Where to invest inheritance?

Retireby40

I work full time earning about 25-27k a year, I inherited my current property that a live in so I have 0 mortgage. No kids yet. Will do in next 3-5 years (hopefully).

I dont need to draw an income from the investment. It would be basically buy the house, rent it out pay all what needs and hopefully have a return greater than what the banks are offering. It could also be available to live in further down the line again if circumstances change. 

Thrugelmir

Seems that you know what you wish to do. Unsure what advice you are seeking. As you already have all the answers. 

Retireby40

Thrugelmir said:

Seems that you know what you wish to do. Unsure what advice you are seeking. As you already have all the answers. 

No I definately do not know what to do. I have an idea based on my workings out and which idea seems better, however having little experience in stocks&shares, or other investment options I thought I would ask here. Theres people with much more knowledge than me.

And while your suggestion about my pension is good unfortunately i dont want to lock my money away for 25-30 years. Which I may or may not ever see. Hence my reluctance. At least with the house if I need to live in it I can, if I need to sell it I can. If I want to leave it in my will to someone I can. And while I have to pay tax on my rental income some other party (the tenant) is contributing to my overall end pot.

Aceace

It seems that you've done a fair bit of research into BTL and if it flaots your boat then give it a go. However, I think it has 3 big problems: 

1. Your calculations forecast a fairly poor return even if it all goes smoothly. 
2. It seems like a high risk option to me as all your eggs will be in one basket. 
3. In my experience,  your assumption that appointing a managing agent will make everything run smoothly is very optimistic. 

My partner has a BTL. Some years it runs smoothly, some years it doesn't. When it doesn't it causes her lots of stress. The last couple of years have returned a net rent of almost £0. This was due to a couple of months between tenants and many maintenance issues that were made worse by incompetent agents. Changing agents made no difference. When she asked around for recommendations for agents the ones she'd tried were thought of as the best of a bad bunch. She's decided to sell up when the current tenants leave and do something less stressful with it.

For what it's worth, I had a couple of inheritances recently and this is what worked for me. I put half of it in shares. I'd tried lots of experiments with shares in the past and had already worked out that trying to beat the markets was a fools game (or perhaps I was just very bad at it), but what did work for me was investing in global trackers within an ISA. You can just chuck the money in and forget about it for many years. I chose Vanguard's LifeStrategy funds, but have recently switched to their VWRL ETF. Other similar options are available.
I put the other half in various P2P platforms. I found these to be great fun, and it's now become a major hobby for me. They've also been outperforming my shares, but I do spend a lot of time on them. The major problem for a newbie is in determining which are good platforms and which are not. Many have lost lots of cash on the bad ones. This investment sector gets a pretty rough ride on this forum, but I've found it to be very profitably and there are options across the risk/reward spectrum. The FCA say that newbies shouldn't put more than 10% of their investment pot in P2P, so not suggesting that you copy my 50/50 split. However, once you've invested in one you're considered by them to be a Sophisticated Investor, so no limits,  which shows how useless the FCA are. 
I get lots of exposure to property through my P2P investments, but another way to do it would be to invest in REITS. You would then be diversifying over lots of properties, which would be lower risk than investing in a single BTL. 
Good luck whatever you choose.  It's a nice problem to have. 

Retireby40

Aceace said:

It seems that you've done a fair bit of research into BTL and if it flaots your boat then give it a go. However, I think it has 3 big problems: 

1. Your calculations forecast a fairly poor return even if it all goes smoothly. 
2. It seems like a high risk option to me as all your eggs will be in one basket. 
3. In my experience,  your assumption that appointing a managing agent will make everything run smoothly is very optimistic. 

My partner has a BTL. Some years it runs smoothly, some years it doesn't. When it doesn't it causes her lots of stress. The last couple of years have returned a net rent of almost £0. This was due to a couple of months between tenants and many maintenance issues that were made worse by incompetent agents. Changing agents made no difference. When she asked around for recommendations for agents the ones she'd tried were thought of as the best of a bad bunch. She's decided to sell up when the current tenants leave and do something less stressful with it.

For what it's worth, I had a couple of inheritances recently and this is what worked for me. I put half of it in shares. I'd tried lots of experiments with shares in the past and had already worked out that trying to beat the markets was a fools game (or perhaps I was just very bad at it), but what did work for me was investing in global trackers within an ISA. You can just chuck the money in and forget about it for many years. I chose Vanguard's LifeStrategy funds, but have recently switched to their VWRL ETF. Other similar options are available.
I put the other half in various P2P platforms. I found these to be great fun, and it's now become a major hobby for me. They've also been outperforming my shares, but I do spend a lot of time on them. The major problem for a newbie is in determining which are good platforms and which are not. Many have lost lots of cash on the bad ones. This investment sector gets a pretty rough ride on this forum, but I've found it to be very profitably and there are options across the risk/reward spectrum. The FCA say that newbies shouldn't put more than 10% of their investment pot in P2P, so not suggesting that you copy my 50/50 split. However, once you've invested in one you're considered by them to be a Sophisticated Investor, so no limits,  which shows how useless the FCA are. 
I get lots of exposure to property through my P2P investments, but another way to do it would be to invest in REITS. You would then be diversifying over lots of properties, which would be lower risk than investing in a single BTL. 
Good luck whatever you choose.  It's a nice problem to have. 

