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Investing an inheritance
Comments
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Fatbritabroad wrote: »That seemed perfectly sensible to me you can get more than that for a proportion of the cash in savings accounts
I'll be the first one to say it then tVery sorry for your loss
Thank you for you kind condolences.0 -
Of course there is, why would you choose to sink £100K into paying off a property loan when you have the outstanding loan covered several times over and can, presumably, switch to a cheaper mortgage at the appropriate time, assuming any exit penalties aren't prohibitive.
There is nothing wrong whatsoever with carrying large amounts of cheap affordable debt, it makes a lot of sense to do so imo and allows the money not paying off the entire loan to go into something far more productive than saving 1.3% p.a. of the remaining debt burden.
Thank you. I'm getting the feeling there isn't necessarily a right or wrong answer here. But it is something I will need to consider (and keep revisiting, if I keep the mortgage going) to ensure that I am truly putting that £100k where it will get the best return.0 -
Condolences: you must have had a most unpleasant time.
It might make sense to pay off the mortgage. Another possibility would be to convert it into an offset mortgage in May and then reduce the monthly payments to near-zero by plonking enough capital into the offset account. That would mean you'd have a £100k cash fund that you could draw on in future if the situation changed.
Could it be cost-effective to clear the debt on the car?
It's small stuff but I suggest you consider filling up your Premium Bonds to £50k. This will ensure that your flow of small monthly prizes will be more nearly steady. It will also increase your (very small) chances of winning a big prize.
Also small stuff but contribute the max amount to a pension. While you have no earnings that's £2,880 net per tax year, which equals £3,600 gross. It's not much but it could get you into a good habit which might be valuable once you've got an earnings stream again.
A fifth small suggestion: open a Santander 123 current account and put £20k into it. It pays 1.5% AER and gives you a cashback on your bills that will probably exceed their monthly fee of £5. It will also let you open their regular saver that pays 5% p.a. There are other current account/regular saver combinations that might appeal to you but they are also pretty small stuff compared to £600k. Looking after the pennies, however, is usually a sound tactic if you feel you have time enough to open the accounts, set up the relevant standing orders and direct debits, and so on.TangoPhoenix wrote: »* Monthly expenses (including mortgage, car payments, plus living expenses etc) are about £2,500.
What would that fall to once you've eliminated mortgage and car payments?
I warmly support that idea.TangoPhoenix wrote: »I was thinking I should split things up with other platforms for better FSCS protection.
The big deal, it seems to me, is what strategy you should use for moving capital from cash to S&S. I am not an admirer of the doctrine that one should ignore the question of market timing and just bung the lot into S&S instantaneously, muttering "it's only time in the market that counts". Here's where, if I were you, I'd probe your candidate IFAs carefully.
For platforms other than HL you could look at
http://monevator.com/compare-uk-cheapest-online-brokers/
Your IFA might suggest that rather than SIPPs you use a personal pension with one of the insurers. If I understand that notable expert dunstonh correctly, done suitably that could give you 100% investment protection without the need to scatter your capital across many providers.
The arithmetic says that until you are earning again you will be spending some capital to defray your living costs. That's another topic to pursue with your chosen IFA.Free the dunston one next time too.0 -
Sorry for your loss but thankfully it seems that you had plans in place for such a terrible outcome.
I am a big fan of my offset mortgage, and pay over the odds for the flexibility it grants me as offsets are never the cheapest rates, but the OP stated that they had little income and so might not be able to achieve any sort of remortgage once the deal is up. Do affordability rules take into account investments?I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
Condolences: you must have had a most unpleasant time.
It might make sense to pay off the mortgage. Another possibility would be to convert it into an offset mortgage in May and then reduce the monthly payments to near-zero by plonking enough capital into the offset account. That would mean you'd have a £100k cash fund that you could draw on in future if the situation changed.
Thank you.
I'll look into an offset mortgage. Thank you for bringing it up as I hadn't considered it as an option.Could it be cost-effective to clear the debt on the car?
Possibly. The car is a fairly new one - unexpectedly so... the previous car was in my husband's name under a PCP. As part of settling the estate, the finance company therefore either wanted the car paid off in full (which I couldn't do at that time as hadn't received the money from the estate yet) or wanted me to give the car back (which would have left me without a car) or said I could trade it in on a new car with finance in my own name. At the time, I took the last option as it ended up keeping the monthly payments the same. So, yes, I could now pay off the car, but again I guess I'll have to (or an IFA will have to) run the numbers to see what makes sense.What would that fall to once you've eliminated mortgage and car payments?
Monthly outgoings minus mortgage and car would be about £1,600.It's small stuff but I suggest you consider filling up your Premium Bonds to £50k.
£50,000 had been my goal amount. The money from the estate came in in chunks so I was moving it around as and when I got it (that's why the last chunk is sitting in the savings account with hardly any interest!). I'll top that up then.Also small stuff but contribute the max amount to a pension. While you have no earnings that's £2,880 net per tax year, which equals £3,600 gross.
