Lump sum redundancy £24k - how to maximise it?

GemmaC · 27 November 2011 at 1:35AM

I am about to receive a lump sum of approximately £24k due to redundancy. I have been very fortunate in that I was likely going to resign from my job after maternity leave, so this money is a huge and unexpected bonus. We are in our late 20s, have 1 child and no debt apart from a mortgage of around £190k (which we aren't looking to pay off quickly due to it being at a rate of 1.49% currently). I want to set up my own business at some point but won't need a huge sum like this to do it and it's not something that will be happening immediately. We have filled our ISAs for this year so will need to find somewhere to put this money to maximise its interest. But it got me thinking about whether there are any fairly low-risk investments I should be making with it instead of putting it in a standard savings account, in order to maximise the money for the future? Has anyone got any advice? I would love to buy another property (as a project or to rent possibly) but we aren't in a position to be able to do this, it's not enough money with our other savings to be a substantial enough deposit and I don't really want to remortgage as we're on such a good deal at the moment. Plus with me not earning I'm not sure we'd be able to borrow enough on my Husband's money alone.

opinions4u · 27 November 2011 at 7:24AM

While I wouldnt for a second suggest property is a good investment at this point in time, as I don't see anything in the next five years that will give growth of any significance, have you looked in to Buy to Let mortgages? You could probably get a 75% loan on a £90k property.

But look in to the pitfalls (values falling, rates rising, tenants damaging, no tenant, legal reponsibilities such as gas) before committing to it.

While you're working it through, stick your money in an easy access account paying in excess of 2.75%. Link at the top of the page will help.

Another alternative to property would be to top up your partner's pension scheme. Kick off a Junior ISA for your young one. Start off a stocks and shares ISA with a view to funding school fees / uni fes with it. Don't rule out spending it on nice things. A more fuel efficient car for example. Consider things that will reduce other bills, such as improving the heat efficiency of your home (boiler, loft insulation). uPVC windows.

atush · 27 November 2011 at 9:32AM

You don't have a job, so can't get another mtg. I'd put thst pipe dream on the back burner.

Are you going to look for another job in the short term before you set up your business? Full time? Part time? Do you and your OH have pensions? What other savings and investments apart from this years 10.6K in cash ISAs? Do you have 6 months outgoings in cash?

I would suggest for the short term you put it into the highest interest savings acct you can find. Say 10K into a one year fixed rate and the rest into easy access to mas the interest. If you are lucky, in spring nexct year NSI will release a new tranch of ILSCs which you culd put the 14K into that would pay inflation +. Right now, your biggest problem going forwards would be inflation eating away at your 24K.

There isn't really a non cash risk free way to invest your money. One thign that is lower risk that most, it to invest a small amt per month (25-100 per month) into an investment ttrust savings plan. One of the big generals like Witan or Alliance. They invest all over the world (not just the UK) and as you are putting in the money monthly, you can combat market volatility thru Pound Cost Averaging. Costs/charges are low for investing this way and it builds over time into a nice pot.

qpop · 27 November 2011 at 11:42AM

atush wrote: »

You don't have a job, so can't get another mtg. I'd put thst pipe dream on the back burner.

Are you going to look for another job in the short term before you set up your business? Full time? Part time? Do you and your OH have pensions? What other savings and investments apart from this years 10.6K in cash ISAs? Do you have 6 months outgoings in cash?

I would suggest for the short term you put it into the highest interest savings acct you can find. Say 10K into a one year fixed rate and the rest into easy access to mas the interest. If you are lucky, in spring nexct year NSI will release a new tranch of ILSCs which you culd put the 14K into that would pay inflation +. Right now, your biggest problem going forwards would be inflation eating away at your 24K.

There isn't really a non cash risk free way to invest your money. One thign that is lower risk that most, it to invest a small amt per month (25-100 per month) into an investment ttrust savings plan. One of the big generals like Witan or Alliance. They invest all over the world (not just the UK) and as you are putting in the money monthly, you can combat market volatility thru Pound Cost Averaging. Costs/charges are low for investing this way and it builds over time into a nice pot.

Generally BTL mortgages are assessed on commercial terms.

As a rule of thumb if the rent receivable = 130% of the interest-only mortgage payment, that is typically enough for a loan approval.

Also, whilst investment trusts are a sensible investment, they wouldn't typically be considered "low risk" -given the combination of gearing, equity content, the extra risk over open-ended vehicles for the widening of the discount to NAV.

atush · 27 November 2011 at 1:05PM

no, they wouldn't be risk free but then again BTL isn't either. But Pound Cost Averaging can take the risk of downfalls re lump sums out of that equation. And investing 25+ per month is not going to risk much of the capital.

And in the current climate, banks are not assessing BTL on strictly commercial terms as in the past. They want coverage for up to 6 months or more void periods. I also feel that unless the OP is working, it is very risky to put all her 24K into one basket of a single rental property.

competitionscafe · 27 November 2011 at 3:58PM

GemmaC wrote: »

I want to set up my own business at some point but won't need a huge sum like this to do it and it's not something that will be happening immediately.

I have no idea of what kind of business you want to start, but people often underestimate start-up and/or ongoing costs.

Lack of cashflow is one of the main reasons for new businesses failing. (Although of course it would also not be a good idea to continue to pump money into a business which was failing or likely to fail for reasons other than just the lack of cashflow).

Suppliers/clients can pay late or if you are unlucky go bankrupt and don't pay at all. Additional unexpected costs or problems can arise for other reasons too. So always allow for the unexpected and set aside more than you think you will need.

darkpool · 27 November 2011 at 4:11PM

some of the infrastructure funds look ok. HICL infrastructure yields 5.5% or something. i wouldn't put the full 24 in though.

kidmugsy · 30 November 2011 at 12:53AM

Given that you already have a property with a very large mortgage, it would be the opposite of diversification to buy more property. Go for cash on instant access with the hope of filling cash ISAs and ILSCs in the new tax year after April 5th. Also, now you are down to one income, is it worth insuring against loss of job/income? I've never done it: has anyone here found it worthwhile?

sabretoothtigger · 30 November 2011 at 1:49AM

no debt apart from a mortgage of around £190k (which we aren't looking to pay off quickly due to it being at a rate of 1.49% currently)

This is easy, maximum gains with minimum loss is to reduce and secure debt costs. Use the money gained to fix your mortgage rate for 10 years, get the best deal possible.
Usually this will require a higher deposit to get a good fixed rate so your money is of immediate use in securing this possibility

I dont expect this choice to be taken but Im certain its the highest return to risk possible. They just did the budget, its absolutely awful how much money UK has to borrow to 2014 and further
It should help illustrate they cannot fund that debt at continuing low rates, like europe we will be raising rates to finance budget deficits and stop inflation

Lump sum redundancy £24k - how to maximise it?

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