£40k to invest short term - ideas please

pandora205

Hi

I'm about to inherit £40,000 which I'd like use to pay a big chunk off my mortgage but I'm tied into a fixed rate and there is a penalty of £2k+ if I repay before May 09 (and I've already paid off 10% this year which is the permitted max).

Any ideas about what to do with it until then? (Or would it pay me to pay it off anyway? I'm on 5.89% fixed rate?)

I've already put £1k into a cash ISA this year and I'm a higher rate tax payer.

Thanks

dunstonh

the timescale is too short to invest. Stick to savings options until you are able to clear some of it off the mortgage. Although do note that clearing the a chunk of the mortgage may not be the best option depending on what deals are available in 09.

pandora205

Thanks - maybe I should have said 'savings' rather than investment as this is obviously what I mean. Other than topping up my ISA (which is a cash ISA) what else could I do short term?

Thanks for any ideas.

Sykes82

If it were me i would top up the ISA first (£2600) then probably invest (save!) upto the maximum (£30k) in a safe area such as premium bonds as it sounds as though you dont wish to risk the sum. As to the balance why not try a fixed rate short term (1yr) bond?
Lets face facts at higher rate you are unlikly to get any major return without the risk.

pandora205

Thanks for the ideas. I'd already decided to top up my ISA but hadn't considered premium bonds. I already have £1k or so but it might be worth putting some more in there, as although the expected return is quite low, you never know!
You mention putting the rest in a bond - what sort? Where do I find out about these?

Thanks

dunstonh

but hadn't considered premium bonds.

And lets hope you dont consider them.

cyclonebri1

I opened a Birmingham Midshires 1 year fixed rate bond (internet) yesterday with a similar amount. Pays 6.81% for yearly paid interest and only actually opened yesterday at this rate.
May be of interest, 'scuse pun';)

pandora205

That sounds like a very good rate. I'll look into it.
Thanks

jamesd

If you could get 8% a year with little risk or 12% a year with a bit more, would you be interested enough to keep getting it instead of clearing the mortgage as soon as possible?

pandora205

Well it would make sense to do that, depending on the interest rate when I finished my fixed rate, though I've always thought it's best to pay off as much as I can to finish sooner. I've only got a few years to run (7 or so I think).
How would I get that sort of interest rate?

jamesd

pandora205, you might consider looking at these alternative options:

BlackRock UK Absolute Alpha, about 12% last year, over 6 years if last year repeated: 91% growth.
CF Arch Cru Investment Portfolio (see details), about 8% last year, over 6 years if last year repeated: 62% growth.

They don't lock you in but do provide nice stable growth. Add in something like Invesco Perpetual Income and Neptune Global Equity to provide more stock market growth. For example, you might consider:

30% BlackRock UK Absolute Alpha
20% Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

That's just an example to show you how you set the proportions of the different investments so that the stable growth ones mean you won't lose capital if the less stable ones lose all of their money (which is really unlikely - those examples are some of the best around). You can vary the proportions at any time to reflect how you think the stock markets look and how much protection you want.

So, not savings that pay interest, but a couple of so far quite predictable investments and a few more to consider as part of a mixture. These aren't the sort of thing you'd want to use if you were going to clear the mortgage in a year but you can reasonably expect to average something over ten percent a year from the set of five.