Moral dilemma - investing £12k

[Blueowlnight]

Me and my partner have worked hard and saved up about £12k. We have no debt, other than a mortgage (£215k over 20 yrs). We have a rainy day fund. We both work in public sector and earn a modest income each (we’re both well within the 20% tax bracket!).

We’d like to invest the money some way to make it work for us and help us and our two small children in the future. Investing scares me a little, I don’t understand it and don’t like risk.

Recently, both my little sister and my mum are looking to buy a house. My sister is buying her first home, my mum wants to downsize and become mortgage free (though she said this 18months ago and bought a home she couldn’t afford). I feel like I have an opportunity to help someone here and maybe grow our money?

What would you do? Help my sister and ask for a % of the sale (we could contribute to their mortgage?!)? Help my mum, but risk not getting any return for a long time as she’s not planning on moving again? Just pay off our own mortgage?! Or any other ideas?!

I know we’re very privileged to be in this position, I don’t want to squander it, and also we’d really like to help without risk of losing money.

You can’t invest in your sisters house, the bank won’t let anyone else have a ‘charge’ on the house.

I would put it in a sensible stocks platform like nutmeg or vanguard

Investing comes with the risk of losing money. Lending money to family comes with the risk of losing money and your relationship.

Keep the 2 separate.

If you’ve got a mortgage of £200k and no other savings other than your emergency fund I don’t think you’ve got enough to be helping others. Look after yourselves and your DCs and pay it into your mortgage, then start a long term ISA and start saving into that for long term savings.

I’d be paying off part of your own mortgage. You’ll end up saving money by not paying interest.

How much is in your rainy day fund? Ideally that should be 6-12 months of income so £12k isn’t a big nest egg on top of that.

I definitely wouldn’t loan to family. You’d only see a return on investment if they sold their house, otherwise you’re potentially asking them to pay back returns that they’d be holding as an asset, not cash. Could they even afford to do that? Have you thought about how they’d pay you back with interest, and what if you needed the money back when it wasn’t convenient for them?

I think cash/stocks and shares savings is the way to go and keep the money fairly accessible for your family. In a way it’s riskier to not invest because inflation can erode cash savings. You could pick a moderate risk fund - usually platforms will ask your attitude to risk and give you options.

I’m embarrassed by how I little I understand S&S. I have a Hargreaves and Lansdown JISA for each child where we put their child ben and have been putting that partly into a balanced managed fund and then recently changed to hsbc global index fund. But I don’t really understand if that’s sensible. Would this be a sensible approach for our money? And I think HL is more expensive for standard isa, so is there a more reasonable platform?

At the moment, our money is just in an isa but the rate has dropped to 2.84% over recent months (from
around 4%)

I don’t come from a well financed background. We’ve never had money, so investing is not in my story. It feels wrong to me to know both my sister and my mum could benefit from the money I have in savings, but I do understand the advice here about keeping it separate.

S&S ISAs can be very simple, however there is always risk, but then again keeping money in a Cash ISA means it will likely be eroded over time as a result of inflation. I'd guess that most people with a work defined contribution pension don't worry too much about how its invested (although maybe more people should!).

If you investing for the long term, by that I mean 10 years + then a global index tracker inside a S&S ISA wrapper is something worth looking at. Its what I have my S&S invested in.

You need to decide what platform, what wrapper and then what investment. The good news is that there are multiple platforms available to you that are pretty easy to use and are low cost.

I have mine in Trading 212, however Invest Engine is also a good option. Invest engine is ETF index funds only, which if you want to but individual company shares then it wouldn't be suitable, however the fact they only sell ETFs can be a positive if you are someone that could be tempted to but shares as a result of hearing things in the media (which I admit I have been guilty of).

You always want to make sure it's in a S&S ISA to protect your gains from tax. Trading 212 also have a cash ISA which will likely pay a better rate than your current Cash ISA.

In terms of global index funds there are a few options, Vanguard, Invesco are two of the popular ones with the tickers VWRP and FWRG. Both are low cost global ETFs.

I read somewhere the other day that less than 15% of adults in the UK have a S&S ISA which shocked me.

At the moment, our money is just in an isa but the rate has dropped to 2.84% over recent months (from around 4%)

At least transfer it to a higher interest ISA.

