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.

I earn way more from my S&S ISA.

The interest you would earn plus the difference in monthly payment added together?

How can that be true? If the interest rate on your savings is higher than your mortgage rate, you can earn more interest than you'd save by paying the same amount off your mortgage?

That would be unusual but OK if the interest rate was more it would have to be more monthly than the amount OP was saving monthly on her mortgage payment. Also remembering than many but not all savings accounts, incur tax on interest accrued.

I would stick it in an ISA or a bank account that pays a decent interest rate. I have money in an Aton bank account at 4.75%, no risk and the interest gets added on at the end of the term,

Haven't rtft but have you looked at Premium Bonds? We've made 6/7% on ours in the past year and the money's accessible if needed. We have it set to reinvest the winnings.

When we retired and we had a windfall, I looked for security and little risk so put my money in building society ISAs. There is a trade-off between safety and security versus high risk investments and interest rates. You could do a bit of both, for fun. Dont lend to relatives and friends. It can turn unpleasant if they decide they can't or won't repay. Good luck.

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Are you and your partner under 40? If so and you’re happy to tie up some of the funds until you’re 60 then investing some of it in a lifetime ISA would be a good choice. The govt adds 25% to anything you put in. You can invest up to £4k per year. So you and your partner could put £2k in each and the govt would add £500 to each lifetime ISA. It can be either a cash or stocks & shares isa.

With the remaining £8k I would split it between a cash ISA (say £3k) and a stocks and shares ISA for the remaining £5k. Then you have some ‘safe’ and some where you have the potential to earn more. Hargreaves Landsdown as you’re already with them offers easy funds to invest in and enables you to balance the risk by for example putting 60% in their ‘balanced managed’ fund, 30% in their ‘moderately adventurous managed’ and 10% in their ‘adventurous managed’ fund. Which gives some growth potential but most of the money is in lower risk investments.

Keep your finances very separate from your sister, your mother and Ann other family members. Focus on your children

Not worth a financial advisor fees for so little investment.

I think RebelMoney do accessible teaching about investment. I keep meaning to access this myself.

I'm a retired financial adviser, so in that context could I add a few thoughts?

Paying off a mortgage is a great way to save on your interest costs , towards building wealth in the future. I agree with others that helping your family is not a safe or good option.

If you're risk averse, the markets, unadvised ( that's without professional advice on fund choice and platform choice) aren't a good option.

You actually need to develop a long term financial plan, and there are tools out there you can use, eg Dave Ramseys money makeover book.

Hargreaves landsdown have an active savings account allowing access to high interest Paying accounts, which short term would be a good,low risk home for your money.

I hope that helps.

Not at all but it depends the advisor I guess. I wouldn’t go see a wealth manager 👍🏼

This is total nonsense.

https://www.moneysavingexpert.com/mortgages/mortgages-vs-savings/

Totally agree.

You absolutely don't need professional advice to invest 12k in stocks and shares.

I think many people don't understand that we're not talking about choosing individual stocks/day trading here.

There are various tools you can use to choose funds and adjust for your level of risk.

www.vanguardinvestor.co.uk/what-we-offer/index-active-products?s_kwcid=AL!11156!3!750601334598!b!!g!!vanguard%20500%20index%20fund&gad_source=1&gad_campaignid=22514725425&gbraid=0AAAAADylRKq8Ao6smBOB16TK20zkP5CHY&gclid=Cj0KCQjw-NfDBhDyARIsAD-ILeAy28_G8kqDsfzr2_EbMpQt8L9WExMZbotmIoFogBGoW3U-UyqywFEaAmQYEALw_wcB&gclsrc=aw.ds

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.

That’s interesting OP. Why do you feel your sister or mum should benefit from your hard work above you, your husband and your kids? IMO you don’t have enough to be handing out money to others, look after yourself first.

A golden rule in investing is to simply leave your investment alone, if you've chosen your fund sensibly your valuation may go up and down but in the longer term the movement is always up.
Realistically timing doesn't matter, it makes such a small difference in the long term that it has no real impact. Keeping your money invested means that your profit (be it capital gain or income accrued) will be reinvested, increasing your capital in the way that compound interest does.

I agree with that, I was just commenting on why the PP who invested in 2023 might have done particularly well.

I came into some money in spring 2020 which I invested which has done similarly well.

But yes I agree with the general approach

Yes that might be true (depending on your mortgage interest rate) but there is the disadvantage that the money is no longer accessible except by extending your mortgage again!
£12k isn't a great deal OP, I think you need to keep it closer to home. Don't lend to family - it's not a life changing amount and you could have trouble getting it back, or getting it back at a time when you need it.
S&S ISA if you think you won't need it for 6+ years or a higher rate Cash ISA if you think you might need it sooner. You can easily beat your current rate.

You do realise 12k is not a lot

Not strictly true, it's unlikely, but you could have a Deed of Trust drawn up, and the bank would still hold the first legal charge over the property.

Your Deed of Trust would be a secondary charge. The risk with secondary charges is that if something goes wrong, the primary lender, The Bank, gets paid first, and you’d be second in line to recoup any funds.

I had something very similar to my first house. The cost of lawyers would take a considerable chunk of the money you'd be able to invest, and not all banks would allow this, which could push up interest rates on your sister's borrowing.

I'd look at one of the best high intrest accounts you can go for, or an ISA. Money and family rarely mix well.

Yep, I actually use some of my interest to pay off chunks of my mortgage too. In the last year my ISA has grown by 14% and my mortgage is 1.2%.

Glad to see some previous posters recommending Rebel Finance School to you OP. It’s a free course on YouTube, run by Katie and Alan Donegan who were recently awarded medals from the Royal Family for their services to financial education. Check out their website to get started or go straight to Week One of the course on YouTube. They start with the absolute basics and you’ll learn so much! No hidden agenda, no sales pitch, just free (and fun) teachings about managing your money and how to start investing. I did the course last year and am watching the new one this year (they redo the course each year to keep it up to date). Good luck and enjoy!

In your situation, I would probably put 10k in a high interest Cash ISA - use this as an additional easy access savings buffer/rainy day money, and put the remaining 2k in an S&S ISA to get you started on investing, and add to this when you feel more comfortable.

For the S&S ISA, use a low-cost platform (examples: Trading212, Dodl, IWeb, Vanguard) and invest in a global index fund (mutual funds or ETF's are fine) such as VWRP (Vanguard FTSE All-World) or HSBC FTSE All World Index. These effectively track the global economy, which has trended upwards over the last 100+ years.

The stock market is like someone playing with a yo-yo whilst riding the up escalator. The secret is to focus on the escalator and not the yo-yo.

Absolutely do not give to your mother or sister. It’s 12k not 12m!
your financial responsibilities are to your children, not adults that should be sorting their own finances.
I’d put in a ss isa.