First class post thanks very much. As a newbie did you find Vanguard easy to run and manage? 

Aceace

Yes I did,  the website isn't the best, but I worked it out fairly easily. Just shout if you need help. 

DiggerUK

Retireby40, it appears that the detailed reply from Aceace has found some resonance with you. 

Their strategy is totally different to mine, but they do give a level headed warning of downsides; ignoring downsides is a mistake many people end up doing. I hope they  have dissuaded you from BTL and not filled you with enthusiasm for P2P.

As to the info you replied with. £25-27k is a modest income, but with no housing costs it is ample.
I can see why you are not in dire need of income, but note that you don't want to tie money up in a pension you can't touch for decades yet. I'm sure you don't just want basic state pension in later life and would like to build savings for the journey as well as for when you retire. I'll leave others to advise on the many options available.

You are clear you don't know everything, so I can take it for granted that you know sweet f.a. about gold, all I can ask you to do is find out about it. You are reliant on capital/asset/value growth going forward and it must only be considered for the long term, it's very liquid.
Digger Mansions has all its retirement savings in UK legal tender, a decision we have no reason to regret in retirement..._

steampowered

Retireby40 said:

I also have no idea about stocks and shares either which could be an avenue. Any experts fancy looking at the figures and advising me I would be grateful.

You are probably going to be best off investing in stocks & shares. This is easy to do - you just open an account with a broker like Hargreaves Lansdown or Interactive Investor.

This has the following advantages:

- It's very easy. These days you do not need any particular expertise because you do not have to try and pick specific shares. You can choose an investment fund like Vanguard Global All Share, which invests in thousands of different shares in different stock markets globally. That way you are diversified so your returns match the average performance of the entire stock market, not just the performance of a small handful of specific companies. 

- The returns are good. The average long term return generated by the stock markets is about 7-8% per year.

- It's tax efficient. If you invest through a stocks & shares ISA, your returns are completely tax free. You can invest up to £20k per year this way. Compare that with BTL where you have stamp duty, income tax on the rent, capital gains tax on sale.

- It's flexible. You can easily sell some or all of your portfolio at any time. Contrast that with BTL - where the only way to release cash is to sell the property or remortgage.

- It's hassle free. You can just choose a suitable investment fund and leave it there. No need to manage tenants or letting agents.

The other option to consider is a SIPP pension - which is a stocks & shares type of investment. The disadvantage is that you lock away the money until retirement. The advantage if that you get tax relief from the government added on top (20% if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer).

Retireby40

steampowered said:

Retireby40 said:

I also have no idea about stocks and shares either which could be an avenue. Any experts fancy looking at the figures and advising me I would be grateful.

You are probably going to be best off investing in stocks & shares. This is easy to do - you just open an account with a broker like Hargreaves Lansdown or Interactive Investor.

This has the following advantages:

- It's very easy. These days you do not need any particular expertise because you do not have to try and pick specific shares. You can choose an investment fund like Vanguard Global All Share, which invests in thousands of different shares in different stock markets globally. That way you are diversified so your returns match the average performance of the entire stock market, not just the performance of a small handful of specific companies. 

- The returns are good. The average long term return generated by the stock markets is about 7-8% per year.

- It's tax efficient. If you invest through a stocks & shares ISA, your returns are completely tax free. You can invest up to £20k per year this way. Compare that with BTL where you have stamp duty, income tax on the rent, capital gains tax on sale.

- It's flexible. You can easily sell some or all of your portfolio at any time. Contrast that with BTL - where the only way to release cash is to sell the property or remortgage.

- It's hassle free. You can just choose a suitable investment fund and leave it there. No need to manage tenants or letting agents.

The other option to consider is a SIPP pension - which is a stocks & shares type of investment. The disadvantage is that you lock away the money until retirement. The advantage if that you get tax relief from the government added on top (20% if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer).

Thanks very much for the useful info. I'm of this week and going to do some research on Vanguard and a few other investing site.

In regards to the previous poster about gold. You are 100% right I have no idea about buying, selling or investing in gold. Apart from hoping i would find a pot of it one day i have no thoughts on it. Again something i could look into.

Thanks again folks for the useful info.

Aceace

If you only want to hold Vanguard funds then you may as well open an account directly with them as you'll pay lower fees than you would with HL.