With family I think as others have said it’s can change relationships if it is a loan. If that is what you want to do then I would be thinking of it as a gift.
In your position I think you are able to make yourselves more stable which is lovely, but not enough to gift money to family. But the stability may help you support them in other ways - go out for meals, pay for a cleaner for your mum for a few months when she moves home as a house warming etc.

I really wouldn't give it to your sister or your mum.

It would be different if you were rolling in it but you don't have loads of cash here

It is also not just yours, it's your partner's too and if your family then don't pay you back, your partner is likely to be more frustrated about that than you are.

I would put it a S&S ISA - even over this last year which has been quite turbulent, mine has returned me 8%. I invest in a range of Vanguard funds - what you want depends on how long you plan to invest for but if you want something for the long term, something like the FTSE Global All Cap Accumulation. The vanguard site has lots of articles you can read to get started

Don't mix family and profit.

If you are worried about ethics, look at community renewable energy projects. Energy 4 All or Abundance. Good returns and you're helping to save the planet.

The other thing on the relationship front to consider is that it sounds like you and your DP have worked really hard to save this amount of money.

Are your mum and your sister equally responsible, just unlucky? Or are they just not great with money? Your mum especially has had a lot longer than you to make sensible decisions and save her own money. If you give them your savings and then they don't behave responsibly with it, what would that do to your relationship? You love them as they're your family so maybe you would be fine with it but would your partner?

Can you tie up the money for at least 5 years? Are you happy just to stick it away and not worry about the ups and downs of the stock market?

If so, I would suggest a S&S isa with the money invested in a global tracker. Which platform will be best for you depends on your circs but trading212 is a popular one for smaller investors.

Open a S&S ISA and take the same approach as with your junior ISA,

You might want to research how much university costs now so you are not one of the hundreds on uni FB pages saying I didn't realise the loan didn't cover costs. Putting money in an ISA or something better could be used to save for that for your children or a car or home deposit for them.

If your mortgage is say 5% and youre investments may only yield say 3% it would seem safer to me to just pay off a bit of mortgage.

I would plough all my money into that and get shot of it early rather than start saving schemes etc. Use one of the pay off early calculators and see what it says paying that £12k would mean in years off your repayments. Then once you have that info consider if it’s right for you.

Investing is for long term. Minimum 5 years, preferably more. Is the£12,000 the total of your savings? If so I would not invest all of it, keep some in cash that is easy to access as an emergency fund. You never know when you are going to need an emergency fund.

Thank you all for your really helpful thoughts and suggestions, and for walking me through it. It looks like maybe a stocks and shares isa for at least some of it, trading212 seems popular, with a global index tracker fund?!

thank you all x

That’s the answer you took from this thread?

Go look at your annual mortgage statement when it tells you how much interest you are paying per month.

I may be over-cautious, but £12K is not really a lot. With S&S there’s a risk, of course.

In your shoes I would stick with the highest rate cash ISA you can find to keep your savings safe, and keep on saving and diversify your portfolio later on. You can now open cash ISAs and shift your money (do it properly) whenever you like, so there’s really no need to be on such a low rate.

Absolutely do not lend to family unless you can afford to lose it. It will not end well.

Unless she has an extremely poor mortgage deal, a S&S ISA will be a much better return over time.

Even my cash ISA rate is higher than my mortgage (not by a lot but still)

My kids' junior S&S ISAs have doubled in value since 2023. There is a risk but there's also a risk just letting cash sit and get eroded by inflation.

Risk is a very personal thing but in the context where the OP already has an emergency fund in cash, she and her DP have public sector roles and therefore public sector pensions (i.e. not invested in S&S that way already), investing in a global tracker fund is really not a super high risk scary choice.

Yes S&S can go down as well as up but as long as you know when you will want the money and withdraw well in advance of that, I.e. understand that it is a long term investment, there's no need to be scared of it.

I have had S&S ISAs since 2006 and every single year of that have made more than 5% - often substantially more.

Yes exactly - S&S can go down but by and large cash savings are definitely going down and some years the S&S returns can be enormous so if you're invested for 10+ years, you make a lot over time.

No, don't lend your sister money. Lending money to friends and family rarely works out well.