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  • FIRST POST
    • WillChronology
    • By WillChronology 14th Sep 18, 7:53 PM
    • 13Posts
    • 2Thanks
    WillChronology
    What to do with 50k inheritance
    • #1
    • 14th Sep 18, 7:53 PM
    What to do with 50k inheritance 14th Sep 18 at 7:53 PM
    Hi there - I'm a long time lurker, first timer poster.

    I recently inherited 50k and I am wondering whether you could give me some advice about what you would do with the inheritance if you were in my shoes.

    Here's my situation:
    - I am a teacher in my 30s
    - My wife is also a teacher
    - We have a 340k mortgage, the largest component of which will be paid off when I am 60
    - We have no other debts
    - Prior to the inheritance, we each had about 10k in savings (in ISAs paying 0.75%)
    - Due to recent pay rises, we can save about 1,000 per month and have been using some of this to overpay the mortgage
    - We have no children but might do in the future

    Options I have considered:
    - Using a chunk of it to chip away at our large mortgage
    - Putting the bulk of it in a 1-year fixed rate savings account (at about 2%)
    - Putting the bulk of it in an easy-access savings account (at about 1.35%)

    What I have done already:
    - Setup a regular saving (250 per month) paying 5% interest

    I know I can earn up to 1,000 per year in interest tax free. I can reach this limit with some of the options above.

    Is there anything else I should consider, e.g. anything I may have overlooked? Any advice at all would be greatly appreciated, as I want to consider all (good) options.

    Many thanks for your help.
Page 2
    • kidmugsy
    • By kidmugsy 14th Sep 18, 11:57 PM
    • 11,591 Posts
    • 8,115 Thanks
    kidmugsy
    If savings rates rise, then mortgage rates will too, and you're 9 year fix might look a lot better than your 1% above base rate currently does.
    Originally posted by Zorillo
    Agreed. I'd just had second thoughts on my earlier comments and returned here to say much the same thing as you. The OP must decide whether the risk of much higher base rates worries him. Maybe his best bet is to earn high interest on as much money as he can, and wait to overpay mortgages when his ability to get a higher interest rate on savings than he pays on mortgage interest has vanished.

    OP, if you live in East Anglia also check the regular savers at the Ipswich and Saffron BSs.

    ... which would get me close to my 1k per year in interest (tax free).
    Originally posted by WillChronology
    Then exploit your wife's 1k limit.
    Free the dunston one next time too.
    • WillChronology
    • By WillChronology 15th Sep 18, 3:59 AM
    • 13 Posts
    • 2 Thanks
    WillChronology
    The impact of a rise in interest rates does worry me. When we bought our house, that’s what motivated me to fix for 10 years.

    Currently, we’re able to save a lot of money per month, so we could in theory absorb higher monthly mortgage repayments.

    In reality, by the time rates rise, our combined income could be significantly lower, eg if we have children.

    So the mortgage is my big concern.

    That said, my wife says she doesn’t want me to use my inheritance to overpay the mortgage; she’d prefer us to jointly overpay, eg using our monthly savings, as she feels that would be fairer.
    • FatherAbraham
    • By FatherAbraham 15th Sep 18, 6:08 AM
    • 873 Posts
    • 639 Thanks
    FatherAbraham
    I'd be comfortable using some of the inheritance to overpay the mortgage, e.g. 20k, if it was the right thing to do financially. I wouldn't want to put all 50k into the mortgage though, as I'd like the possibility of accessing the funds, potentially.

    Overpaying the mortgage so that I can have it paid off before I am 60 is an appealing proposition.

    What rate of return might you expect with longer-term assets? Or is it impossible to say?
    Originally posted by WillChronology
    It's perfectly reasonable to have an expected return rate from different asset classes.

    It's also a good idea to never consider expected rate of return without simultaneously thinking about the expected variability of that expected rate return - the riskiness of the asset.

    For peer-to-peer lending with a mainstream provider, you might expect a return of 4.5% to 5.2% annual currently - together with risks that an interest rate rise will make your five-year loans less valuable, or a higher-than expected default rate will you more loss than was planned. You should hold a diversified portfolio of loans, to reduce exposure to any single borrower's difficulties.

    For equities, it's more variable than that. One might expect long-term returns of 5% to 7% per year - but any specific year is likely to deviate from that expectation quite a lot.

