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Where to put mums minor windfall?

Timberflake1983
Posts: 42 Forumite

Hi all,
After a 2 year long legal battle, my mum (68) has just received a settlement of £31k.
Apart from a private pension that doesn't mature for another couple of years she has no other savings, and receives a state and private pension each month. She has enough to live on with her state and private pension so I need some advice on what to do with the £31k.
Im going to put £10k in a easily accessible ISA for emergencies, but what should I do with the remaining amount? I was thinking a Vanguard stocks and shares ISA but I'm not sure this is a wise idea given her age, I don't want to be gambling with the only savings she has.
Would be interested to get peoples advice.
After a 2 year long legal battle, my mum (68) has just received a settlement of £31k.
Apart from a private pension that doesn't mature for another couple of years she has no other savings, and receives a state and private pension each month. She has enough to live on with her state and private pension so I need some advice on what to do with the £31k.
Im going to put £10k in a easily accessible ISA for emergencies, but what should I do with the remaining amount? I was thinking a Vanguard stocks and shares ISA but I'm not sure this is a wise idea given her age, I don't want to be gambling with the only savings she has.
Would be interested to get peoples advice.
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Comments
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Premium bonds?0
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She might open NS&I Income Bond account and a Direct Saver - she could pay the income from the Bond into the DS.
She could consider Premium Bonds.
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Realistically, over even 10 years something like a Lifestrategy 40% will probably give you minimum twice the return of Premium Bonds. Even a Lifestrategy 20% is going to have better returns - but it's not guaranteed. Premium Bonds won't lose their value and there's a "flutter" element to seeing if you won anything that month.
To be honest if I hadn't seen the other people suggesting PBs I probably would have said the Lifestrategy 20 or 40%, put it in and forget about it.
Assuming a conservative 3.5% return on the Lifestrategy vs 1.5% from the PBs, you'd see about a 5 or 6k difference after ten years on 21k invested. Or she could win a million on the PBs, you know the amount won't go down and will never have to explain a drop in value.
Really depends on her attitude to risk.0 -
You haven't mentioned her tax status but assuming she is a BR tax payer, I would forget the cash ISA idea for now, as on current rates she won't get anywhere near the £1,000 personal savings allowance, and all cash ISA rates are worse than the best non-ISA account minus 20% tax. As and if interest rates ever recover, and cash ISA rates become keener than those on normal savings accounts, she can still put the money into an ISA then. I would go for the NS&I Income Bond and Direct Saver for the cash reserve.
On a related subject: do you have an LPA for your mum? If not, now might be a good time for setting one up.2 -
Timberflake1983 said:Apart from a private pension that doesn't mature for another couple of years she has no other savings, and receives a state and private pension each month. She has enough to live on with her state and private pension so I need some advice on what to do with the £31k.
Im going to put £10k in a easily accessible ISA for emergencies, but what should I do with the remaining amount? I was thinking a Vanguard stocks and shares ISA but I'm not sure this is a wise idea given her age, I don't want to be gambling with the only savings she has.
However, some investment risk (to allow access to investments whose returns can equal or exceed the rate of inflation) is sensible, because over the long term (a decade or two or three) money in a bank account or premium bonds will lose value to inflation. You mention 'given her age', but with average health and personal circumstances, a woman who's already made it to 68 will on average go on to 88, so anyone luckier than average will need to keep going beyond that, with a 1 in 4 chance of 94 and a 1 in 10 chance of 98 or more. (https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07).
I would think an investment ISA would be quite suitable for £20k of the money if it isn't going to be used for the next 10-20 years or more. As she only has a £20k subscription allowance per year, I would use the ISA for all of the investment money, and then you don't need to worry about any tax recordkeeping on whatever investment funds she buys.
The other ~£10k of cash that will serve as an emergency fund does not really need to be in an ISA for protection against income tax, as on its own it's not going to generate enough savings interest to create a tax bill (personal savings allowance and starter rate for savings may be relevant) and cash ISA accounts generally pay a bit less than non-ISA accounts anyway. She could always move it into an ISA when next year's ISA allowance comes around. For the moment, some of the best rates for instant access are NS&I, with the premium bond product having a slightly better rate (expectation about 1.2% a year) and tax free but no guarantees that you will actually get that rate every year because of the randomness of the monthly draw.
You do mention it will be 'the only savings she has'. If the ~£20k is not for emergencies, but there is some other kind of goal for the savings (doing up the house or buying a new car or giving to family) at some point in next five to ten years, it would make sense to be be reasonably cautious about how it is invested. But if there are no obvious 'needs' on the horizon in the coming decade, more risk can be taken.
I would think 3.5% (more than double the very best cash or PB accounts) is probably ambitious for only 20% equities. As the timeframe is likely to be ten to twenty years or feasibly more (unless OP tells us differently) I would probably go at least 40% equities in a mixed asset fund, but assuming the aim is only really to avoid inflation eroding the capital there is no need to have too much on the equity rollercoaster. For the £20k in an investment fund: half equities, half not equities, could be fine, but 60%+ equities would be volatile and not ideal if the timeframe ends up being short.Nanpy said:To be honest if I hadn't seen the other people suggesting PBs I probably would have said the Lifestrategy 20 or 40%, put it in and forget about it.
Assuming a conservative 3.5% return on the Lifestrategy vs 1.5% from the PBs, you'd see about a 5 or 6k difference after ten years on 21k invested.on the PBs, you know the amount won't go down and will never have to explain a drop in valueReally PBs are a cash substitute (for the £10k) rather than an investment substitute (for the £20k).
But the point about 'never have to explain a drop in value' is a good thing to bring up, because realistically anything that has the potential to go up by 3.5% a year certainly has the potential to drop in value, and if she has not used investment funds before (other than as part of a pension where someone else manages it and she just takes a payout when she retires) she may be unnerved by seeing the £20k only be at £16k or whatever from time to time. Some people have more of a psychological need that they want to see that their nest egg is 'safe', oblivious to the effects of inflation on it.
As the person advising your mum, anything that seems to have 'gone wrong' will be at your door. So, from a peace of mind perspective it may be best to select an investment option more conservative than what you would use for the exact same timescale yourself. At the very 'bottom end' of the risk scale (e.g. only 20% equities) the prospective returns are not looking very attractive over the next decade compared to either sticking with cash/PBs for simplicity or investing 40-50% equity for better inflation protection.0 -
Apart from a private pension that doesn't mature for another couple of years
Are you sure about this , it is unusual for a pension not to pay out until 70 years old.
It maybe that this is an indicative date rather than an absolute one ?
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