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Investments

Discuss investments with other users on our Investment forum. For more advice read our tips for saving for your child's future.

250k windfall - investment options

24 replies

Hooplahooping · 12/09/2023 19:46

A slightly surprise windfall (an unmarried uncle died recently - and his frugal lifestyle meant he left a very significant chunk of money) means my husband and I have come into about £250k recently.

we have worked hard + don’t live beyond our means - and we have a solid ten year plan which we don’t feel the need to mess with. He also left 80k to each of our children so they’re going to be ok…

appetite for risk is medium to low. Energy to be involved in an investment is medium to high.

Appreciate this is an extremely fortunately position to be in - but what would those of you that understand money do…?

OP posts:
ClematisBlue49 · 12/09/2023 19:59

Congratulations on your windfall, although sorry for the loss of your uncle. What I would do:

  1. £50K to Premium Bonds (number of prizes has risen of late and gains are tax free)
  2. £40K into Stocks & Shares ISAs for both of you, invested over the next 12 months into funds / ETFs / Investment Trusts according to your risk appetite. (Tax free gains)
  3. £150K into UK Gilts or fixed term savings accounts, from which you can transfer another £40K into the ISA's next year, and so on. The advantage with Gilts is that if you can buy them below par but with a low coupon, when they mature, the capital gains are tax free, and you are only taxed on the interest. The advantage of savings accounts is that the rates are currently good and, to my mind, they are much simpler to understand than Gilts, but you will have to pay tax on the interest.
  4. £10K on a great holiday for the family.
TheFlis · 12/09/2023 20:02

What are your long term goals that the money could assist with at some point? Retiring early? Upsizing? Travelling? Starting a business?

nc14 · 12/09/2023 20:04

I came into a similar amount of money recently and agree with @ClematisBlue49. That is broadly what I did with the money.

Hooplahooping · 12/09/2023 20:05

ClematisBlue49 · 12/09/2023 19:59

Congratulations on your windfall, although sorry for the loss of your uncle. What I would do:

  1. £50K to Premium Bonds (number of prizes has risen of late and gains are tax free)
  2. £40K into Stocks & Shares ISAs for both of you, invested over the next 12 months into funds / ETFs / Investment Trusts according to your risk appetite. (Tax free gains)
  3. £150K into UK Gilts or fixed term savings accounts, from which you can transfer another £40K into the ISA's next year, and so on. The advantage with Gilts is that if you can buy them below par but with a low coupon, when they mature, the capital gains are tax free, and you are only taxed on the interest. The advantage of savings accounts is that the rates are currently good and, to my mind, they are much simpler to understand than Gilts, but you will have to pay tax on the interest.
  4. £10K on a great holiday for the family.

This is so helpful - what I would give for such an organised mind… thank you!

OP posts:
Chasingsquirrels · 12/09/2023 20:06

I'd also consider your pension provisions and whether it would be worth faddutinal contributions.

Hooplahooping · 12/09/2023 20:07

TheFlis · 12/09/2023 20:02

What are your long term goals that the money could assist with at some point? Retiring early? Upsizing? Travelling? Starting a business?

We’d love to retire a bit early - my husband and I would love to work together on something, but we have zero clever business ideas!

OP posts:
AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

Plexie · 12/09/2023 20:14

For starters, when you receive the money, I'd split it across different banks/building societies, so that you're covered by the £85k FSCS protection in case one of the institutions fails. Although you'd probably be covered by the temporary high balance category as it's an inheritance, but it looks like that only lasts 6 months from when the money is paid in.

https://www.fscs.org.uk/what-we-cover/banks-building-societies/

Hooplahooping · 12/09/2023 20:28

AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

That’s probably true in a lot of places - but property is so expensive round here (guildford) I’m not sure we’d get much!

OP posts:
MintyIguana · 12/09/2023 20:34

AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

The high 2nd home stamp duty, regulations, property admin, and income tax would deter me from that.

nc14 · 12/09/2023 20:47

There are a lot of costs involved in a buy to let. The money I received was from the sale of a rental property and I am making as much (if not more) due to the current interest rates with much less hassle.

Icanseeahousementionedfrommywindow · 12/09/2023 20:49

AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

It is taxable income with relief at 20% only. No good for anyone paying higher or high tax rates. (plus it can make you a higher rate tax payer even if on a lower wage)

TheFlis · 12/09/2023 22:05

Plexie · 12/09/2023 20:14

For starters, when you receive the money, I'd split it across different banks/building societies, so that you're covered by the £85k FSCS protection in case one of the institutions fails. Although you'd probably be covered by the temporary high balance category as it's an inheritance, but it looks like that only lasts 6 months from when the money is paid in.

https://www.fscs.org.uk/what-we-cover/banks-building-societies/

NS&I are secured for up to £1m I think? And they currently have a 6.2% account if you lock the money in for a year.

Applesaarenttheonlyfruit · 13/09/2023 23:01

AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

That’s just not true.

WobblyLondoner · 17/09/2023 09:19

AnIndianWoman · 12/09/2023 20:09

I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

I'm sorry but that is such bad advice. There are many threads on here about why BTL is not as straightforward an option as it used to be - and if you do go ahead with it it's ridiculous to suggest it's a short term option 'while you decide'.

OP some really good suggestions here. I was in a similar situation a few years ago and did many of these. I also paid off the small remaining mortgage we had (I overpaid until we were able to pay off without penalty). I also started overpaying into my pension. Without knowing what pension you have it's hard to say more than that - I'm lucky to have a defined benefit pension so I started additional payments that will allow me to take it early. If you have a defined contribution pension you are able to pay in an additional lump sum each year up to a cap, or make additional payments each month.

I think also nice to buy something lovely that you'll remember your uncle buy. We bought a really lovely bookcase that we'd never have been able to afford otherwise.