I'll explore pension options, both SIPP and a personal pension.A fifth small suggestion: open a Santander 123 current account and put £20k into it.
I'll look into this, and other options. Certainly a better rate than my current Current Account!The big deal, it seems to me, is what strategy you should use for moving capital from cash to S&S.
I quite like the idea of drip-feeding, especially while I'm gaining more experience with investing
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Sorry for your loss but thankfully it seems that you had plans in place for such a terrible outcome.
I am a big fan of my offset mortgage, and pay over the odds for the flexibility it grants me as offsets are never the cheapest rates, but the OP stated that they had little income and so might not be able to achieve any sort of remortgage once the deal is up. Do affordability rules take into account investments?
Thank you.
I'll be doing some reading up on offset mortgages so I can bring this up with the IFA. The bank was happy to transfer the joint mortgage into just my name, but I don't know what they'll take into account when it comes time to remortgage, assuming I want to keep it going at that point. If they don't want to remortgage because I don't have a traditional employee income, then at least I know I can just pay off the debt completely if need be.0 -
How much would your monthly outgoings be if your mortgage was paid off?
Also how long do you think you need to supplement your income (how long before your business will generate enough to cover your monthly outgoings (withiout the mortgage)?The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.0 -
How much would your monthly outgoings be if your mortgage was paid off?
Also how long do you think you need to supplement your income (how long before your business will generate enough to cover your monthly outgoings (withiout the mortgage)?
Outgoings minus just mortgage is about £1,850.
It will probably be about a year to get things back up and running again.0 -
It might make sense to pay off the mortgage. Another possibility would be to convert it into an offset mortgage in May and then reduce the monthly payments to near-zero by plonking enough capital into the offset account. That would mean you'd have a £100k cash fund that you could draw on in future if the situation changed.
Could it be cost-effective to clear the debt on the car?
I'll add my vote to the option of paying off the mortgage. While there is an argument to make use of the cheap debt to pursue greater gains with the available capital, as the OP's mortgage deal is set to end soon, this becomes less favourable. While they could get another cheap deal after this, we don't know what mortgage interest rates will be at that time, and having paid off the mortgage they will have freed up considerable capital from their monthly income to invest further, if they wish.
I would definitely clear the car debt, unless it is interest free (and never buy a car on credit again - car finance is a poor option if you have the cash).It's small stuff but I suggest you consider filling up your Premium Bonds to £50k. This will ensure that your flow of small monthly prizes will be more nearly steady. It will also increase your (very small) chances of winning a big prize.
I'd get rid of the premium bonds as they aren't a great payer. As you acknowledge, the chances of winning one of the big prizes are very small - on £50,000 the chance of winning £1 million is 1 in 61,955, and of winning £100,000, is 1 in 17,899 - so you are left with the more more likely outcome for fair comparison, which is that with average luck you could expect to win £500. That would give a return of 1%, and even easy access accounts will pay 1.35% currently. Hardly seems that good then, does it? To exceed the 1.35% available on easy access, you would need to win £675, and the chances of winning a sum of that size dwindle dramatically; to get a 1.5% return on premium bonds, you would have a 24.7% chance. Hmmm, those odds aren't great.
Furthermore, easy access accounts are not the only option. A one year fixed rate bond will currently give 2.05%. To get close to that with premium bonds you would only have a 5.64% chance, with average luck, of winning £1,000 (2%). And, of course, premium bond wins don't compound, unlike interest on a savings account.
Personally, I would keep cash holdings in a combination of current accounts and regular savers to maximise interest. Nationwide FlexDirect and TSB Classic plus will, between them, give you 5% on £4,000. A further £6,000 can be put into (two) Tesco current accounts at 3%. Add in 5% regular savers from Nationwide, HSBC, First Direct and Santander, and you can put another £950 per month away at 5%. The £11,000 to be put into regular savers I would keep in an easy access account at 1.35%. Any extra money that I wanted to keep as cash I would put into a one year fixed rate bond at 2.05%. This would give an accessible emergency fund and reasonable returns on the "locked away" sum.Also small stuff but contribute the max amount to a pension. While you have no earnings that's £2,880 net per tax year, which equals £3,600 gross. It's not much but it could get you into a good habit which might be valuable once you've got an earnings stream again.
Definitely, I'd make use of pensions.A fifth small suggestion: open a Santander 123 current account and put £20k into it. It pays 1.5% AER and gives you a cashback on your bills that will probably exceed their monthly fee of £5. It will also let you open their regular saver that pays 5% p.a. There are other current account/regular saver combinations that might appeal to you but they are also pretty small stuff compared to £600k. Looking after the pennies, however, is usually a sound tactic if you feel you have time enough to open the accounts, set up the relevant standing orders and direct debits, and so on.
