Best way to make £150k work?

GinnyBee

Hi,

We are selling some assets and hoping to get about £150k to put into savings. It could be a bit less, but I think we can count on having around £100k to play with. This is all there is, we are not high earners and not currently able to save much on a monthly basis, so we want to be smart and safe about it. Savings accounts are an obvious answer, since there are still some offering pretty decent rates, but I wonder how long that will continue and also if there are better things to do. The money won't clear until next summer at the earliest anyway, so I have time to plan and research, but also the savings rates have time to change completely.

I've toyed with the idea of getting a rental property. I'm originally from Finland and looking at properties available I could get a nice 1-bed in a university town for less than 100k€ with monthly rental income around 600-700€. Minus letting agent fees, monthly service charge (covers things like maintenance etc) and taxes at 30% I'm unsure whether that's actually going to generate much in additional income whilst keeping the money tied to a property. Can anyone offer any advice and experience with owning an investment property?

I'd also like to ensure we can pay for future private school fees, and it would need to grow before the time comes. Our little one will be starting reception in 2026 and we'd want him in private for secondary school, so that's, what, 10 years away? 10 years to pretty much double the money if possible, to pay school fees without rinsing the whole lot. Is that realistic?

Albermarle

You do not say what your more long term financial plans are.
For example are you building up pension for retirement?

Otherwise the usual advice on here is not to get involved in buying/renting properties, unless you are an experienced landlord. Just having one property is quite risky. I do not know about Finland but in the UK there are a lot of rules you have to follow.

Normally with a 10 year timeframe, it would be recommended to invest most of the money. There is a small chance that it will not grow, but you would have to be unlucky. Also do not forget that if it today costs £100K to send a child to private school for 7 years, then in ten years time it will cost more. So whatever you do with it it you have to at least beat inflation, before you see any real growth.

GinnyBee

Thanks. Yes I suppose some retirement plans should be part of it. I know next to nothing about pensions, we both only have whatever private pensions we have through our workplaces with the minimum contributions.

Invest how? Stocks & shares or something?

InvesterJones

GinnyBee said:

I'd also like to ensure we can pay for future private school fees, and it would need to grow before the time comes. Our little one will be starting reception in 2026 and we'd want him in private for secondary school, so that's, what, 10 years away? 10 years to pretty much double the money if possible, to pay school fees without rinsing the whole lot. Is that realistic?

10yrs to double the money means a return of about 7% annually, compounded. Is the double the money requirement already accounting for inflation? If not, (ie it's double the money at today's prices), then not very realistic - you'd probably have to correctly predict which market was going to grow the most in the next 10 years. If inflation was already considered so just a 7% actual annual return then maybe you'd get it with a global investment (ie a bit more diversified and less requiring you to pick a winner in advance), though it's still at the upper end of various predictions. Then there's tax...

The other problem is with 10 years (and a fixed exit point) you don't really have the luxury of waiting out a downturn (in either equities or house prices), so chasing higher returns via more volatility is probably a bad idea. You might be able to do something like equities (stocks/shares) for the first 7 years and then de-risk into bonds for the final 3. Or depending on your tax situation, just getting some single gilts now and knowing you'll get the rate of return no matter what, might be worth consideration.

Albermarle

GinnyBee said:

Thanks. Yes I suppose some retirement plans should be part of it. I know next to nothing about pensions, we both only have whatever private pensions we have through our workplaces with the minimum contributions.

Invest how? Stocks & shares or something?

You are not alone in knowing next to nothing about pensions. However you would also not be alone if you got  to 60/65 and realised you can not afford to retire.
If you do not do anything else, check if your employers will increase their contributions if you increase yours. Even if they will not, think about increasing yours anyway. Only making minimum contributions will result in a too small pot in the end. 

Your pensions will be invested in stocks and shares, as it is seen as the best way to grow your money in the long term without taking too high risks. So this would also be the suggested route for some of the £150K .It sounds like you need to start doing some reading about investing.
 £150K is a lot of money.

Pensions & Investing - MoneySavingExpert

Albermarle

I agree with the above.
Your child might be happier with living in a nicer house, with good holidays and Mum & Dad being able to help out later with Uni costs and a deposit for a house, plus you  maybe even being able to retire early.
There is no guarantee that the £150K cost of a private school for 7 years will bring the desired result, although it might.
It is a personal choice though of course.

jimjames

GinnyBee said:

I've toyed with the idea of getting a rental property. I'm originally from Finland and looking at properties available I could get a nice 1-bed in a university town for less than 100k€ with monthly rental income around 600-700€. Minus letting agent fees, monthly service charge (covers things like maintenance etc) and taxes at 30% I'm unsure whether that's actually going to generate much in additional income whilst keeping the money tied to a property. Can anyone offer any advice and experience with owning an investment property?

With those prices in Euros I assume you're looking at buying outside the UK. In addition to the normal problems with rental property you're then managing a property remotely as well as currency conversion issues. Probably much better idea to invest in share based investments.

GinnyBee

Thanks everyone. We own our home without mortgage, so even though our salaries aren't huge, we are relatively comfortable. When we stop paying nursery fees we will be able to start saving again. The expectation of having at least £100k to save/invest includes potentially "downsizing" from this house to something in the ballpark of £450-500k if we get below asking for the other assets. So our kid should be ok around here in a private school! We're in the Midlands. My husband wants to send our little one to the same school he went to, and there's some kind of alumni discount, but it'll still be expensive.