Early inheritance - what should I do?

MyGossip

Hello everyone,

Newbie to this so please be kind!

I was watching Martin Lewis on this morning and figured this might be the best place to ask some questions. I don’t know a lot about investments or savings, not through ignorance but more because I’m easily confused.

I received my inheritance from my dad early which was about £20k and I put it into an instant access savings account. It’s been in about two weeks and I received £1.76 interest on it. Whilst I’m not too fussed about the interest, I feel like I could be really benefiting from putting it somewhere else.

I’ve had a quick scan through the forum and on this site itself but there seems to be so many options, I’m not sure.

I would like to access an account where my money would be but would also like to receive some sort of decent interest on it.

Has anyone been in a similar situation or can offer any advice on what they would do?

Any advice would be greatly appreciated. 🙂

cloud_dog

MyGossip wrote: »

Has anyone been in a similar situation or can offer any advice on what they would do?

This all depends on your circumstances.

1. Are you employed?
2. How old?
3. Do you own a property?
4. Do you have dependants?
5. Do you have a work pension / any pension?
6. How much in your pension?
7. What are your thoughts for the future / what do you want to do?
8. ....and many, many more I forget

MyGossip

Hello,

Thanks so much for your reply.

Yes, full time employed, 32, zero children (don’t think I can count hubby) I have two pensions, one from my previous job and one in my current job (hoping to merge these together at some point). We’ve just moved house in the last 6 months and are financially ok, thankfully but would probably like to use some of the money for home improvements at some stage.

I guess I’m trying to find out if there are better ways to be smart about my inheritance instead of it sitting in a standard savings account. I probably should mention I have 5x other savings accounts with the same bank to which have cash in them so I know I’m not receiving the best interest rate or rates for that matter.

Hope this helps?

gm0

Two very different categories of things here.

1 Deposit accounts (If you need the money now or soon). Best buy tables on the site. Changes every few months as to what is best. "Where to find the best deposit account" - 100% protected to 85k per institution. Won't lose your money. Will struggle to keep up with inflation or generate any income. So low levels of interest but still worth finding the best one. Some MSexperts churn around constantly on current account and regular saver offers and send direct debits flying around to meet account requirements. Others find that all too much faff. I'm in the latter group so not much help on this.


2 Investment (Money you can commit not to touch for a long time) - not your emergency fund, not the house deposit for a move in 2 years etc. LONG TERM growth or a slightly larger trickle of income with the capital at risk - stocks and shares, property etc.

Discussion here centres on stocks and shares which are held so far as possible in either a pension wrapper (Occupational, Stakeholder, Personal, SIPP) or an ISA for tax reasons).
20k is the annual stocks and share ISA allowance so it can all go in at once if that is what you choose to do. There is a big big BUT coming.

BUT

There is a quote endlessly attributed to Warren Buffett about "not owning a stock for ten minutes that you aren't prepared to own for ten years". He isn't joking. You can lose 60% of your 20k in a few days and it can take 5+ years to get back to the same value. If you panic and sell - the loss becomes permanent (the stocks then recover but you sold them). In most markets and globally stocks have always bounced up and down a LOT with a long term cumulative trend upwards - reinvested dividends (annual income from shares and capital growth) but you need to know that you do not need the money on an early fixed date. 5-10 years+. You need to understand emotionally as well as analytically not to panic in a crash (which is harder than people think - it feels dreadful to lose half your capital (temporarily) - loss aversion is baked in to human nature.

If you can't meet those two condition - then stocks and shares ISA are not for you.

Finally and absolutely essential. Anything you are offered unsolicited by email or telephone is UNSAFE and likely to be a total scam. As example - I had a 14.7% "return" offer this week from some kind gents who wanted to help me access "property development" investment (for a fat fee no doubt) for a dodgily leveraged development where all the project downside risk is on me if it isn't actual fraud and a Ponzi scheme (pay old investors for a bit with new then run off when you have stolen enough). It's easiest just to treat all unsolicited offers as FRAUD and ignore them. Don't engage. Don't get on the "suckers list".

