30k : where would you invest?

pluralises_everythings

Evening, lovely MSE'rs!

Demographics: Age: 40, married, planning on children in the next 1-2 years. Stable job.                                   
Mortgage: 230k left and 20 years, 2.81% fixed for another 16 mos. No other debts.                                   
Cash ISA: 26k (incl. emergency fund) // S&S ISA: 3k // Baby fund 4k.                                   
Current pension pot: 31k. Contributing 4% + employer @ 10%                                   
Attitude to risk: Med. Pension age: 60, please?

Q1: I have a 30k lump sum that I can invest. What would you do?

Max out pension annual allowance? Max out ISA S&S? Overpay mrtg (can do up to 10% annually) ? Something else entirely?

Q2: Based on our budget, I can put away 1000/mo. Where would you suggest I put it?     

Thank you Appreciate it so much!                            

El_Torro

Your pension seems a bit on the low side, especially if you’re planning to retire at 60. I would at least consider increasing your pension contributions above the current 4%.

For tax efficiency all your £30k should go into the pension, assuming you earn enough to put it all in one go. However a S&S ISA would be more flexible. If there’s a good chance you’ll want to access some of the money before retirement then maybe don’t put all of it in pensions.

One more thing, move your cash from the Cash ISA to Premium Bonds.

TheAble

I'd put it into a s&s ISA for the flexibility. But your pension pot is way too low - I'd significantly increase your contributions.

Thrugelmir

Pension pot value is very low for someone aged 40. To achieve a decent pension by 60 is going to take some saving. 

Alexland

2.81% is a high mortgage rate these days - ouch! Some lenders will let you go onto a new rate without penalty 3 months in advance (you can sometimes even arrange this a further month in advance) to encourage you to stay with them. Would improving your LTV get a better rate next time? Of course this isn't an exact science because you don't know how the lender will value the property when rearranging the deal.

Without knowing your income it still sounds like 4% (14% total) contribution isn't anywhere near enough to stand a good chance of retiring at 60 especially as you have only accumulated £31k in pensions during the past couple of decades of being an adult. Consider what retirement planning your spouse is doing as you may hope to spend much of it together sharing costs and consider the income for either of you as last survivor.

Medium attitude to risk (eg 50-60% equities) is only really useful when you are getting into the final decade before withdrawing the money. Over a longer period a more adventurous asset allocation (80-100% equities) should on average do better. Try to develop a mental resilience to the market volatility (see it as an opportunity for new contributions to buy more at lower prices) than supress it by investing in low growth assets such as bonds that will just get eroded by inflation.

Hope the children plan goes well - we found life got a lot harder!

steampowered

I would put the money into a S&S ISA or into the pension.

Your mortgage is very expensive. It could be cheaper to remortgage onto a competitive rate now, even if that means an early repayment charge. If a small push from this lump sum would get you into the next LTV band and onto a cheaper rate, that might be worth doing.

As others have said, you may wish to up pension contributions. 14% might sound like a lot; but remember your retirement could last as long as your working life.

pluralises_everythings

Thank you so much for your feedback which I will very much follow - you guys are amazing, really appreciate it

Thrugelmir

Would overpaying the mortgage enable you to move into a lower LTV band when your current product expires?  

pluralises_everythings

Thrugelmir said:

Would overpaying the mortgage enable you to move into a lower LTV band when your current product expires?  

It would take about 25k of the lump sum to take us to the next LTV... according to the results from the MSE MBBs another fixed rate mortg with current rates could mean app £250 less monthly payments.

Type_45

What I would personally do:

I'd use my £20k per year ISA allowance before April 5th and stuff as much of the £30k as you can in a stocks and shares ISA (Vanguard Life Strategy 100% equity accumulator).

After April 5th, I'd put the rest of it in the same Vanguard ISA.

You also need to focus on paying a lot more into your pension (it should be £100k at your age), and pay your mortgage (which looks a lot) down.

I am not a professional, nor a particularly knowledgeable person. I am just an average Joe giving you my 2 cents. 

mightbedave

Like others have said I would definitely be paying more into your pension. You will really need to do that if you want to retire at 60 unless you have a working spouse in a well paid job, or unless you are expecting your salary to be a lot higher as you approach retirement.

Also you say you are planning to have children in 1-2 years. Lets assume that you have 2 kids (as you said children rather than a child) over the next 4 years. They will be aged 16-18 when you want to retire so will still be financially dependent on you and who knows what uni fees will be like by that time!