What to do with £80k to get the best "safe" benefit

Elika0215

xylophone wrote: »

Are they allowed a penalty free lump sum mortgage repayment each year?

For example, on a five year fix, it might be 10% of the mortgage outstanding.

I'll find out and report back.

danplum5

If they are completely risk averse then paying off (or overpaying) the mortgage is the best option.

And for the record - I've been using the P2P lending site Zopa for over 8 years and they have never returned less than the % they have advertised (between 5-7%) You never have more than 1% of your investment lent to any one person and the expected bad debt levels are pre-calculated into the APR.

Zopa have been going since 2005, survived the financial crash of 07/08 and no one that has invested with them in the way they advise (at least £1000 split between 100+ micro loans) has ever lost money in the long-term.

I think the biggest risk is letting the value of your money erode in a 0.5% account, not worrying about worst case scenarios.

kidmugsy

Elika0215 wrote: »

Ultimately, they don't want to make a fortune but want their lump sum is to rise above inflation. Even by a small amount. Is there a guaranteed way of doing this?

No.

Elika0215 wrote: »

Edit 2: Just found out that they will incur an early repayment charge of £2,300 on a £60k mortgage.... I guess that moves the goalposts?

Not necessarily - it depends how risk-averse they are. As someone else said, they can probably overpay substantially each year without penalty, so that might be a good alternative.

Have you answered my question - how old are they?

Elika0215

kidmugsy wrote: »

Have you answered my question - how old are they?

Apologies. They're 49 and 48.

Oh, ok regarding not being able to guarantee saving in excess of inflation. Wow, I didn't know this was so complicated!

Still haven't been able to find out what they can overpay on their mortgage without a penalty. Will report back.

In the meantime, courtesy of the money making a loss effectively against inflation, is it too late to shift the question to:

How can they make their money return slightly higher than inflation with minimal risk?

Thank you soooo much everyone. All responses have been genuinely appreciated.

billy2shots

Elika0215 wrote: »

That's really helpful too. Thanks.

Did you see my last post which may have overlapped with yours? That they just found out they would be charged £2300 with an early redemption on 60K mortgage? No sure if you factored that in to your suggestion.

They need to get a pen and paper and workout the following,

- Amount of £ they will be paying in interest by not touching the mortgage until their locked in rate ends.

- The amount of £ they will pay in interest by paying off the allowed overpayment each month/year.

It is certainly more cost effective to make the allowed overpayments rather than do nothing.
Sometimes it also works out best to pay the penalty and clear the whole thing early.

I had 13 months to run on a 5 year fixed at 3.4%. £63k left to pay and paying it all off and paying the penalty worked out far better for me.

Audaxer

Elika0215 wrote: »

In the meantime, courtesy of the money making a loss effectively against inflation, is it too late to shift the question to:

How can they make their money return slightly higher than inflation with minimal risk?

Have a look low cost globally diversified multi asset funds. They are discussed a lot on here - mainstream products such as Vanguard LifeStrategy funds, HSBC Global Strategy Balanced funds, L&G Multi Index funds. They are good products that hold a range of passive indexes that track the markets, as opposed to actively managed funds. They come in a range of versions from low risk to high risk. Risk in this context really means volatility - a multi asset fund with 80% equity will be more volatile and fall more in a market crash than a multi asset fund with only 20% equity, but will almost certainly provide higher returns in the long term.

For example I am retired and have invested in the Vanguard LifeStrategy 60 multi asset fund, which is the version with 60% equities. This will have up and downs and probably fall by about 25% in a bad equity crash, but I will not panic and sell if this happens as I am confident it will recover and increase my original investment by an average of a few percentage per annum more than inflation over the long term. I would stress that such returns are not guaranteed, but if held over the long term they should produce much better returns than holding the money in savings accounts. A more cautious version that will hopefully also beat inflation over the long term is Vanguard LifeStrategy 40 which as the title indicates has 40% equity. Have a look at sites like Monevator which has good details about low cost investing and these types of funds.

Alexland

Elika0215 wrote: »

How can they make their money return slightly higher than inflation with minimal risk?

If only that were possible - as above to stand a good chance of beating inflation on a material lump sum over the long term you would need to accept the possibility that your money could drop circa 25% at any moment in a fund like VLS60 on a low cost investment platform.

Alex

Elika0215

Hmm. So, is it safer to drip money in to an investment per month or invest a lump sum?

eskbanker

Elika0215 wrote: »

Hmm. So, is it safer to drip money in to an investment per month or invest a lump sum?

If you're starting with a lump sum then it's been demonstrated that investing it in one go outperforms drip-feeding it in gradually, on the basis that (assuming long term growth) delaying entry to the market more often than not reduces returns....

Alexland

Elika0215 wrote: »

Hmm. So, is it safer to drip money in to an investment per month or invest a lump sum?

Historically if you have a lump sum it is better to dump it in as early as possible but you might get unlucky in which case it would have been better to drip feed. There are lots of ways to get in a swimming pool but eventually you are completely in hot water and your senses get numbed to the volatility :-)

Alex