There is lots of discussion here on ISA and Pension platform providers for long term investment and a specific FAQ on which platforms are the best value for size of funds, types of investment and frequency of investment changes. You will find a lot of discussion on topics like passive investment in global equities, multi-asset funds and more. If you are going down this road you will need to get to grips with these topics to a level of comfort. This takes quite a while. I have been educating myself for some time using the internet. My strong guidance would be to stay in deposit accounts while you work out what to do.

Markets are "high" (the price of stocks vs the earnings (present and anticipated in the future supporting the valuation). So we are somewhere towards the likely end of a long upward excursion (called a "bull run" in the slang). Nobody truly knows when it ends. But they always do. And then it shoots back the other way usually past the long term trend line and then back up again. People have been calling the end of this bull market for years - and yet here we are with a good return in 2019 after a mildly negative 2018. Another sage quote is about "time in the market" not "timing the market" i.e. This means how long you hold investments is viewed as a more reliable approach than attempting to "buy low" and "sell high".

Two and specific suggestion for you to research. The easiest "free money" around is to invest £2880 into a "non-earning" family member's pension savings (assuming not retired and already drawing a pension. Immediately grossed up from 2880 to 3600 by a tax rebate. You won't find kind of return without a load of risk attached anywhere else. It doesn't work if you need the income now as it is dropping into someone's pension scheme accessible only at 55 (or a bit higher as the rules change in the next few decades). But 20% now and 20 years in the markets for the 3600 is probably good for your long term wealth.

And there is always premium bonds for the <5 years timescale+risk averse crowd as an alternative to savings accounts. With 20k - a random trickle of £25 cheques each year and a chance of more. Tax free income. Not a solution really but again - capital safe.

Maelwys

MyGossip wrote: »

I guess I’m trying to find out if there are better ways to be smart about my inheritance instead of it sitting in a standard savings account. I probably should mention I have 5x other savings accounts with the same bank to which have cash in them so I know I’m not receiving the best interest rate or rates for that matter.

Basically, everything will depend entirely on how long you want to be able to "not touch" the money for.

ISAs are usually a good consideration for longer-term savings. The "Stocks and Shares" version typically requires you to either be a bit savvy about where to invest things (if chosing investment options yourself) or know what level of 'risk' you're comfortable with (if allowing a provider to choose investment options on your behalf)... but there are cash versions available too, even if these days the rates on them tend to be a bit pathetic.

If you want to have the money immediately available to you (for emergencies etc) or lock it away for less than 2-5 years, then it might be best to just continue to keep it in a regular easy-access savings account; or even an interest-paying current account.

I'd definitely look into consolidating your savings accounts so that wherever you keep your money, you're getting the best rate of return. The usual recommendation is to keep about 6 months salary in an easy-access "emergency" fund with the rest in some kind of longer-term savings.

xylophone

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

You could have a browse - depending on the home improvements, you could very quickly use up that £20,000.

bostonerimus

Pay off any high interest debt you have; stuff like credit cards and car loans. Then make sure you have at least 6 months spending in an easy accessible savings account for emergencies. If there is anything left over use it to make increased contributions to your pension. You should also think about starting a stocks and shares ISA and get into the habit of putting some money in it every year.

steampowered

Based on what you have said, it sounds to me like a stocks & shares ISA is what you should be doing.

To give a fuller answer, the first step is to assess whether you are saving adequately for retirement. By age 32 you should really have been making pretty substantial contributions to your pension already. If you haven't, start now. The advantage of pension saving is that you get a big chunk of tax relief, especially important for higher rate tax payers.

If you are likely to want to save this money for the next 5 years or more, but not until retirement, you should invest the money into a diversified investment fund, such as a Vanguard fund. You can do this through a stocks & shares ISA.

If you are likely to want access to the money within the next 5 years, you might want to put it into the highest rate savings account you can find.

It is not wise to have too much cash in savings accounts. Cash loses value due to inflation over time. Over the long term you are better off taking the ups and downs of stock market fluctuations than losing money each year to inflation.