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How to invest £75,000 age 27
newtoinvest
Posts: 7 Forumite
Hi all,
My wife and I have recently inherited some money (£65,000) and managed to save an additional pot of money (£10,000) over the past 6 months. I therefore have £75,000 to invest now. Before inheriting the money we saved around £1800 a month (investing £600 a month in index funds, £400 a month in mortgage overpayments, £600 in 1 year savings accounts at 5%, and £200 on increasing our buffer from £4k to £6k).
My question is, what should we use the £75k for? As I see it our options are some combination of:
1. Stocks and Shares ISAs - with mix of UK (25%, Developed (50%) and Emerging Markets (15%) Index funds as well as an actively managed fund (10%). Investing £75k at one time-point scares me but trickling money in makes little sense either since it would be sat in the bank at 1.3%. Have avoided bonds so far since 1) we are young and investing over 40 years can handle the risk, 2) the return would be similar to just paying off mortgage. As got older would of course move from equities to bonds.
2. Buy to Let - my family has experience of this, both from an accounting and renovation background, our approach would be to target young professionals like ourselves. We would hope to achieve 5% return but are aware of new rules which make it harder for higher rate taxpayers. However one of us works for a charity and so has a stipend which is not taxable and so we would pay 0% tax on the income.
3. Overpay mortgage (at 2.4%) - can overpay 10% so another £10k this year.
Background info:
We are both 27 and already own our house. The house is valued at approx £290,000 with mortgage of £155,000.
We have no other debts other than student loans (at 1% so no intention of overpaying).
Our combined net income after tax/student loan/pension contributions is £57,000 a year. We are both in fairly junior positions in professional jobs which would generally peak around £80-100k each at age 50 if we stuck with them. Both have very generous pensions (DC but employee+employer contributions total around 20%).
We don't currently have kids but plan to in the future. If we were to have kids in around 2 years and both work 3-4 days a week our net income would be around £48,000 (if our pay rises as anticipated before then). We currenly spend around £24,000 per year.
Long term aim is to be able to move to a bigger house in around 10-12 years (around £500k) but both be able to work 3-4 days a week to spend time with kids and not be stressed. We both intend to have long term careers but would like to be financially secure so that we can choose jobs based on interest rather than financial concerns.
My wife and I have recently inherited some money (£65,000) and managed to save an additional pot of money (£10,000) over the past 6 months. I therefore have £75,000 to invest now. Before inheriting the money we saved around £1800 a month (investing £600 a month in index funds, £400 a month in mortgage overpayments, £600 in 1 year savings accounts at 5%, and £200 on increasing our buffer from £4k to £6k).
My question is, what should we use the £75k for? As I see it our options are some combination of:
1. Stocks and Shares ISAs - with mix of UK (25%, Developed (50%) and Emerging Markets (15%) Index funds as well as an actively managed fund (10%). Investing £75k at one time-point scares me but trickling money in makes little sense either since it would be sat in the bank at 1.3%. Have avoided bonds so far since 1) we are young and investing over 40 years can handle the risk, 2) the return would be similar to just paying off mortgage. As got older would of course move from equities to bonds.
2. Buy to Let - my family has experience of this, both from an accounting and renovation background, our approach would be to target young professionals like ourselves. We would hope to achieve 5% return but are aware of new rules which make it harder for higher rate taxpayers. However one of us works for a charity and so has a stipend which is not taxable and so we would pay 0% tax on the income.
3. Overpay mortgage (at 2.4%) - can overpay 10% so another £10k this year.
Background info:
We are both 27 and already own our house. The house is valued at approx £290,000 with mortgage of £155,000.
We have no other debts other than student loans (at 1% so no intention of overpaying).
Our combined net income after tax/student loan/pension contributions is £57,000 a year. We are both in fairly junior positions in professional jobs which would generally peak around £80-100k each at age 50 if we stuck with them. Both have very generous pensions (DC but employee+employer contributions total around 20%).
We don't currently have kids but plan to in the future. If we were to have kids in around 2 years and both work 3-4 days a week our net income would be around £48,000 (if our pay rises as anticipated before then). We currenly spend around £24,000 per year.
Long term aim is to be able to move to a bigger house in around 10-12 years (around £500k) but both be able to work 3-4 days a week to spend time with kids and not be stressed. We both intend to have long term careers but would like to be financially secure so that we can choose jobs based on interest rather than financial concerns.
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Comments
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The first thing that jumps out at me is that you need an adequate emergency fund. You mention a £6k buffer. Is that all you have in easy access cash accounts? I would increase this.
Once your emergency fund is taken care of then you seem to be on the right lines in terms of investments. Either build up your Stocks & Shares ISAs over a couple of years (bearing in mind you can only pay in £20k each per year) and / or put more in your pension.
As you say your workplace pensions are already generous. Do either of you pay in by salary sacrifice? This is a very efficient way to pay into your pension as you save on National Insurance. I would up my salary sacrifice contributions rather than pay in a lump sum.
Of course the disadvantage of putting money into your pensions is that it will be a long time before you can access it. S&S ISAs and mortgage overpayments will have a more tangible effect for you in the here and now. Especially if you're planning to have kids you may welcome being able to access the money.
There are quite a few threads discussing the advantages / disadvantages of Buy to Let so I won't rehash old ground here. Suffice to say that in this particular sub forum most people are not fans of Buy to Let. In other MSE sub forums opinions vary.0 -
Have you thought about paying off a sizeable chunk of your mortgage and maybe keep your monthly repayments the same that means the mortgage is likely to be paid off a lot lot earlier than what I'm assuming would be your 25 year term. Depends of course on a lot of things including the kind of mortgage you have I if you are allowed to pay off anything and also the interest rate it if it's very low it might be worth investing elsewhere0
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I'd reduce my mortgage by as much as possible without fees or charges.0
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The first thing that jumps out at me is that you need an adequate emergency fund. You mention a £6k buffer. Is that all you have in easy access cash accounts? I would increase this.
Curious as to what you would increase it to and would you think the buffer would be different for a single person?0 -
camden_kid wrote: »Curious as to what you would increase it to and would you think the buffer would be different for a single person?
Many regulars on here suggest around 6 months of (necessary) expenditure.0 -
2.4% is a little pricey for the mortgage. Is it fixed for a few years?Free the dunston one next time too.0
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As it seems you are saving for the long term, I personally would invest the money in stocks & shares (as much as possible through an ISA), probably through a low cost fund if you don't want to spend much time selecting investments.
This is highly likely to get you a better return than the 2.4% you'd be saving on the mortgage.0 -
camden_kid wrote: »Curious as to what you would increase it to and would you think the buffer would be different for a single person?
As badger09 says I would suggest 6 months worth of spend. So in the OP’s case that would be £12k.0 -
I would not get involved with BTL just yet. Other than that I think you are being very sensible and are making some great choices.
I would use the inheritance to maximize your pension contributions at work and/or through a SIPP. This will greatly reduce your take home pay and the tax you pay and you can live off the 75k for a while.
I like the way you are considering mortgage over payments as a fixed income stand in and I'd keep doing that and putting the rest of your money into a range of index funds.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
As badger09 says I would suggest 6 months worth of spend. So in the OP’s case that would be £12k.
Not necessarily.
That £24k annual spend might include an annual long haul holiday, several weekend breaks and eating at a Michelin starred restaurant once a week
Unlikely, I know, but those could all be foregone, hence my suggestion of 6 months of necessary expenditure0
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