Need to invest a lump sum.. any good strategies?

JonBr

Morning

Here's my situation. I'm about to downsize the house (paying off the mortgage) and will realise a sizeable lump sum in equity. I'm recently retired, living on savings and my wife has a part time job. We would like to invest the money with the following in mind:

• Mostly low risk, guaranteed return - such as fixed interest savings
• Less than £85k per account (to benefit from FSCA protection)
  
• Maximise returns
• Minimise tax payable

I guess that is the wish list of all savers! I'm as capable as anyone else of looking up top savings rates so what I am asking is, what suggestions do you have for a strategy?

So far I have come up with a mix of the following:

• Cash ISAs for me and my wife, £20k per (but must be chosen carefully as I see that the rates are lower and sometimes what you get is less than if you'd paid tax on a non ISA account). If (relatively) beneficial, shunt 20k per account from bonds every tax year to reduce tax paid on the rest.
  
• A range of fixed interest bonds (1yr, 2yr, maybe longer) spread across financial institutions. This means I would miss out on the highest rate for a proportion of the invested funds (because there is only one top spot on any comparison table, right?) .
• Maybe something higher risk like an Intelligent Finance (peer to peer) ISA (replacing one or both of the cash ISAs above).

This is a simple scheme, but am I missing something? Some tax break or other approach? Some of it would be used to live on so maybe an income type bond that pays monthly, or instant access while the rest of it is tied up on bonds?

I think I will wait until the next BoE rate hike before committing any funds to bonds. That's 3rd Nov '22, so I will have to do something with the funds in the meantime.

Thanks in advance for your advice and suggestions.

lohr500

Short term, once the proceeds of the house come through, why not open a joint eSaver instant access a/c with Santander. It is paying 2.75%.
Assuming you don't have any other funds sitting with Santander you will have £170k FSCS protection cover on the cash. Then, as you say, see what rates are available after the next BoE announcement.
If the house sale is going to release more than £170k, then spread the risk by opening a series of instant access a/c based on best rate first. Just check to make sure any institutions you chose don't share the same FSCS protection.

We've just opened a Santander eSaver joint account today and transferred the funds we had sitting in a Marcus easy access account.
Because of the increased saving rates that are now available, we are also cashing in our entire Premium Bond holdings after the next draw. Short term I will be lodging those funds in the Santander a/c and like yourself, I will then look at what's on offer after the next BoE statement. 

Albermarle

 I'm recently retired, living on savings

Do you, or your wife, have any pension provision? or any investments ?

Are you both a few years from receiving the State Pension? and are you both on track to receive the maximum amount?

• Maybe something higher risk like an Intelligent Finance (peer to peer) ISA (replacing one or both of the cash ISAs above).

Most people ,looking for some more risk/potentially higher returns would look at stocks and shares, either in a S&S ISA, or in a pension. Peer 2Peer has been a bit of a Wild West journey, and should only be seen as a small part of any overall strategy.

JonBr

Albermarle said:

 I'm recently retired, living on savings

Do you, or your wife, have any pension provision? or any investments ?

Are you both a few years from receiving the State Pension? and are you both on track to receive the maximum amount?

• Maybe something higher risk like an Intelligent Finance (peer to peer) ISA (replacing one or both of the cash ISAs above).

Most people ,looking for some more risk/potentially higher returns would look at stocks and shares, either in a S&S ISA, or in a pension. Peer 2Peer has been a bit of a Wild West journey, and should only be seen as a small part of any overall strategy.

Yes, we both have pensions. Mine is roughly the same size as the house equity amount, and is in a Legal & General multi fund scheme that alows me to switch at will. Currently held in a cash fund (I pulled it out of a US equity fund just after Ukraine was invaded, dodging some losses). I'm looking to "buy the dip" as the Americans say.. waiting for a good time to re-invest it into a stock fund.

Because of this, I think the house equity shouldn't be invested in stocks (for the purposes of diversification).

