next to nothing.

I'd love to reduce my hours and go part time, if I could get my £80k to start returning 5% (£4,000) I could do that... is this remotely realistic?

Edit - I'm not interested in BTL!

justme111

Investments but there you can (theoretically) lose capital. In practice capital's value is going to go up and down. Mind , for every year that it has been in NS&I you already lost about 3% (inflation) so if it was like that for 10 years you already lost a third of a value of that money.

Dazed_and_confused

You could have a look at p2p lending, sites such as Zopa could get close (or greater than 5% with added risk)

steampowered

You would expect to earn at least 5%, on average over time, in stock market investments.

However do remember that the value of your 80k is going to be eroded by inflation over time. If you keep getting £4k a year and spending it, that £4k will be worth less and less each year.

Here is a table showing historic annualised returns on the stock market (using the S&P 500, but you get the point):

AnotherJoe

A plan would be to save as hard as you can for just two or three more years to get to say £120k, and put that into conservative income producing Investment Trusts or Funds, 3-4% should be doable, and the buffer above £80k will let you ride out down periods in the market, eg if your £120k drops to £80k you are still getting your income, in good years the 4% on £120k will build up your money and help bring in more income and a bigger buffer.

With some messing around with multiple bank accounts and transfers between them you can also get to about 5% on around £40k in high interest current accounts, again once you are at £120k then £40k of that in such accounts would also provide another buffer for your £80k (and having a bigger amount would also help with inflation long term.

Malthusian

What are you planning on doing with the free time?

It's realistic in the short term but in the long term, by living off your savings that early you have to assume you're spending the growth and income and the value is going to be eroded by inflation. By the time your State Pension Age rolls around both the capital and the income will be worth half of what they used to be.

Without knowing more about your circumstances it seems a waste of your most active and productive years. You could semi-retire now and live a very modest and frugal life, or wait until the traditional age of 60-something, continue building up your savings and live a much more comfortable one both pre- and post-retirement.

If you can't stand your job, changing career probably won't cost you any more than going part-time, and it's better to do something you like full-time than something you hate part-time.

teddysmum

If there was an easy way (I remember when there was) those of us who mess about moving money round to earn 5%, more likely less, on small amounts would be using that method.


You an get higher rates, but higher rates mean higher risks and many of us are unable to afford to take those risks.

jimjames

teddysmum wrote: »

You an get higher rates, but higher rates mean higher risks and many of us are unable to afford to take those risks.

I wouldn't necessarily agree with that. A lot of people don't understand risk and are certainly able to afford to take some risk but choose not to do so through lack of understanding.

teddysmum

jimjames wrote: »

I wouldn't necessarily agree with that. A lot of people don't understand risk and are certainly able to afford to take some risk but choose not to do so through lack of understanding.

I'm referring to the big risk of big interest at the cost of possibly losing the original investment. As you get older you don't have the time left for investments that will give an over all gain but needing considerable time to do so.


There is the much lower risk of taking 5 year bonds (no loss of money put in) at a poor rate (where rates could go up), but for such a poor return, I don't think it's worth locking your money away.

jimjames

teddysmum wrote: »

I'm referring to the big risk of big interest at the cost of possibly losing the original investment. As you get older you don't have the time left for investments that will give an over all gain but needing considerable time to do so.

That's exactly my point that many people don't understand risk as that quote shows. The OP is 42, that's hardly old and they potentially have 50 years of investment time ahead. There is absolutely nothing that says all your assets need to be in the same thing so to reduce risk you could hold £20k investments and £60k cash for example. However age 42 you'd probably want a much higher equity percentage.
If your main requirement is income then the capital value on any specific day is pretty much irrelevant so the ups and downs of the stock market shouldn't matter.

Pincher

Tiners wrote: »

I'd love to reduce my hours and go part time, if I could get my £80k to start returning 5% (£4,000) I could do that... is this remotely realistic?

Edit - I'm not interested in BTL!

Have you considered getting a lodger who pays £4,000 a year?

It's tax free, as it's under the £7,500 Rent-a-Room Allowance.

When I had lodgers, I never had break-ins when I go on holiday.

A dog costs money to keep, and can't leave it alone for a week when I'm away. A tenant is a guard dog that pays you rent.