Good luck with it all.

Packedlunchoftinkywinky · 17/09/2023 09:25

Do you have debts/mortgage? I would pay those off first…

ButterMyParsnip · 17/09/2023 09:51

Is there anything you need to do to update your house? If I had that kind of money and it was unexpected, I'd be getting my whole house decorated and the garden redone.

Hooplahooping · 17/09/2023 12:27

ButterMyParsnip · 17/09/2023 09:51

Is there anything you need to do to update your house? If I had that kind of money and it was unexpected, I'd be getting my whole house decorated and the garden redone.

My husband and I were extremely boring + frugal + made a lucky house purchase decisions on our 20s (bought in Peckham in London just before all the prices rocketed - then sold and moved out) - so we are actually mortgage free, which was something we wanted to achieve before children.

We live in a house that we’ve worked hard to renovate ourselves and, while there are a few things we could upgrade - we’re generally pretty happy.

a holiday budget for a lovely family trip next year for sure. But then I think we’re keen to find some thing to do together. I think we probably need to follow the sensible advice above about investing until such a time as we have an idea we’re excited about and a solid business plan.

fresh out of inspiration currently. Hoping the creative juices start flowing once we’re back in the school year flow and the exhaustion of summer has begun to fade…

OP posts:
BorgQueen · 17/09/2023 12:43

Put as much as you can into your pensions, (or open Sipps) you can put 100% of your earnings in any tax year - if you want low risk investment, a Short term money market fund is better than keeping it in cash.
If retirement is 10+ years away, you can afford to up your risk, if it was me I would drip feed from a STMM into an all world index fund.

The tax relief alone would be 25k if you put in £100k between you.

FallingAutumnLeaf · 17/09/2023 12:58

Given you are mortgage free I suspect you are also debt free, but I would add two possibles to the otherwise excellent list by Clematis - 1) pay off unsecured debt 2) have 6 months spending in an easy access account.

Hooplahooping · 17/09/2023 13:34

I am so grateful to you all for taking the time to share your expertise.

My husband and I have been frugal grafters our whole lives - we’re really good at not spending money. But haven’t known where to start with using it effectively!!

a million thank yous!

OP posts:
sadaboutmycat · 17/09/2023 14:01

AnIndianWoman
I’d probably buy to let until I decide. Rental income will outstrip any amount of growth and interest you might get in investments / savings.

It is taxable income with relief at 20% only. No good for anyone paying higher or high tax rates. (plus it can make you a higher rate tax payer even if on a lower wage)

Added to the fact that there are many responsibilities that come with being a decent landlord. So do consider that too.

messybutfun · 17/09/2023 16:35

BTL with a mortgage at current rates is not viable so unless you can buy a property outright it’s a non-starter.

As already mentioned, if you have no loans and depending on your existing pension provisions, you should first look into maximising pension savings.

YankeeDad · 17/09/2023 17:11

@Hooplahooping the suggestions from @ClematisBlue49 have many advantages, at least in the short term. They give you maximum flexibility while earning a bit of income in a tax-efficient and fee-efficient manner, you can pretty much avoid any meaningful risk of losing money provided you choose short duration gilts, and you could do this pretty much straight away in order to get your money working for you, while you start the process of deciding what to do with the money longer-term, whether to hire an advisor, etc.

If this is money that you would like to use many years into the future, then there are other considerations worth exploring in the coming 6-12 months, and you would probably want to either gain some financial literacy or consult an IFA, or perhaps both. A good IFA could learn about to your specific circumstances in a structured way, present you with a few different options taking those into account, and explain the pros and cons of different options in a simple and understandable way. It is not rocket science, and if any IFA proposes something that sounds complicated, requires locking up your money, or involves high fees then you need a different IFA. My personal view on what is "reasonable" for fees, even for "full service", is that the all-in cost including the IFA fee, the platform (custody) fee and the fund management fee should absolutely be below 2% per year, and I would really rather see below 1.5% and as close as possible to 1% all-in.

Some of those other considerations would include:
-as a PP asked, do you have any debts? you said you are mortgage-free but if you have a car loan or credit card debt it might be worth repaying that first, depending on the terms and conditions (a very low interest car loan might not be worth prepaying).
-do you already have a suitable emergency fund to cover unexpected expenses, and if so, where have you "parked" it and what sort of interest rate are you getting on it?
-might it be worth contributing to a pension plan (could be a SIPP or one attached to your employer)? This would lower your income tax immediately, but on the other hand there would then be restrictions and taxes due in the future when the money comes out in the future, so there are pros and cons to this option.
-do you have any sort of protection/insurance in place for bad things that can happen in life (eg unemployment, illness), for instance through your employer, and if not do you want to explore any of the options for that?
-are there any major purchases you might need to consider (eg car replacement) in the next few years?
-what other sources of income do you expect to have available in retirement?
-conversely, is there anything that costs a bit of money that would bring you genuinely meaningful experiences and genuine joy? Frugality is liberating in many ways, and on balance I think it is a good thing, that leads to less stress and more happiness, but there is such a thing as too much of a good thing.

-if there are no major cash needs in the next 5-7 years, and if the main purpose of the funds is for retirement, then when would you start to draw the money down? If it is quite soon then capital protection is paramount for at least part of the money, but if it is in 7-10 years or more then inflation starts to become the bigger risk. And if you want this money to be drawn down over a longer period of time, then inflation is again probably the bigger risk for every pound that will be withdrawn 10+ years into the future.

These are questions for you to think about with your partner and/or with an IFA. Except for the first one (about paying debts), they can be addressed after you have found a sensible short-term way to park your money, whether it is using the suggestions by @ClematisBlue49 or another way. It certainly does NOT belong in a current account with a single bank!

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