I'm going to repeat what I said in this thread about the 123 account, as you are offering the same advice again, without having considered the better paying alternative of the 123 Lite account:
I'm not one of those wholly opposed to Santander 123, but the fee is quite high, and with the interest rate now only at 1.5% (rather than the happy days of 3%) it is a less surefire winning choice. Many have downgraded their accounts to Santander 123 Lite, which pays the same cashback, but only costs £1 per month. While it doesn't pay any interest, the OP might still be better of with an easy access account for the savings element. You say that, "most people will probably exceed the fee" from cashback, but I'm not so comvinced; £5 is actually quite a high hurdle to get over with the cashback, and is most likely met only by those with high bills and/or a Santander mortgage. Every penny short of £5 in cashback erodes the 1.5% interest rate. To illustrate the point, if you earn £4 cashback per month, then the account is effectively costing you £12 per year. If we assume the maximum holding of £20,000 in the account, then the interest earned is £300 minus £12, which equals £288. £288 return on £20,000 is 1.44%, so it still beats the best easy access account, but if that cashback drops to £3.00, then the return becomes £300 minus £24, which is £276, so 1.38%, and the best current easy access rates are at 1.35%. Clearly, you need to be earning a high level of cashback to fully benefit from the interest rate.
The above, however, doesn't take into account the potential greater gain from Santander 123 Lite that results from the lower fee. Let's say that cashback earned is £4 per month. In the 123 account this costs you £12 per annum, but in the 123 Lite you earn £36. Now, if you have the 123 Lite, and an easy access account at 1.35% on £20,000, your combined return would be £306, i.e. £18 more than in the 123 Account! If you want to look at it as a per centage return on £20,000 across the two accounts, then it is 1.53%.
Of course, the logical conclusion of this is that, actually, the 123 account makes less sense no matter what the amount of cashback earned. For the sake of argument, let's say you do really well and get £7 per month cashback. In the 123 account you would get a total return of £324 (1.62%), but with 123 Lite and easy access, you would get a total return of £342 (1.71%).
The 5% regular saver is also still available to 123 Lite customers too.I warmly support that idea [splitting investments across platforms due to £50,000 FSCS limit].
This is a common view, and if it makes people happy then so be it, but with ring-fencing it really isn't as big a deal as some people make out. Indeed, the recent Beaufort case shows that ring-fencing works. After many scare stories, it actually turned out that only the very largest investors (mostly institutional investors) saw any losses. By all means split investments across platforms, but don't worry too much about the strict limit of £50,000 - you'll start to run out of platform options!The big deal, it seems to me, is what strategy you should use for moving capital from cash to S&S. I am not an admirer of the doctrine that one should ignore the question of market timing and just bung the lot into S&S instantaneously, muttering "it's only time in the market that counts". Here's where, if I were you, I'd probe your candidate IFAs carefully.
Yeah, going to disagree on this one too. If you hold off investing then you lose out on potential growth and dividends. If the market continues to grow over the period, then you are increasingly purchasing at higher and higher prices, so when the crash does come some of your investments have a longer and steeper hill to climb before they achive their pre-crash values. Furthermore, the market might fall 30%, but after a 50% gain, for example. Time in the market really is a better option than timing the market, which drip-feeding is simply a version of. When you have the capital as a lump then drip-feeding makes little sense.For platforms other than HL you could look at
http://monevator.com/compare-uk-cheapest-online-brokers/
Seconded: an excellent resource.
On the topic of platforms, however, I'd question the initial choice of HL. They are expensive, and yet offer little to justify that; all of their tools can be used without being a customer (should you be bothered), so the only real benefit is with their discounted funds. For the most part then, other platforms are a better option. This is especially so with large investments, which is what we are looking at here. Considering flat fee platforms may well be a better option, especially if you don't go down the - in my view pointless, and potnetially counter-productive - route of drip-feeding.0 -
Pretty sure we've discussed this before but for the record those £500/1% figures aren't accurate, despite being erroneously portrayed that way in (one part of) the MSE calculator.ValiantSon wrote: »I'd get rid of the premium bonds as they aren't a great payer. As you acknowledge, the chances of winning one of the big prizes are very small - on £50,000 the chance of winning £1 million is 1 in 61,955, and of winning £100,000, is 1 in 17,899 - so you are left with the more more likely outcome for fair comparison, which is that with average luck you could expect to win £500. That would give a return of 1%, and even easy access accounts will pay 1.35% currently. Hardly seems that good then, does it? To exceed the 1.35% available on easy access, you would need to win £675, and the chances of winning a sum of that size dwindle dramatically; to get a 1.5% return on premium bonds, you would have a 24.7% chance. Hmmm, those odds aren't great.
The odds of any bond winning a prize each month are 1 in 24,500, so with the maximum £50K holding, average luck would bring just over two prizes, i.e. £50, and therefore over a year the median return would be £600 or £625, or 1.2-1.25% [the MSE calculator is only comparing which is more likely between a £500 or a £750 return]. You're obviously right that this is still lower than the easy access alternative though, but the gap isn't as large as suggested, and the mean return is greater than the median so the published 1.4% figure isn't actually invalid!0
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