We also have cash savings worth something like 50% of the house equity. These are currently offsetting the mortgage or sitting in low interest savings account. There are some premium bonds in there as well.

I had a Zopa IF ISA and did very well out of it. It was returning ~4% when all other ISAs were returning 0.5%. But Zopa converted itself to a bank and closed all the IF ISAs down, returning all funds to investors. Now there's not so much choice and I'm not sure I want to accept the risk.

Bigwheels1111

I’m in a similar situation, Have cash from house and savings, need income.
All stashed in Santander 2.75% + Al Ryan 2.35% Gatehouse 2.0% all easy access, might switch to Synergy next week.
As you are not working you are free to get up to £18570.00 tax free a year.
Will need to file a tax return if saving interest goes over 10k.
I would think about ditching the isa and get a better savings rate.
My plan was to get several 5 year fixed accounts at 5% and interest paid yearly into my bank.
Now 5% is already here, I was expecting to take a loss now and wait until February and 3 more rises.
I’m now thinking 6% could be on its way.
But there’s a point at which I will fix, not sure exactly when.
I will fix and be happy knowing how much income I have for 5 years.
If rates keep rising I will loose out but that’s life.
18 months ago it was 0.5%.
I will keep an emergency fund of 15k in easy access, just in case.

Silverbullet036

@Bigwheels1111 You say a tax return is needed for over £10k interest income. Is this total inclusive of ISA interest ?

Albermarle

Silverbullet036 said:

@Bigwheels1111 You say a tax return is needed for over £10k interest income. Is this total inclusive of ISA interest ?

No, any interest generated within in an ISA, is of no concern to HMRC.

Bigwheels1111

Silverbullet036 said:

@Bigwheels1111 You say a tax return is needed for over £10k interest income. Is this total inclusive of ISA interest ?

NO, ISA not counted.

But I would ditch the ISA as standard rates are so good and you will not pay tax anyway.

If you had 300K at 6%, thats 18k interest a year so under the limit. Only just.

Whatever you do, dont put more than 80K in each savings bank.

80K with interest @ 5% is 84k and under the FSCS protection.

So if bank goes under you get your money and interest back.

Work out how much you are saving and expected interest over X years.

Might be worth paying some tax if need be, as ISA rates are worse than savings even after tax.

steampowered

I really think you should consider putting a portion of your money into the stock market, ideally using you and your spouse's Stocks & Shares ISA allowances.

These days it is very easy to invest in "stock market tracker funds". Those funds invest across all of the major companies in all of the major global stock market. The idea is that you get the average performance of the markets. That is the modern approach to investing and is much lower risk than holding shares in an individual company: if one company in your fund goes bust that doesn't have much impact on the overall fund, as each individual company is only one small component. 

As you have a low risk appetite, you should not invest funds which you are likely to want to access within the next 5 years.

However, if this money is intended to last for your retirement, you should really consider investing money that you will want longer term than that.

Over long time periods, it is not true that stock market investments are higher risk than cash savings. After a few years the up and downs of the stock market average out, but cash savings face inflation risk. Inflation is currently running at 12% a year, what do you think that does to your savings if you are only getting perhaps 4-5% interest? Stocks are much more likely to keep pace with inflation.

steampowered

JonBr
Maybe something higher risk like an Intelligent Finance (peer to peer) ISA (replacing one or both of the cash ISAs above).

There's no FSCS protection on P2P investing.

Personally, I would not touch P2P with a bargepole.

There is a risk of losing your entire investment: so it is much higher risk than a stock market tracker fund, for example (you are never going to have a situation where the entire stock market - literally every major company in the world - goes bust). Yet P2P has lower potential returns than a bog standard stock market investment. The risk/reward is just not worth it.

Silverbullet036

Bigwheels1111 said:

snip

Thank you for the reply

I just figured that as long as I kept under the usual tax free totals everything would just sail along. Had no idea I would have to do a tax return , this does not interest me one tiny bit. Never ever done one and dont particularly want to start either. I may just have to whack some in an ISA wrapper and take the lower rates on offer