    Not repaying the debt now is a gamble, which can give you options - against the risks.
    Last edited by FatherAbraham; 15-09-2018 at 11:33 AM. Reason: Typo: "expected return date" -> "expected return rate"
    • Albermarle
    • By Albermarle 15th Sep 18, 9:52 AM
    • 48 Posts
    • 17 Thanks
    Albermarle
    I would at least start to think about some longer term equity based ( stocks and shares ) investment as part of an overall strategy for your finances. History says they will grow at a faster rate than any cash based investment in the long term. However timing is important and the general feeling is that markets are near a peak and there could be some kind of downward correction . So probably not the right time to make a large one off investment. One way to get partly around this timing problem is to drip feed money in . In other words start to invest a regular amount each month. Many stocks and shares ISAs or similar accept relatively low regular monthly investments .
    • Suffolk lass
    • By Suffolk lass 15th Sep 18, 10:25 AM
    • 2,084 Posts
    • 21,835 Thanks
    Suffolk lass
    I would at least start to think about some longer term equity based ( stocks and shares ) investment as part of an overall strategy for your finances. History says they will grow at a faster rate than any cash based investment in the long term. However timing is important and the general feeling is that markets are near a peak and there could be some kind of downward correction . So probably not the right time to make a large one off investment. One way to get partly around this timing problem is to drip feed money in . In other words start to invest a regular amount each month. Many stocks and shares ISAs or similar accept relatively low regular monthly investments .
    Originally posted by Albermarle
    I agree with this. You could do worse than moving your existing cash-ISA to a S&S ISA where you self-invest (Charles Stanley Direct or Hargreaves Lansdown are cheap platforms and easy to use). In this way you could learn about it with a relatively small risk to your overall position. Look at a tracker fund like Vanguard Life Strategy 60 or 80 (the number is the %in shares) and then look at shares for dividend income - maybe look at The Frugal Cottage blog where Nicola publishes her portfolio and dividends so you can see and maybe emulate her approach.

    Also, be aware that many funds are acc (accumulate their dividends) while others are inc (where they pay them to you as income), and you can switch, as your circumstances change. At your age, knowing a bit more about the stockmarket and gaining confidence is a worthwhile hobby. It could be the difference between FIRE (financial independance, retire early) and working until you are 70.
    MFiT T4 #2 update 94.29% after Q10 ahead of where I should be
    Save 12k in 2018 #53 - after August 78.83% 7,883.47/10,000
    OS Grocery Challenge 2018 spent 1,530.09/3,000 including stores 51% of my annual budget at the end of August.
    My DFD is here
    • FatherAbraham
    • By FatherAbraham 15th Sep 18, 11:37 AM
    • 873 Posts
    • 639 Thanks
    FatherAbraham
    I would at least start to think about some longer term equity based ( stocks and shares ) investment as part of an overall strategy for your finances. History says they will grow at a faster rate than any cash based investment in the long term. However timing is important and the general feeling is that markets are near a peak and there could be some kind of downward correction . So probably not the right time to make a large one off investment. One way to get partly around this timing problem is to drip feed money in . In other words start to invest a regular amount each month. Many stocks and shares ISAs or similar accept relatively low regular monthly investments .
    Originally posted by Albermarle
    The "general feeling" is already reflected in asset prices - that's what asset prices are!
    • kidmugsy
    • By kidmugsy 15th Sep 18, 3:36 PM
    • 11,591 Posts
    • 8,115 Thanks
    kidmugsy
    That said, my wife says she doesn’t want me to use my inheritance to overpay the mortgage; she’d prefer us to jointly overpay, eg using our monthly savings, as she feels that would be fairer.
    Originally posted by WillChronology
    Dismiss all talk of "fairer". Money's money. You should use it jointly to your joint best advantage.

    I realise that you can hardly say to your wife "oh, do grow up, dear" but I'm sure you can find a diplomatic way to phrase it. Perhaps something along the lines of "marriage is an arrangement designed to protect wealth and those property rights that are necessary or prudent for raising children in security and comfort": you could paraphrase that as a start.

    Then all you need to do is decide jointly how best to deploy the money, both the surplus income and the inheritance. Ditto if your wife should receive a windfall.
    Last edited by kidmugsy; 15-09-2018 at 3:41 PM.
    Free the dunston one next time too.
    • atush
    • By atush 15th Sep 18, 4:43 PM
    • 17,179 Posts
    • 10,742 Thanks
    atush
    Do you want to retire at scheme age? Or early?

    If early, id be looking to a- boost savings in cash as 10K isnt enough, b- open S&S isas and DC pensions which you can draw on while leaving your DB pensions to pay out in full (if you are both fit and healthy, taking DB pesnions early can be costly)
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